Boosting Small Business

Overview

Owning a business offers individuals an opportunity to increase upward economic mobility for themselves and their families. Small business owners – residents who support their families and their children through their business profits, are members of the community. With the economic ramifications of the COVID-19 pandemic and subsequent recovery efforts, municipalities have taken on a new role by providing new small business supports, developing more robust networks and helping owners access capital.  

Small business ownership rates are not evenly distributed across race, ethnicity or gender. Since 2024, business ownership gaps have started to shrink and the share of Black and Hispanic families owning businesses has increased. However, research shows that these owners continue to face barriers with the formation and growth of their businesses, including lack of financial capital, lack of social capital and limited access to opportunities. 

Cities that are interested in supporting small Black, Indigenous and people of color (BIPOC) businesses operating within their community should first confirm who these owners are, how many small businesses are operating within their jurisdiction and what their needs may be depending on the business owners’ cultural preferences and industry type. Municipalities also have an opportunity to celebrate owners, through promotional events and messages, who are supporting their employees with livable wages and advance supplier diversity by changing the city’s procurement practices. In addition, municipalities can support multi-generation business owners by identifying and engaging under-resourced business owners struggling to meet their needs. Early support can reduce the impact of capacity gaps.  Finally, local governments can help keep businesses in operation by assisting owners who are considering retiring, transitioning business ownership to a family member or selling it to their employees through an employee cooperative model.  

Unique City Roles and Levers to Advance Family-Supporting Employment: 

• Listener¹– Engage and convene business owners, financial institutions and entrepreneurship support organizations (ESOs)²  to better understand the unique needs of the small business ecosystem. 

• Implementer³  – Fund programs that provide supports and services that allow small business owners to thrive. 

• Community Partner⁴  – Call upon community-based organizations to share information about city-funded programs for small businesses. 

• Funder⁵– Create a revolving loan fund for microbusinesses⁶ independently or by partnering with a local Community Development Financial Institution (CDFI)⁷.  

Key Considerations

Municipal Procurement Limitations 

Historic discrimination in municipal contracting and hiring has excluded many communities from wealth-building opportunities that are critical to supporting the economic mobility of generations. The Supreme Court case Richmond v. Croson ruled that giving procurement preferences to minority-owned companies violated the Constitution. However, municipalities seeking equitable procurement approaches can create pathways that ensure more BIPOC businesses have opportunities to secure government contracts. The pathway approach includes breaking up large contracts into smaller ones that are more manageable for small or new businesses, engaging with BIPOC small business owners to make sure they are aware of the contracts, targeting outreach and educating small business owners on how to apply for a city contract, and connecting them with resource providers in advance of a contract opening to ensure that they can apply. Accordingly, municipalities should review contract bidding requirements, such as bonding and insurance thresholds, to ensure they aren’t unintentionally barring smaller, less-resourced businesses from competing. 

Operations and Administrative Support 

Microbusiness⁸ and small business owners often start their businesses because of a passion for their product, but they can lack the skills necessary to reach new customers or access capital. Administrative or operational support can include accounting, human resources, payroll, taxes and website management. These functions are necessary for the growth and strength of businesses. Failing to develop these services or connecting with support organizations that provide them can hinder the wealth that can be created through their business. Municipalities can work with nonprofit, foundation and community college partners to help create back-end support programming to fit the unique needs of small business owners. For example, cities can facilitate support from community college accounting students to provide services to those required to file Schedule C tax forms or support business incubators that can leverage co-located small businesses to offer these administrative functions at a low cost. Moreover, cities can create or support Entrepreneurship Support Organization (ESO) networks that can provide technical assistance, business navigation, training and other supports for small business owners.  

Access to Capital for Underserved Communities 

Capital is the lifeblood of any small business. Without adequate financing, most entrepreneurs cannot start or grow a business. Access to capital and capacity to navigate complex financial systems is a more significant barrier for BIPOC and women business owners, who historically have been disproportionately impacted by discriminatory financial institution practices. These business owners historically lack generational wealth and social capital necessary to support their businesses. Navigating financial institutions and moving small business owners to business credit⁹ often requires assistance and mentorship. Municipalities can work with local financial institutions, CDFIs and ESOs to raise the visibility of these institutions within underserved communities, so employers know where to go to help them access safe and affordable capital and services. This can be done through community events, business engagement outreach, and the creation of a web-based business support resource hub. Part of this work can include continued access to advanced training or accelerator programs targeted at entrepreneurs hoping to expand and support their businesses.  Additionally, cities can consider operating their own revolving loan fund that could offer microloans¹⁰ to small businesses that are working to establish their business credit or providing essential services for the community (i.e., child care). Cities can target these loan funds to specific underserved populations, such as BIPOC communities, immigrant populations, returning citizens¹¹ or single parents.  

Navigating Municipal Regulations 

Understanding the process of being a business takes time. Many small business owners start their businesses out of passion for their profession and lack the training or understanding of how to register a business with a municipality. For many small business owners, guidance on licensing, permitting, inspections and zoning requirements, as well as the steps necessary to complete them are unfamiliar.  Municipalities should review their policies and practices to see how small business owners would have to navigate their processes. Additional considerations should be made to understand how these processes may intersect with county or state requirements. Focus groups of small business owners and the ESO community can be used to confirm areas for improvement – to make it easier for business owners to navigate municipal regulations and processes – with particular attention to ensure accessibility for language, ability and location of services. Fines and fees 

For many municipalities, there are fees associated with becoming a formal business. For some potential business owners, these fees may be a barrier to registering with a municipality or formalizing their business. Municipalities should review the fees associated with starting or operating a business relative to the average take-home pay of business owners. Fines for some small business owners can be unexpected and disruptive, impacting other obligations like payroll or supply costs. Fines can also increase quickly if they are not paid in full within the noted timelines, further pushing owners to make decisions that may affect their and any workers’ financial stability. Municipal leaders should consider the costs of fines and fees, the small business owners’ ability to pay them, and, where possible, strike a balance between cost and what can be truly collected. In other municipal areas where fines or fees are collected, some municipalities have turned to payment plans that take into account ability to pay, so the economic impact of the fine or fee is spread out, lessening the financial burden from one large payment. 

Small Business Ownership Transition 

Like most workers, small business owners also hope to retire someday. However, when business owners retire, a community can lose jobs and wealth. Engagement with small business owners before they move on to retirement is key to helping them understand options to keep the business operating. These efforts often require access to legal and financial services and time to create a plan that will allow the business to continue under new leadership. Municipalities may not know when a small business owner is thinking about retirement and therefore may not be able to connect with them or provide assistance that would preserve the business, employee jobs and wealth generated by the business. Ongoing engagement with business owners and surveys to better understand retirement plans can help cities collect information to better understand and reach these businesses with succession planning support.  

Growth of Local Small Businesses 

Municipalities across the country often have departments that are devoted to enticing new industry to move into their cities to bring jobs and incentive packages that support the development of land or training of needed labor. To strengthen the economic mobility of residents, cities can also focus their resources on cultivating the small businesses that operate within their jurisdiction to help them grow revenue and staff that would keep wealth within communities. This type of thinking could require reevaluating municipal departments and may require additional assistance to ensure that regional education efforts support entrepreneurship and that business sectors are supported to increase impact. 

Cities in Action

1. Cities in Action: Energizing the KC BizCare Small Business Support Ecosystem 
2. Cities in Action: Bilingual Business Navigation in Durango, CO