Black- and Latinx-owned small businesses and liquid wealth

Small business ownership is commonly thought to not only be a vehicle for financial stability and wealth building, but also a way to close the racial wealth gap. Small businesses are known to be a key component of the small business owner’s financial wellbeing (Gentry and Hubbard 2004), but it is not at all clear from current evidence that small business ownership alone closes the wealth gap. In fact, recent studies have shown that Black- and Latinx-owned small businesses have lower revenues, profit, and cash margins (Farrell, Wheat, and Mac 2020; Fairlie and Robb 2008); are more likely to close and have fewer employees (Fairlie and Robb 2008); and have less access to credit (Federal Reserve System 2017) than White-owned small businesses. Sufficient revenues and profit, the ability to hire employees, and access to credit are some key components of a wealth-generating small business, and racial disparities among these suggest that small business ownership may not close the gap.

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