From the Advocate
From the AdvocateMay 2024
Why California’s Economy Needs SCALE
Success, Capital Access and Leadership for Entrepreneurs
Did you know that there are 4.1 million small businesses in California? Our small businesses provide half, half, of all private sector jobs in this state and 2/3 of net new jobs. And did you know that 47 percent of those businesses are owned and operated by people of color? That makes California home to the largest and most diverse small business community in the country.
If you read this column regularly, then you know that already.
But it always bears repeating how very unique California is and why we have a responsibility to provide a business environment that will help all those small business-owners to thrive.
That is why California has invested in building the largest and most robust small business support network in the country, including the Small Business Development Centers, the Women’s Business Centers and the Apex Accelerators and the Veterans Business Outreach Centers and also non-profit business support organizations across the state.
And yet…and yet.
Even in California, Black and brown-owned businesses are still denied capital at disproportionate rates, and too frequently in scenarios that cannot be explained by credit history or other lending risk factors.
BIPOC-owned businesses receive less business financing, less often and at higher rates.
Banks subject BIPOC-owned businesses to more scrutiny than they do white business owners.
That’s part of why – of those 47 percent of the state’s small business-owners who are people of color – the overwhelming majority across all racial and ethnic groups are non-employer firms.
And studies show that this same pattern applies to women, LGBTQ+ business-owners, disabled business-owners, rural business-owners and many other groups who are subject to institutional discrimination.
The federal government refers to people from these groups as “Socially and Economically Disadvantaged Individuals”.
I call them California’s underinvested business-owners.
Fortunately, we have some new tools to help my office Democratize Access to Capital, a goal I consider one of the imperatives of my office.
California has received U.S. Treasury funding, $25.3 million, to stand up a new program that my office just launched this month. The administrative name is “Technical Assistance for Capital Readiness”.
The name I want you to remember is SCALE: Success, Capital Access and Leadership for Entrepreneurs.
That’s what California needs.
As I mentioned, 47 percent of the official jobs engine of the state is created, owned and operated by people of color.
But the overwhelming majority of those diverse businesses – including Hispanics, African-Americans, Asians and Native Americans – are run by sole proprietors (non-employer firms) or with 1 or 2 employees. All that economic activity carried on the backs of single individuals who, for obvious reasons, are usually too busy working in the business to work on the business…and grow it.
Economic developers often talk about business starts, we like to count how many businesses we help to launch. Nothing wrong with that.
But I think the bigger opportunity – in pursuit of job growth, economic impact and economic justice — is in helping existing businesses to scale.
If just 10% of the existing businesses owned by people of color were to scale to 5 employees, this would add 660,000 jobs in California.
If half of them got to 5 employees, it would add 3.3 million jobs. Total job numbers vary from month to month, but we’re talking about a jump of roughly 18 percent in total jobs by helping existing business-owners of color do better.
Our new SCALE network is designed to do just that.
More than two-thirds of small business-owners report that they will seek capital over the next 12 months, but many don’t think they understand all the available options. And we already have established that diverse business-owners must work harder to gain the same lending and equity opportunities as their peers.
SCALE Capital Coaches can help level that playing field by helping you:
- Learn about the lending process and requirements from business advisors invested in your success
- Build your legal, accounting, and financial management skills and tell a better business story
- Take advantage of state-backed capital programs designed to improve your risk profile
- Gain confidence in telling the story of your business and projecting its path to success
The new network also includes capital providers and community organizations specialized in getting the word out to people who are too used to hearing “No” when they talk to lenders or investors.
Collectively, this federal funding is an opportunity for California to more effectively break down those barriers to capital.
It’s an opportunity to change the mindset of the financial industry so we worry less about the risk scorecard of any given deal and more about opportunity cost, the opportunity lost when we fail to unlock the human and economic potential of everyone.
It’s an opportunity to think less of the 3 C’s and little more FOMO when it comes to BIPOC-owed businesses.
It’s an opportunity for California’s small business-owners to SCALE and contribute even more than they already do to the California economy…and the California Dream.
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