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Diversity Blog

2023 Economic Volatility in the US and the Effect on Women-Owned and Minority-Owned Small Businesses

2023 Economic Volatility in the US and the Effect on Women-Owned and Minority-Owned Small Businesses

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By Marion Davis

Necessity is the mother of all invention, and with the need for the world to adapt during COVID came great innovation.

Many women-owned and minority-owned small businesses benefited from support programs and resources made available during the pandemic and after well-publicized instances of police brutality against Black men which sparked a national focus on social justice. 

With support such as grants for small businesses, business founders produced significant revenue and offered much-needed jobs in the US. Additionally, with women and minorities growing in numbers as executives at their own firms, representation at the top offered a greater chance of equity for women and minority employees within the organization.

However, as with many other aspects of diversity, equity, and inclusion (DEI), newly-formed small businesses that were slowly addressing historical wealth gaps have been most vulnerable to the volatility of the US economy this year. 

How Resources Offered During the Pandemic and Social Justice Movements Bolstered Equity in Small Business Creation and Growth

With the onset of the pandemic, soon paired with the social justice movements prevalent in the news following the murder of George Floyd, government and corporate organizations made public commitments to support women-owned and minority-owned businesses. Celebrities like Beyoncé began offering grants for small businesses back in 2020 to provide assistance during the pandemic for Black-owned businesses.

With the support that helped bridge gender and racial wealth gaps, small business owners showcased their potential to move toward gender and racial parity through entrepreneurship as well as create job opportunities for more women and minority employees.

Small Business Creation and Growth

In the US, the number of women entrepreneurs leading startups increased dramatically from 28 percent in 2019 to 49 percent in 2021

Black-owned businesses were already on an upward trend before the pandemic hit, growing by 13.64 percent from 2017 to 2020. During COVID, Black-owned businesses had the most pronounced growth in comparison to other racial groups as far as revenue, employee count, and payroll. 

Much of this progress regarding equity is marked as stemming from COVID and social justice-related initiatives to address gaps in business ownership due to systemic discrimination and oppression. With more funding options such as grants for small businesses, women-owned and Black-owned businesses experienced significant growth and contributed positively to the US economy.    

Gender and Racial Wealth Gaps

Despite Black-owned businesses growing in leaps and bounds, representation is still only at approximately three percent of all US-based firms. Even at the current rate of growth, the Brookings Institution estimates a timeline of 256 years for Black-owned businesses to reach parity.

Likewise, many economists discuss the gender pay difference of women making $0.83 to a man's $1.00. However, this current snapshot does not show the entirety of the problem. After all, it was only in 1974 that women in the US were legally allowed to open bank accounts and apply for credit without a man’s permission. Compared to the gender pay difference, there is a much larger gender wealth gap of $0.32 in women-owned assets to $1,00 in men-owned assets. Shockingly, looking at intersectionality, Black and Hispanic women own only $0.01 in assets to a white man’s $1.00.  

Small business ownership has been noted to correlate with upward economic mobility and is crucial for gender and racial parity as well as the regrowth of the middle class in the US.

The Volatility of the US Economy and the Vulnerability of Women-Owned and Minority-Owned Small Businesses 

Despite the great advances made in the past couple of years, 2023 proves to be a concerning year. 

The last in, first out (LIFO) approach in hiring and DEI efforts resulted in disproportionately higher layoffs of women and ethnoracial minorities in Big Tech. Similarly, young small businesses owned by women and minorities are vulnerable currently to the economic volatility of this year as these businesses tend to have a more limited cash flow with less time in business. 

On the top of the list of many current concerns by small business owners are inflation, revenue, and rising interest rates

Already, the 2023 banking crisis has made it harder to access funding with banks creating stricter standards for loans. This difficulty in access through banks can often drive small business owners into the arms of predatory lenders. One common pitfall for small businesses is taking on debt in the form of merchant cash advances where the APR is not clearly expressed. This leads to business debt that begins mounting quickly as the small business owner did not realize how much interest would be charged.

At the same time that banks are creating stricter standards for loans, consumers are tightening their belts and reducing spending as they observe discussions on the debt ceiling decisions and wonder what the long-term impact will be. The idea initially that the government could default slowed the economy, and the realization now is dawning that cost-cutting measures could eliminate all hope of additional student loan payment pauses as well as affect other support programs and measures that were previously benefitting the US population and economy.

Consumers’ feelings on whether the US economy is stable largely influence their willingness to spend, and if they are unwilling to spend, then small businesses are heavily impacted–especially newly-formed small businesses with less starting capital and more limited cash flow to help them weather the storm. This creates a cascade of events as less spending by consumers translates to less demonstrable revenue by small businesses which translates to less ability to access capital.  

With the banking crisis earlier this year, small businesses have been hit yet again by the current discussions on the debt ceiling. In the past, the US has always raised the debt ceiling in time, but there was great uncertainty about whether legislators would come to an agreement in this instance. 

Currently, the general public is waiting to see which societal support programs will be cut or have burdensome restrictions enforced. With so much uncertainty and fear in the general public over government decisions, the economy has taken a nosedive. 

While small business owners of all backgrounds are currently attempting to cut costs to stay afloat in poor conditions, women-owned and minority-owned businesses are more susceptible to changes in the economy. 

What Can Be Done for Women-Owned and Minority-Owned Small Businesses in 2023?

Small businesses are a valuable asset to the US economy and integral to progress in addressing gender and racial wealth gaps.

During the pandemic, the government recognized that an unprecedented event was taking place and emphasized emergency support by offering grants for small businesses. Likewise, many non-profit organizations specifically started increasing financing amounts and options for women-owned and minority-owned small businesses.

With a perceived lull in the pandemic and President Biden’s recent ending of the COVID national emergency, the US economy is struggling to stabilize. 

The world saw COVID for it was: an unprecedented event.

However, while journalists toss about the similar phrase of an unprecedented event to describe the 2023 banking crisis and then the potential for the debt ceiling to not be raised, the same resources that were available for the COVID emergency are not likewise available for this year’s economic emergencies.

To increase parity, the government must again recognize that economic emergencies are taking place and set up scaffolding to support women-owned and minority-owned small businesses consistently into the foreseeable future.

A 2023 Forbes article reviewed the need for the US government to invest back into small businesses and create and enforce infrastructure to support these businesses. For instance, with the banking crisis blocking access to funding, many small businesses are turning to venture capitalists. Women-owned businesses especially are facing difficulty accessing capital in this male-dominant field. If the government were to offer financial subsidies to incentivize venture capitalists to provide greater access to more funds for women-owned businesses, such a step could help bridge the gender gap in funding. Another potential step could be creating regulations for merchant cash advances. As these cash advances are not considered to be loans, there is little regulation currently in existence to place a cap on how much interest can be charged.

Final Thoughts

The pandemic proved that more capital funneled into women-owned and minority-owned small businesses in the US helped address gender and racial wealth gaps and increase the number of jobs available. However, the impact of the current economic emergencies of 2023 has been mostly overlooked in government initiatives and the corporate commitment to promote social justice has fizzled out. The gender wealth gap must be addressed through the availability of more financing and grants for small businesses, and the racial wealth gap likewise needs significant support to reach a point of parity. Small business initiatives set forth by the US government need to meet business owners where they are in order to address financing gaps.