Small businesses are key drivers for California’s economy, more equitable opportunity

OPINION – California’s large, iconic companies are most often in the spotlight, but small businesses are what drive our economy. These locally owned employers are the lifeblood of community prosperity, particularly for women and people of color who often see entrepreneurship as a path to financial independence.

The aftermath of COVID-19 presents both unprecedented challenges and opportunities for these enterprises. That’s according to a new report from Next Street, a mission-driven advisory firm for small entrepreneurs and small businesses.

Their report found that enterprises with 1-499 employees in California are at a crucial crossroads, needing better support to foster entrepreneurship and expand quality job creation. This path forward requires an integrated approach, where the social, private, and public sectors unite to enhance entrepreneurship, and ensure small businesses are sustainable and can create quality jobs.

The importance of small businesses cannot be overstated. Next Street’s report (supported by the Irvine Foundation) finds that more than 4.3 million small enterprises employ half of the state’s private sector workforce, funneling $400 million into employee payrolls and salaries annually.

Small businesses owned by women and/or people of color are more likely to cultivate equitable workplaces for low-wage workers, yet these entrepreneurs face extraordinary obstacles to the business growth and sustainability needed to foster job quality. Small businesses are particularly important employers in small cities and towns, serving as primary employers and community stabilizers.

But since the pandemic, workers – especially in low-wage sectors – are justifiably demanding improvements in wages, benefits, scheduling, and advancement opportunities. Small businesses, particularly those owned by women and people of color, are uniquely positioned to offer such quality jobs and to foster equitable workplaces. That is, if systemic barriers that hamper their growth and sustainability are removed.

AmPac has used an Irvine Foundation grant and private sector investment to provide small businesses in California access to capital for down payments on commercial real estate. Specifically, these resources help businesses secure loans from a federal Small Business Administration program to buy owner-occupied commercial real estate. It’s an important tool for, ultimately, fostering community stability and creating quality jobs. This focus has helped to narrow the wealth gap, with AmPac witnessing its clients’ commercial real estate wealth grow a remarkable $29 million in less than two years.

But small businesses need support from the public and private sectors if they are to, at scale, create quality jobs in their communities. The Next Street report offers a roadmap for potential policy reforms that can benefit the state’s small businesses and their workers, including:

Streamlining business registration and licensing processes, and liberalizing the rules for home-based businesses

Reforming procurement processes to encourage more transparency, less certification barriers, and increased participation from businesses with diverse ownership

Expanding tax credits, such as the California Competes Tax Credit, to incentivize small business creation and growth

Supporting workers through reforms for childcare and healthcare that expand and subsidize coverage

Incentivizing and subsidizing small businesses to provide living wages and skills training programs to their workers

AmPac has also seen, firsthand, the need for transparency in lending, so that small businesses are not crippled by exorbitant interest rates and fees hidden in the fine print. California has enacted laws about this, but there’s an opportunity for the financial industry to work more with community lenders to educate and coach small businesses about the loans and how to manage debt.

These recommendations may be about small businesses, but their impacts extend to every community in the state and the economy at large. If we follow the Next Street report roadmap and collaborate across sectors, we can not only strengthen small businesses but also create a more inclusive and equitable California for all.

Hilda Kennedy is President of AmPac Business Capital in Ontario, CA. Don Howard, President and CEO of The James Irvine Foundation, lives in San Francisco.