As Boomers Retire, Minority Entrepreneurs Can Aspire
America is on the brink of a great wealth transfer. As Baby Boomers enter retirement, their shift of fortune could be monumental for one often-overlooked group: minority entrepreneurs.
Over half of America’s business owners are 55 or older, with 40% of small-business owners also poised to exit the workforce. Ownership in the business could be passed to the next generation.
There’s another way. As boomers retire, they can look to sell and increase their retirement savings — all while helping the next generation of entrepreneurs succeed. This could create an outsized opportunity for people of color. Currently, only 2% of businesses with employees are Black-owned, and 6.5% are Hispanic-owned. The ability for minority entrepreneurs to purchase thriving small businesses would increase minority business ownership and wealth and give our economy a boost.
Owning capital is a key driver of wealth that Black and female entrepreneurs have been left out of for far too long. In 2019, the median White family had $188,000 in wealth compared to just $36,000 and $24,000 for the median Hispanic and Black families, respectively. As boomers retire and sell, minority entrepreneurs have a chance at acquiring thriving businesses, obtaining higher incomes and providing job opportunities for their communities to bridge this wealth gap.
And the benefits aren’t just limited to business owners. Black entrepreneurs have 12 times more net worth than their peers who work for an employer while also hiring significantly more people of color.
Forty-seven percent of businesses with non-White founders reported that most of their employees were people of color, while only 13% of White founders said the same. People of color often face racial and ethnic disparities leading them to be shut out of the typical labor market, so a surge of job openings from these small businesses would be a welcome boost of equity.
More minority business ownership is good for the economy overall. One report found that small businesses accounted for 44% of U.S. economic activity. Put another way, encouraging minority entrepreneurs to buy and take over successful small businesses helps everyone.
You may be wondering: Where are minority entrepreneurs going to get the money to acquire these businesses? It’s easier said than done.
It is well researched that minority businesses receive less capital than their counterparts. For example, while firms of color were more likely to seek financing during the pandemic era, they were less than half as likely to be fully approved on applications as their White counterparts, and twice as likely to be outright denied.
This is where the federal government can step in: Congress can respond to capital needs by improving the availability of small-principal loans. Lawmakers can also expand access to equity capital for small businesses as an alternative to debt financing.
By matching burgeoning entrepreneurs with expert business mentors — as the Small Business Administration currently does in its SCORE program — policymakers can equip entrepreneurs with the financial and human capital needed to successfully acquire transitioning firms.
Since they already have a deep understanding of running and maintaining a small business, volunteers may be able to provide information to sellers on business succession, such as how to choose a successor and how to maintain a profit when selling. Not all of us can be Logan Roy, so making sure this information is readily available can only help.
Congress can also eliminate or at least reduce fees on small 7(a) loans, allowing entrepreneurs to take home more financing and using it to assist in the acquisition of other businesses.
As boomers transition into retirement, their businesses don’t need to retire with them. We should be helping entrepreneurs — especially minority entrepreneurs who all too often face barriers to business ownership — take over these businesses. It would extend the longevity of successful small businesses, allow business owners to recoup retirement savings, stimulate the economy and bring in a diverse group of entrepreneurs. That’s something every generation can get behind.
Jazzelynn Hawkins is a policy advisor for the Alliance for Entrepreneurial Equity, a joint effort between Third Way and the National Urban League. Hawkins can be reached at [email protected].