My experience and understanding of small businesses runs deep. My mom has been a small business owner for more than 25 years. As a nonprofit developer, I run, in effect, a small business. And by working to build the presence of small businesses in low-income communities for several years now, I serve a variety of small businesses.
There are few things that we can see would be helpful.
A permanent, safety net for small businesses
With these perspectives, I’ve long advocated that for-profit small businesses need access to grants. But until the pandemic, getting grants to small business owners wasn’t something one did or that was even mainstream to discuss. Today, the payroll protection program is the backbone of the federal stimulus helping to save our economy.
Because of how vital small businesses are to our state economy, there should always be a “safety net” for small businesses under certain circumstances. Maryland should keep PPP as part of a permanent, safety net infrastructure for small businesses.
Even with PPP, not every business will make it, but we can see from the data that personal or external disasters do not have to be disastrous. Many businesses would find a way to hold on and keep hiring with grant help.
Access to small loans that don’t require collateral
Remember, our homeownership rate in the city is 20 percentage points (47.7%) below the state average (68.8%). Because so many business owners get started using home equity to secure loans, our residents are disadvantaged from the start when they’re ready to start a business. Without loans, minority business owners can’t scale and without scaling they can’t be competitive.
Grants for build-out and some year-one operations
There is a lot of affordable property in Baltimore City relative to other jurisdictions. But our residents don’t have incomes high enough to purchase that property. And the high property taxes discourage landlords from making the capital investments needed to keep properties up to date. As a result, tenants need more upfront capital just to make the space usable for their business. This is especially true in lower-income neighborhoods.
To attract businesses to communities where we need them most, we need to make grants (not just low-cost loans) available to support those moves.
Grocery store example: I worked for several years to get a grocery store in Baltimore food desert. Once we finally found a company, that company needed grant money to build out the space as a grocery store and additional grant money to support its operations for the first year.
While the city offered special tax incentives there was no pool of grant funding to help with the capital buildout of a grocery space or first-year operations. We lost that prospective grocery tenant and the neighborhood remains a food and pharmacy desert to this day.
Compare my grocery store example with that of Baltimore’s first Whole Foods in Harbor East. My understanding from the developer community is that Paterakis paid for their build-out and first years of operations just to get them into the Harbor East community. (Anyone with different intel, please correct me!) Those are the types of incentives we need across all of Baltimore.
More technical training and support around estimating costs and preparing bids
In a Meet and Greet one day with a group of wise women, one shared about the work her family did to support and encourage the growth of minority-owned businesses. She explained that her family launched a training program to teach minority contractors how to pursue bids, perform cost estimation and present formal bid proposals. With this training, she explained, minority business owners had significantly more success competing for and wining their bids.
Minority contractor example: At that moment, my light bulb went on. What she described was exactly my experience as a nonprofit developer. I intentionally sought bids from minority contractors and subcontractors, but often the responders did not submit formal proposals. And when the final bid was submitted the price was typically 15% to 25% higher than competing offers from other firms.
The higher cost could be due to higher demand, in which case the business needs to scale. Sometimes it is because the firm does not have access to cheap enough capital and the cost of the expensive capital gets passed to the consumer. Whatever the reason, every firm should have the resources it needs to be competitive.
There are a myriad number of ways to support growing and expanding the capacity of black and brown business owners and women business owners. Solving for competitiveness is among the most urgent needs.
- Action Item #1: Keep a state version of the payroll protection program as part of a permanent safety net infrastructure for small businesses.
- Action Item #2: Build the capacity of Neighborhood Business Works to offer small loans without requiring collateral.
- Action Item #3:Build the capacity of Neighborhood Business Works to offer grants for build-out for essential businesses in low-income communities.
- Action Items #4: Provide public funding for expanding programming that teaches contractors from various industries how to estimate costs, seek additional information, and prepare and present bids.
- Action Items #5: Establish low- or zero-cost lines of credit for emerging businesses with approved contracts to better allow that emerging business’s participation in projects. Doing so would help emerging businesses lock in better pricing with their suppliers and help to mitigate cashflow challenges when getting paid between net 30 or net 60.