The racial gap in business ownership is troubling on a number of fronts; discrimination is costing the U.S. as many as 9 million jobs, and up to $300 billion worth of income. 

That's according to the Center for Global Policy Solutions, a social change nonprofit based in Washington, D.C. On Wednesday, the Center released a report, "The Color of Entrepreneurship: Why the Racial Gap Among Firms Costs the U.S. Billions," based on U.S. Census Bureau data on the number of minority-owned businesses in 2007 and 2012.

Although the number of minority-owned businesses has increased (there are now 2.6 million firms owned by African Americans, compared to 1.9 million in 2007, for instance), the report highlights that discrimination has led to the foregoing of over 1 million new companies owned by people of color, which would translate to 9 million jobs, and $300 billion.

The report coincides with the 2016 Color of Wealth Summit at the Capitol, an event that will bring together prominent entrepreneurs and policymakers on Thursday to discuss the racial wealth gap, including a keynote by U.S. Senator Elizabeth Warren.

"Our task will not be complete until we ensure that every family--regardless of race--has a fighting chance to build an economic future for themselves. We need less talk and more action about reducing unemployment, ending wage stagnation and closing the income gap between white and nonwhite workers," Warren said in a speech last year, addressing racial discrimination in the U.S.

This gap is evidently alive and well. In 2012, white men's firms made up more than 57 percent of all privately held companies, though white men make up just 40.5 percent of the U.S. labor force. Meanwhile, those companies also had the highest annual sales, according to the Census Bureau. On the 2015 Inc. 5000 list, which is based on three-year revenue growth for privately-held companies, African Americans headed up just 86 companies, or 2 percent of the overall list.

There are a number of factors preventing minority business owners from achieving the same growth as white men. Researchers with the American Economic Association have found evidence of discrimination against entrepreneurs of color in obtaining credit; the average credit score for a minority-owned business is 49.7, nearly five points lower than the overall small business population, according to a study from Experian.

Similarly, a survey published last year by Wells Fargo & Co. and Gallup finds that minority business owners face obstacles in obtaining loans: 23 percent of Asian owners, 20 percent of Black owners, and 19 percent of Hispanic owners have been rejected for loans, compared to 14 percent of business owners overall.

The Global Policy report has a few silver linings: Asian American women, for instance, saw nearly 40 percent company growth between 2007 and 2012. Overall, the strongest growth came from Latino men (7.2 percent), followed by African American men (3.9 percent.)

To help close the racial gap in entrepreneurship, which is closely tied to income inequality more generally, the organization recommends pushing local policymakers to provide a tax credit to promote VC investments in minority businesses, and to add entrepreneurship classes as part of elementary and high-school curricula.

Another helpful resource is the Small Business Administration's 8(a) business development program, which provides select minority entrepreneurs with counseling, training, and management and technical guidance, along with government contracting opportunities.

Published on: Apr 21, 2016