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Five Ways We Can Help Small Businesses in 2021

This year was extremely challenging for small businesses, but it also brought about a season of innovation that could help more businesses survive the challenges of the coming year.

In the face of a pandemic, banks, nonprofit lenders and community leaders linked arms to launch relief and new solutions to support small businesses and American jobs, especially in communities of color. This included everything from engaging nonprofits that can help small business owners reimagine their business models, to funding nonprofit lenders so they can offer financing to struggling entrepreneurs without worrying about losing their own financial footing.

Bill Bynum
Bill Bynum
Jenny Flores
Jenny Flores

With nearly half of all Americans employed by small businesses, according to the U.S. Small Business Administration, the lessons learned to date could help even more small business owners survive the coming months. Here are five insights that could lead to small business stability and growth in 2021:

Networks are critical to reach small business at scale. Investments, whether in the form of grants or loans, reach more small businesses more efficiently when funders partner with nonprofits that have a deep network across multiple geographic and diverse communities. For example, the Expanding Black Business Credit Initiative (EBBC) includes a network of seven primarily Black-led Community Development Financial Institutions (CDFIs) in communities across the country. This existing network and its infrastructure has allowed EBBC to determine where the money is needed most, track small businesses that have applied for help, and determine how many jobs are being secured or created in each region.

Supporting a job costs less than you think. Wells Fargo recently launched an industry-leading Open for Business Fund, committing approximately $400 million for small business recovery. This holiday season, nearly $50 million of the money will be deployed to nonprofits who help entrepreneurs. The return on investment that nonprofits are able to extract from their grant money is impressive. For example, we have calculated that it costs an average of $5,300 to enable a job through the CDFIs that are being supported through the Open for Business Fund. This holiday season, we expect to help entrepreneurs maintain roughly 50,000 jobs nationwide. This is a reasonable cost to help enable a job that could impact the livelihood of families and the sustainability of communities. This kind of impact should encourage more corporations and banks to lend their assistance to nonprofits supporting small businesses and our country’s economic recovery.

Technology accelerates growth. Investing in the infrastructure of the CDFI industry is a proven path to growing small businesses and reaching them during the pandemic. Helping lenders move online and standardize their loan application process allows them to more rapidly address the volume of need. If nonprofit lenders were supported to move toward better technology solutions, it could take their capabilities to the next level. There is a great opportunity for the technology sector to join the financial industry to get involved to spur more creative solutions.

Funding risk is a worthwhile investment. Funding for nonprofit lenders is critical, but they also need the flexibility to take on more risk. CDFIs are experts at mitigating risk because they have a deep understanding of the markets and customers they serve. This risk mitigation requires extra support in the form of philanthropic donations and strong government programs to back the extra work being carried out by CDFIs. This extra cushion allows CDFIs to more deeply coach and nurture small business owners who are in the most challenging positions or struggle to access capital elsewhere.

Sole proprietors need help, too. When we think of supporting sole proprietors, we tend to consider them as a single job, but that’s not necessarily true. Sole proprietors are often connected to many other businesses in the community, so the loss of one job can have a ripple effect. This group was largely left out of recent federal programs, which hit the African American community especially hard, as almost 95 percent of Black-owned businesses are one-person businesses. Luckily, programs like the Open for Business Fund have recognized this and are ensuring these small businesses are included in its support. We hope others will build programs inclusive of this small business owner.

There is no single answer to help our small businesses through the pandemic, but by implementing the lessons learned in 2020, we can ensure that 2021 provides them a much brighter future.

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