How to build a more inclusive L.A. County through small businesses

From the COVID-19 pandemic to a resulting economic recession to widespread protests calling for racial justice, we have faced challenges that altered our lives and shone a light into the country’s significant inequities. 

During this crisis, Los Angeles County has been at the forefront of a conversation about the intersectionality between racial equity and economic opportunity.

Home to one of the world’s most dynamic economies, L.A. County has been a beacon of the American dream. With nearly 10 million residents speaking over 110 different languages, the county is a hub of culture and commerce that fosters the region’s rich diversity and economic vitality. 

Fueling this dynamism is a vibrant small business community, with more than 250,000 local small businesses and nearly 1.1 million sole proprietors. These businesses account for 43% of the local workforce and make L.A. County the country’s largest small business economy.

However, for many entrepreneurs, the City of Dreams has come to represent a collection of dreams deferred.

As L.A. County navigates the pandemic, entrepreneurs of color have faced barriers that impede their sustainability and growth. A new report published at Next Street in partnership with Common Future and with financial support from JPMorgan Chase, found that Latinx, Black and Asian Angelenos confront significant disparities in small business ownership, revenue and employment compared to their white counterparts. 

Specifically, Latinx and Black residents only own 11% and 2% of small businesses, despite representing 49% and 8% of L.A. County’s population, respectively. Business owners of color are also overrepresented in deeply and immediately impacted industries during the pandemic.

A contributor to this inequity is a historic, unmet annual demand of approximately $60 billion in capital for small businesses. This gap is pronounced in the county’s Black and Latinx neighborhoods, such as in communities in South and Central L.A.

Underlying these disparities are structural issues that stem from systemic racism, including barriers to capital and the residential segregation that prevent people of color from building wealth through business ownership. While these issues have a history in L.A. County, COVID-19 has exposed and exacerbated the region’s often-overlooked systematic challenges.

As we plan our recovery, we must act now to implement measures to level the playing field for businesses of colors. We have an opportunity to provide business owners of color with the capital, services and opportunities they need to generate wealth and strengthen communities.

As the report outlines, we engaged with stakeholders and business owners to inform four critical steps that the county can take to build an economy that works for everyone:

1. Ecosystem Building and Collaboration: The county must develop networks of business services and capital providers to promote improved outcomes and policies favorable to small business owners of color. This includes establishing coordinating bodies and public-private partnerships with equitable representation across the county.
2. Sustainability and Resilience: Businesses need refined services and funds to recover from the pandemic and build resilience in the face of an economic downturn. What we’re experiencing today may be the new normal, and these programs and tools will prepare small businesses against future crises.
3. Equitable Avenues for Growth: The county needs to reconfigure growth-oriented business services and expand access to business networks to support entrepreneurs throughout their various stages of growth. This includes fostering peer-to-peer networking among small business owners of color so that they can share best practices.
4. Continuum of Capital: Access to free and low-cost, flexible capital should be increased to finance and strengthen businesses and responsible capital providers. This can be done by establishing mechanisms that streamline borrower experiences and improving access to existing capital opportunities.

Businesses of color have faced barriers that prevent them from growing and becoming financial and cultural anchors within their communities. COVID-19 has shown that an economy designed around these inequities is unsustainable. Through collective action and a commitment to systematic change, L.A. County can build a small business economy for all.