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The Future of Work

These Are The Best Cities For Minority-Owned Businesses

A new report dives deep into government data to reveal the best places for underrepresented minorities to start and run their new ventures.

  • <p>A new report dives deep into government data to reveal the best places for underrepresented minorities to start and run their new ventures.</p>
  • 01 /11 | These Are The Best Cities For Minority-Owned Businesses

    A new report dives deep into government data to reveal the best places for underrepresented minorities to start and run their new ventures.

  • 02 /11 | San Jose, CA
  • 03 /11 | Fayetteville, AR
  • 04 /11 | Cedar Rapids, IA
  • 05 /11 | Seattle, WA
  • 06 /11 | Madison, WI
  • 07 /11 | San Francisco, CA
  • 08 /11 | Santa Rosa, CA
  • 09 /11 | Ogden, UT
  • 10 /11 | Salt Lake City, UT
  • 11 /11 | Austin, TX

The recession turned out to be a boom time for starting new businesses. That’s when the U.S. economy lost more than 8 million jobs starting in late 2007, and the convergence of unemployed workers with no alternative job offerings created the most fertile environment for entrepreneurship in more than a decade, according to analysis of Census and Bureau of Labor Statistics data published in the Journal of Economics and Management Strategy.

A second trend that emerged post-recession is the rise of minority entrepreneurship. According to the most recent government data, 2.2 million non-white Americans started their own businesses in the aftermath of the economic downturn—growing 38% between 2007 and 2012. That’s more than triple the population growth of minorities, government data show.

But being a minority business owner has its challenges. Even though they now make up 29% of all U.S. firms, up from 22% in 2007, minority-owned businesses still only account for 4% of all business revenue in the U.S. Additionally, a recent report from the Minority Business Development Agency found that despite this growth, the average gross receipts for those firms dropped by 16%.

That’s due in part to the fact that minorities—like women—have less access to capital. For example, according to CB Insights report in 2015, only 1% of venture-backed founders were black, while the census shows they make up the largest racial minority, or about 14.3% of Americans.

There are some areas across the country that have proven to be more favorable toward minority business owners. Nerdwallet, a financial advice and tools site, analyzed government data to fine the best places for minority entrepreneurs to start and run their businesses.

To do this, they first pulled together 178 metropolitan areas with populations of 250,000 or higher, then factored in the business climate from the Census Bureau’s Survey of Business Owners that comprised 55% of the overall score. They then looked at the health of the local economy based on three metrics from the Census Bureau’s American Community Survey for 20% of the score. Finally, access to financing that rounded out the remaining 25% of the score was garnered from data from the Small Business Administration (SBA) and the American Community Survey.

NerdWallet’s data analyst Jonathan Todd points out that it was important to look beyond areas with high concentrations of minority-owned businesses. If they had, only five states would be represented. Judging by overall favorable conditions still has some states such as California well represented, but others such as Utah with a rising population rate of Hispanics, and Fayetteville, Arkansas; Anchorage, Alaska; and Cedar Rapids, Iowa.

Other common favorability factors shared among the top 10 cities for minority entrepreneurs are employment rates and the number of SBA loans. Each city showed a stronger recovery than the rest of the country in the last three years, with unemployment averaging at 4.7% from 2013 through 2015, compared with 6.2% nationally. All top 10 cities additionally ranked in the top 25% based on SBA loan amounts per 100,000 residents.

When Diversity Efforts Work

The case of Cedar Rapids mirrors a current diversity issue running through the tech industry right now. Attracting underrepresented minorities is only one part of a diversity effort. Like Intel, which made a massive investment in its initiatives to recruit more diverse talent, Cedar Rapids business leaders founded Diversity Focus in 2005 to change the face of a community that was 95.5% white. Like Intel, companies in the metro area were having a hard time getting minority employees to stay.

Their efforts achieved some success. Cedar Rapids's white population has fallen to 91.2% white, but alongside this, SBA loans to minority businesses in the area increased by 111% from 2007 through 2012, according to NerdWallet. Todd notes that part of the bump was due to the 2008 flood, which boosted the number of government-backed loans to area businesses.

Other metro areas such as No. 6 ranked San Francisco-Oakland-Hayward, California, have support systems such as Pacific Community Ventures, a nonprofit social enterprise that pairs founders with local business mentors, or No. 7 Santa Rosa, California’s minority business support groups such as the Hispanic Chamber of Commerce of Sonoma County. Utah’s burgeoning ethnic populations are bolstered by No. 9 ranked Salt Lake City’s chambers of commerce for Native American, Asian, and Hispanic communities, and Utah Diversity Connections.

Where The Future Population Is Trending Now

San Jose, California, provides a snapshot of what the future demographic makeup of the country is. In 2013, the metropolitan area’s minorities outpaced the white population for the first time—48.3% white compared with 51.3% the previous year, according to Census Bureau data. San Jose also clinched the No. 1 spot by having the highest minority median income—$83,406 in 2014.

Coming in at No. 2 is an area that is also impacted by an influx of minorities. Fayetteville-Springdale-Rogers, which crosses from Arkansas into Missouri, has a fast growing economy thanks to being home to Walmart, Tyson Foods, and J.B. Hunt Transport. The NerdWallet report quoted analysis from the Federal Reserve Bank of St. Louis, which revealed, "Nearly 30% of residents in Springdale and Rogers are Hispanic or Latino, about twice the national rate. More than 10% of the firms in each of these cities are Hispanic-owned."

Women Emerge As More Entrepreneurial

Among these minority-owned businesses, a large cohort are owned by women. A separate, recent report issued by the National Women’s Business Council (NWBC), based on the most recent data set (2012) from the census, revealed that of all African-American businesses, the majority (58.9%) are women-owned. That’s more than 1.5 million businesses across the U.S., and the rate of growth represents a 67.5% increase.

Additionally, there are 1.48 million Hispanic women-owned businesses in the U.S., an 87.3% increase since 2007. In comparison, the number of businesses owned by Hispanic men grew just 39.3%. The same holds true between Asian men and women. There are 754,874 Asian-American women-owned businesses, up 44.3% from 2007. That is less than the five years prior (54%), but still better than growth in businesses owned by Asian men, which capped out at 25.1%.

Fast Company recently reported on NerdWallet's best cities for female entrepreneurs. Overall though, NWBC’s chairwoman Carla Harris chalked such growth up to a "perfect storm" of historically low interest rates, inflation, record amounts of cash on corporate balance sheets, an increasing presence of women on boards of directors, and female degree holders. "It could not be a better time to start and scale," she said.

Slideshow Credits: 01 / Thomas Barwick/Getty Images; 02 / WPPilot via Wikimedia Commons; 03 / Brandonrush via Wikimedia Commons; 04 / wisit wongba via Shutterstock; 05 / Songquan Deng via Shutterstock; 06 / youngryand via Shutterstock; 08 / Wikimedia Commons; 09 / Wikimedia Commons; 10 / Flickr user Garrett; 11 / RoschetzkyProductions via Shutterstock;

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