The wealth gap in the U.S. is as clear as black and white: the average African American household has a net worth of $5,677 compared with $113,150 for the average white household, according to the Pew Research Center.
Helping more African Americans become entrepreneurs can narrow that wealth gap, because owning a business is one of the best ways to build wealth. That's why the Senate Small Business & Entrepreneurship Committee held its third roundtable on the wealth gap today, in conjunction with the annual legislative conference of the Congressional Black Caucus Foundation.
On hand were black entrepreneurs, capital providers, business association leaders and government officials. Lots of ideas were discussed on how to help entrepreneurs close the wealth gap between white and black America. Here are five of them:
Convince Americans that closing the wealth gap is good for everyone
Helping more African Americans succeed in business shouldn't be viewed as "a form of charity," said Atlanta Mayor Kasim Reed, whose city has become a Mecca for minority-owned businesses. Instead, the growth of black entrepreneurship benefits the economy as a whole because of the jobs that are created.
"Doing this is good for everyone," said Marc Morial, president of the National Urban League.
About 2 million of America's estimated 26 million small businesses are owned by African Americans. But only 100,000 of these black businesses have employees, said Marie Johns, deputy administrator of the Small Business Administration.
Think of the impact of encouraging these businesses to grow, said Ron Busby, president of the U.S. Black Chamber Inc. If every black-owned business added just one employee, that would create 2 million additional jobs in the U.S.
Strengthen minority contracting programs
Atlanta didn't develop such a strong African American middle class by accident. It was a result of policies put in place 40 years ago to award at least 25 percent of city contracts to women and minorities, Reed said.
This enabled black-owned businesses to become successful through government contracting and then migrate to private-sector work, Reed said. Atlanta-based companies, such as Coca-Cola, saw the positive impact that minority contracting programs had on the city and established strong supplier diversity programs of their own, Morial noted.
This success resulted from a "deliberate policy intervention" by the city of Atlanta, he said.
The federal government needs to strengthen its own minority contracting programs, Reed said. For example, it should raise the net worth limit for owners of businesses in the 8(a) program, which provides contracting preferences to minority-owned businesses. The current net worth limit is $1.5 million. That's too low if the goal of the program is to build businesses that will grow to be strong enough to survive on their own, Reed said. Under current rules, revenue for 8(a) firms drops by an average of 50 percent during the year after they leave the program, he said.
Danny Boston, a Georgia Tech economics professor and CEO of EuQuant, an economic research firm, suggests that 8(a) firms be given a transition period of about two years after the owner hits the net worth limit in order to prepare for the move to private-sector work.
Increase African Americans' access to capital
Access to capital is particularly important for African American entrepreneurs, because the lack of household wealth in the black community makes it harder for them to invest their own money in a startup or obtain funding from family members and friends. Plus, you need assets in order to have collateral for a bank loan.
"At the end of the day training is great, but you need capital," said Bill Bynum, CEO of HOPE Enterprise Corp./HOPE Credit Union.
Lots of efforts are being made to improve the flow of capital to African-American businesses, with varying degrees of success.
The SBA has opened its lending programs to community development financial institutions, which serve lower-income communities. It also has increased the number of minority-owned venture capital firms that participate in its Small Business Investment Companies program, which Johns said should result in more SBIC investments in minority-owned businesses.
But many African Americans who are interested in starting their own businesses don't have much of a credit history, so they don't a have a chance at getting an SBA loan, much less an SBIC investment.
"The programs that SBA has aren't reaching our community," Busby said.
Instead, African Americans tend to turn to their churches and chambers of commerce, he said, which is why his organization is starting a business lending program.
Johns agreed the SBA needs to do a better job serving minority-owned businesses, but she noted the agency is forming partnerships of its own with chambers and "faith communities," which can be "powerful conduits" for getting credit to members of minority groups.
Provide more mentoring to black entrepreneurs
The potential for black entrepreneurship is strong because young African Americans tend to be "more entrepreneurial" than previous generations, said James Llorens, chancellor of Southern University and A&M College.
That's certainly the case with Bridgeja' Baker, the 14-year-old owner of Creative Jewelry in New Orleans. She started her business when she was only 10 and recently received the Outstanding Minority-Owned Small Business Award from SCORE. Baker had help, though. A mentor from SCORE advised her on how to find places to sell her jewelry, and she also got assistance from Idea Village, a nonprofit organization in New Orleans that supports entrepreneurs.
"Small businesses need to have a good support system through their community," said Baker, who is believed to be the youngest witness in the Senate Small Business Committee's history.
The SBA provides $7 million in funding to SCORE, which that organization leverages into many millions of dollars' worth of business counseling from volunteers with business experience. Landrieu said Congress should increase SCORE's budget so it can provide even more help, and she thinks state and local governments should increase support for business mentoring programs as well.
Many other organizations, with the support of private-sector businesses, also are increasing their mentorship programs. Morial said the National Urban League is creating 10 entrepreneurship centers around the country, and helped 6,300 small businesses in Atlanta and New Orleans this year.
Support the role historically black colleges play in wealth creation
At least 17 historically black colleges have SBA-supported Small Business Development Centers, which provide counseling and training to entrepreneurs. More than 25 offer entrepreneurship classes or programs, said Lezlie Baskerville, president and CEO of the National Association for Equal Opportunity in Education. Some, including Southern University, have established business incubators.
Federal support for for historically black colleges has been declining in recent years, however, and that trend needs to be reversed, she said.
Historically black colleges are important not only for the business training they provide, but also because of their role in educating scientists, health professionals and teachers.
For example, from 1996 through 2005, historically black colleges accounted for seven of the top 10 institutions that awarded life and medical sciences degrees to black women, and nine of the top 10 institutions that awarded life and medical sciences degrees to black men. In 2006, 18 percent of all African Americans with Ph.Ds in life sciences received their bachelor's degrees from historically black colleges, Baskerville noted.
Historically black colleges also tend to be located where the need for entrepreneurship is the greatest -- in predominately low-income African American communities, Llorens said. They "offer a valuable resource in any strategic initiative aimed at closing the wealth gap," he said.