New York City Small Business Ecosystem Assessment Building a more inclusive, resilient New York City

FALL 2020 Table of Contents

Executive Summary...... 3

Introduction and Context...... 6

How We Approached the Research...... 8

What We Found...... 11

Historical Context of New York City...... 11

Small Business Landscape...... 12

Capital Support Landscape...... 15

Business Services Landscape...... 18

Gaps in the Ecosystem ...... 21

Emerging Solutions...... 22

Holistic Service Delivery...... 22

Continuum of Capital...... 23

Enabling Infrastructure...... 23

Citywide Collaboration...... 23

Conclusion and Call to Action...... 26

Acknowledgements...... 27

Appendix...... 28 Executive Summary

New York City, birthplace of the Harlem Renaissance and Nuyorican movement and home of Broadway and Wall Street, is a vanguard of American culture and commerce. With over eight million residents who speak more than 200 different languages, the Empire City is an engine of economic vitality and ingenuity fueled by the city’s rich cultural and ethnic diversity. However, the city’s prosperity and economic opportunities are not shared equitably among all New Yorkers. Across the city’s five boroughs, deep socioeconomic disparities persist by racial and ethnic lines. Addressing these disparities requires solutions that build wealth across all communities in the city, among which are solutions that present equitable avenues to entrepreneurship and business ownership.

Confronted by a long history of discrimination and racism, The advent of the COVID-19 pandemic and mounting civil communities of color face growing segregation, income unrest in response to acts of racial injustice have dramatically inequality, and systemic barriers hindering their ability to build worsened these existing inequities and financial distress among wealth through business ownership. As a result, Black and small businesses owned by people of color (POC).3 Since the Latino(a) Americans possess only one tenth of the wealth of start of the pandemic, Black-, Latino(a)-, and Asian-owned their White counterparts, and a far smaller percentage of Black businesses have had higher closure rates than that of non- and Latino(a) household assets are in business or financial Latino(a), White-owned businesses nationwide.4 Over the same assets compared to that of White households.1 Meanwhile, while time period, POC-owned firms have faced larger cash balance having higher median incomes than that of other communities and revenue declines than that of non-Latino(a), White-owned of color, Asian Americans have become the most economically firms, with the impact of the crisis particularly severe among divided racial or ethnic group in the U.S.2 Black- and Asian-owned businesses.5

At this critical moment, this report examines New York City’s unique historical context and the current state of play of the city’s small business communities and supporting ecosystem, with a specific lens on businesses owned by people of color and the COVID-19 response and recovery. This assessment culminates in a set of recommendations and a proposed path forward aimed at narrowing racial gaps across several dimensions – including business ownership, revenue, and employment – across all of New York City in the next five years.

1 Source: Aspen Institute, 2015 2 Source: Pew Research Center, 2018 3 Note: In this report, ‘people of color’ refers to demographics outside of non-Latino(a), White populations, with a focus on Black, Latino(a), and Asian populations 4 Source: National Bureau of Economic Research, 2020 5 Source: JPMorgan Chase Institute, 2020

Executive Summary NEW YORK CITY 3 This report highlights the barriers that entrepreneurs and small business owners of color in New York City face and the additional support they and those serving these entrepreneurs need to succeed, as gathered from data analysis, interviews, and local stakeholder convenings.

MAJOR TAKEAWAYS INCLUDE:

Disparities for small business ownership in New There has been a historic unmet demand York City persist for people of color. of approximately $45B7 in capital for small 1 While Black and Latino(a) residents make up 24% and 29% 3 businesses in New York City annually, with of the population, respectively, they only own 3% and 7% pronounced gaps of traditional and alternative lending of all employer small businesses.6 Furthermore, Black-, in areas – such as eastern Brooklyn and the Bronx - with Latino(a)-, and Asian- owned businesses employ fewer high concentrations of Black and Latino(a) residents.8 staff and on average generate less than half the revenue This unmet demand was magnified through the COVID-19 generated by White-owned businesses.6 Specifically, New crisis, as illustrated by the rapid depletion of the Payment York City’s Black- and Latino(a)-owned small businesses Protection Program’s first tranche of funding.9 generate average annual revenues of $0.7 million and Asian-owned small businesses generate $1.0 million, compared to White-owned businesses that generate an The New York City small business ecosystem lacks average of $2.4 million. coordination within and across all five boroughs 4 needed to best serve the city’s small businesses. There is no central coordinator or resource to help Industries hardest hit by COVID-19 are small businesses navigate offerings from BSOs, capital overrepresented by Black-, Asian- and Latino(a)- providers, anchor institutions, philanthropy, and other 2 owned businesses. stakeholders. As a result, small businesses spend valuable Black-, Asian-, and Latino(a)-owned businesses in time and resources just to access the support they need, New York City were overrepresented in deeply and and ecosystem stakeholders do not effectively work immediately impacted industries such as food services and together to support entrepreneurs. entertainment places, beauty and personal care, laundry services, and retail.6

While Black and Latino(a) residents make up 24% and 29% of the population, respectively, they only own 3% and 7% of all employer small businesses.6

6 Source: U.S. Census Survey of Business Owners and Self Employed Persons (2012) 7 Note: Unmet demand in 2017; detailed capital demand and supply methodology can be found in the appendix, p. [28] 8 Sources: Freedom of Information Act (FOIA) to the Small Business Administration; CDFI Fund; PwC / CB Insights MoneyTree Report; U.S. Census County Business Patterns; U.S. Survey of Non-Employer Statistics; U.S. Annual Survey of Entrepreneurs; Federal Reserve Small Business Credit Survey 9 Source: SBA Paycheck Protection Program Report, 2020

Executive Summary NEW YORK CITY 4 The research identified critical needs in equitable access to capital and customers and gaps in the business support landscape that were reaffirmed by local stakeholders. The small business ecosystem must meet small businesses owned by people of color where they are, provide them with services that have a transformational impact on their businesses, and create wealth and vibrancy in their communities. To do this, the small business ecosystem will need to focus on the following pillars:

Holistic service delivery: Provide holistic services over longer periods to transform small business owners of color and create resiliency programming

Continuum of capital: Increase availability of free, low-cost, and equity capital products to better finance and strengthen businesses, as well as community development financial institutions (CDFIs) and other responsible lenders

Enabling infrastructure: Create digital platforms to connect small businesses to resources and revenue opportunities; advocate for small business-friendly policies

Citywide collaboration: Create citywide and borough-specific networks to connect small businesses, service and capital providers, other stakeholders, and funders

Because of New York City’s size, diversity, and high representation of businesses owned by people of color, the ecosystem is equipped to incubate several ideas at once and serve as a model for other communities. The collection of leaders and stakeholders gathered throughout this project are committed to significantly narrowing racial gaps in business ownership, revenue, and employment across all boroughs of New York City within the next five years, with the long-term goal of closing the racial gaps, by focusing on the ecosystem pillars further detailed later in this report.

Executive Summary NEW YORK CITY 5 Introduction and Context

Small businesses are core to the national economy.

In the U.S., roughly 30 million small businesses employ nearly half of the private sector workforce and have created approximately 60% of all new jobs since 1995.10 In communities, An estimated 68% of small businesses serve as a critical means to build community and individual wealth, with an estimated 68% of revenue revenue generated by local generated by local businesses staying within the community businesses stays within through employment of community residents, compared to 43% of revenue generated by non-local businesses.11 Small business the community through families also have an estimated median net worth five times employment of community higher than that of families with a head of household working for other employers.12 residents, compared to 43% Despite their critical role in communities, small business owners of revenue generated by of color face institutional and systematic barriers in accessing 11 capital, customers, and services; these barriers stifle their non-local businesses. businesses’ sustainability and growth. Loan denial rates are twice as high for small business owners of color compared to White business owners, while loan sizes are 39% smaller for business owners of color approved for loans.13 Moreover, while there are many government and private-sector supplier diversity programs, business owners of color report that they continue to struggle to access large contracts due to lack of access to networks and marketplace discrimination.14 Non-native English- speaking entrepreneurs also face barriers in finding culturally and linguistically competent support services; 22% of Asian and Pacific Islander entrepreneurs report not knowing where to find free help in their language.15

10 Source: Mills, 2016 11 Source: the 3/50 project 12 Sourcel/: Civic Economics, 2004 13 Source: Federal Reserve, 2006 14 Sources: U.S. Department of Commerce Minority Business Development Agency 15 Source: National CAPACD, 2019

Introduction and Context NEW YORK CITY 6 The COVID-19 pandemic has amplified the challenges facing small business owners of color.

An estimated 3.3 million businesses (of all sizes) were lost Common Future is a network of leaders (re)building an economy through the first few months of the crisis, representing 22% that includes everyone. Through leadership and field building, of all businesses. Businesses owned by people of color faced capital aggregation and deployment, project incubation, even higher closure rates, with 41% of Black-owned businesses, and strategy consulting, Common Future is connecting and 32% of Latino(a)-owned businesses, and 26% of Asian-owned empowering wealth holders and wealth builders who believe in businesses permanently shuttered nationwide.16 Over the the power of entrepreneurship, business, and asset ownership same time period, cash balances of Black-owned firms and to restore community wealth. These organizations brought revenues of Asian-owned firms declined by over 25% and 60%, their collective strengths to the work – Next Street’s expertise respectively, while Latino(a)-owned firms experienced larger in small business and data analysis and Common Future’s cash balance and revenue declines than that of non-Latino(a), insights in community building and uplifting voices – to conduct White-owned firms.17 Altogether, this crisis has dramatically rigorous analysis, shaped and grounded by local communities. exacerbated existing inequities and financial distress among The research and process will span across nine cities and small businesses owned by people of color. localities, including New York City, across the U.S. and is aimed at developing solutions focused on racial equity and recovery In an effort to develop a more equitable small business from the COVID-19 pandemic. environment nationwide, Next Street and Common Future partnered to conduct research and drive a community-centric process to develop solutions for businesses owned by people of color. Next Street is a mission-driven consulting firm revolutionizing how clients provide capital, customers, and services to small businesses, with national expertise in equitable small business ecosystems.

16 Source: National Bureau of Economic Research, 2020 17 Source: JPMorgan Chase Institute, 2020

Introduction and Context NEW YORK CITY 7 How We Approached the Research

Over the first half of 2020, Next Street and Common Future network among local businesses, community organizations, studied the local economic and social context of New York City, and economic development and civic leaders by presenting a the core capital and service needs of small business owners of common language and set of facts for the ecosystem. Drawing color, and the gaps present in the small business ecosystem. on first-person data collection and engagement with those The research was synthesized and shared with a coalition directly impacted by local conditions and leveraging publicly of local stakeholders to co-create strategies to address the available datasets, webinars, and virtual events, this work aimed historical inequities for small businesses owned by people to elevate local insights to create a better way forward for New of color. This project balanced quantitative and qualitative York City’s small businesses. data analysis with community engagement to deepen the

KEY FOCUS AREAS AND DEFINITIONS The research was focused on a specific set of small businesses that met the following definitions:

Defining “Small Business”

This report defines “small businesses” as firms with 50 full-time employees or fewer, including micro businesses, mom-and-pop businesses, and sole-proprietor or non-employer businesses. For cases in which data on this definition of small business is unavailable, the category of “employer businesses” is used. Employer businesses are defined as businesses with at least one, but fewer than 50 full-time employees.

Defining Geographic Focus

Based on the availability of quantitative data, most of the content in this report defines New York City at the county-level (aggregation of Bronx, Kings, Richmond, New York, and Queens Counties). Broader geographic areas are referenced where county-level data is not available.

Demographic Breakdown

This report specifically focuses on businesses owned by people of color, defined as populations outside of the non-Latino, White population – with a specific focus on Black, Latino(a), and Asian business owners. Census definitions are used for these demographic groups throughout the analysis performed.

How We Approached the Research NEW YORK CITY 8 RESEARCH ACTIVITIES This report draws insights from several sources, including prior reports, publicly available datasets, and insights from local stakeholders and small businesses. Potential data limitations that should be considered in the context of the overall research findings can be found in Appendix I.

RESEARCH TRACK ACTIVITIES

Interviews Interviewed 11 local economic development stakeholders, capital and service providers, and business owners to understand their perspectives on the New York City small business ecosystem and the needs of local business owners of color

Secondary research Aggregated, analyzed, and synthesized over 30 different sources, including relevant studies, local strategic plans, surveys, webinars, events, and other analyses to inform the analysis of New York City’s historical economic and social context and its small business communities (listed in Appendix)

Small business landscape Analyzed four primary census sources and other publicly available data to understand the current small business landscape in New York City, including business size, industry, location, and ownership information among people of color

Business services landscape Analyzed data collected from a sample of 100 business support organizations, including data on specialization and breadth of services, leadership demographics, and funding

Capital landscape Analyzed publicly available data and surveys on the flow of debt and equity capital to measure the current supply of capital available to small business in New York City and to estimate and forecast small business capital demand before and during the COVID-19 pandemic

Stakeholder engagement Convened coalitions of more than 55 local stakeholders that leveraged their knowledge of the New York City small business landscape to provide strategic direction and co-create strategies to create a more inclusive small business ecosystem

How We Approached the Research NEW YORK CITY 9 KEY STAKEHOLDERS To ensure that this effort built upon the collective knowledge of individuals throughout the local small business ecosystem, we brought together a variety of stakeholders who informed our approach and findings. A list of all stakeholders can be found in the Acknowledgements section. These include:

• Project leads: Two local small business ecosystem • Advisory Council: A steering committee of 56 local leaders – Cheryl Green Rosario of CGR Consulting and leaders and small business owners across the small Lloyd Cambridge of Progress Playbook – who played business ecosystem. Members included small business a critical role in shaping and executing the work. The owners, business support organizations, capital project leads served as primary points of connection providers, government representatives, philanthropic between the research team and communities and organizations, and anchor institutions. The Advisory worked directly with the research team to support Council helped shape the project direction, provided execution of key elements of the research. on-the-ground insights, and advocated for the work within their networks. • Working Group: A group of 21 local stakeholders with expertise in the needs of business owners of color and • Research team: An integrated team of advisors an understanding of and connections to the local small from Next Street and Common Future with collective business ecosystem. The Working Group provided expertise in community-led, small business feedback on project direction monthly and helped draw development. The research team led the quantitative connections and find synergies across the ecosystem. and qualitative research and project management with the Working Group and Advisory Council and facilitated the workshops across local stakeholder groups.

How We Approached the Research NEW YORK CITY 10 What We Found

HISTORICAL CONTEXT OF NEW YORK CITY

New York City is the most populous city in the U.S. and is among Asian-White segregation is increasing.22 Communities of color the most diverse. However, communities of color continue to have higher rent burdens, with 50% and 44% of Asian and face growing segregation and income inequality across the Latino(a) residents rent burdened, compared to a city average city. The city is home to over eight million residents spread of 42%. Moreover, Latino(a), Black, and Asian New Yorkers have across over 300 square miles and 250 unique neighborhoods longer average commutes than the city average.22 throughout five boroughs.18 People of color represent 58% of Income inequality in the city has risen over the past several the city’s population. This diversity is in part driven by New York years, resulting in uneven economic hardships and access to City’s deep roots as a city of immigrants, with a population of 3.1 opportunity across the City’s neighborhoods. This inequality million immigrants from more than 150 countries.19, 20 has exacerbated gentrification and displacement, with high rent Despite this diversity, New York City has high levels of and tax rates causing residents and businesses to move from segregation, which contributes to differences in rent burdens the city.23 National immigrant policies have also played a role and access to transit by race and ethnicity.21 While overall in magnifying economic hardship in undocumented immigrant segregation by race and ethnicity is declining across the city, communities. Black-White and Latino(a)-White segregation remains, and

18 Source: American Community Survey 1-Year Estimates (2013, 2018) 19 Source: State of Our Immigrant City, New York City Mayor’s Office of Immigrant Affairs (2018) 20 Source: Our Immigrant Population Helps Power NYC Economy, New York City Office of the Comptroller (2017) 21 Note: Rent burden is defined as a household paying 30 percent or more of their income on rent 22 Source: Where we live NYC, City of New York (2017) 23 Source: The New York Times (2019)

What We Found NEW YORK CITY 11 SMALL BUSINESS LANDSCAPE

Small businesses are a critical driver of New York City’s economy. Yet, small business owners of color own disproportionately fewer small businesses than their White counterparts, compounding the inequities previously described.

New York City is home to a robust small business ecosystem with over 228k small employer businesses, representing for 95% of all businesses in the city;24 the city boasts nearly 900k non-employer firms or sole proprietors.25 These small employer firms and sole proprietorships account for 37% of the local workforce.26 There are also an estimated 48k undocumented businesses owners in NYC.27

Between 2011 and 2016, employer firms and non-employer firms grew at 1.0% per annum (p.a), and 1.7% p.a. respectively. Local small business industries are clustered in leading industries like Retail Trade (15%), Professional Services (12%), Arts, Entertainment and Recreation (10%), Accommodation and Food Services (10%) and Real Estate (9%).25

Although New York City is home to a diverse population, disparities in small business ownership persist for POC-owned businesses. While Black and Latino(a) residents make up 24% and 29% of the population, respectively, they only own 3% and 7% of all employer small businesses.28 FigureAsian, Black, Latino(a)-owned 4.1 businesses have historically operated small businesses with less revenue and fewer employees than their White-owned counterparts. Further detail is provided in Figure 1.

Figure 1: Small business ownership, revenue, and employment by race and ethnicity

Number of small businesses Average revenue per Average headcount (including sole proprietors) employer firm (in USD) per employer firm

White 583k $2.4M 9.9 employees

Latino(a) 199k $0.7M 4.4 employees

Asian 194k $1.0M 5.7 employees

Black 166k $0.7M 5.5 employees

Other* 11k $0.2M 1.3 employees

Male 572k $2.3M 9.2 employees

Female 414k $1.1M 7.3 employees

Non-employer businesses Employer businesses Avg. revenue per employer business

Note: *Other includes populations of American Indian, Alaska Native, Native Hawaiian, and Other Pacific Islanders, among other races not classified by the U.S. Census Bureau Source: U.S. Census Survey of Business Owners (2012)

3

It is important to note that the small business statistics highlighted in this report are a snapshot in time, and that during this COVID-19 pandemic, numerous small business have been and will be forced out of operation. The full impact of this crisis on the total number of establishments in the city is still unknown and will not be fully measured in this report.

24 Source: U.S. Census, County Business Patterns (2011, 2016) 25 Source: U.S. Census Nonemployer Statistics (2011,2016) 26 Note: Figures assume sole proprietorships serve as primary form of employment for self-employed individuals 27 Source: New York City Mayor’s Office of Immigrant Affairs 28 Source: U.S. Census Survey of Business Owners and Self Employed Persons (2012)

What We Found NEW YORK CITY 12 Impact of the COVID-19 pandemic

Small businesses have been disproportionately impacted by COVID-19. The public health measures adopted to reduce the spread of coronavirus, including a stay at home order in place from March to June 2020, have devastated small businesses. During that period, many were forced to temporarily close or reduce operations, resulting in some with significant revenue losses and others that were unable to withstand the impact that lasted months permanently shuttered. Total small business revenue and the number of small businesses open decreased in New York City by 36% and 22%, respectively, from January to June 2020.29

To better understand current and emerging needs, this analysis focused on three main small business segments, adapted from a segmentation developed by the Brookings Institution.30 Industries were grouped across segments based on immediacy and severity of the impactFigure felt by businesses, 4.2 as shown in Figure 2.

Figure 2: COVID-19 risk segmentation by industry

Hardest Hit Impacted but Surviving Insulated with Potential “How do I stay in business?” “How can I pivot or evolve?” “How can I maintain and grow?”

Non-essential businesses that have Essential businesses that have lost Essential businesses that have been had to close or significantly adjust revenue due to reduced spending Description able to continue operations and operations and face risk of closure from consumers and non-essential supply critical goods and services businesses

% of small businesses in 29% 28% 43% New York City(2016)

• Restaurants and bars • Real estate • Grocery and liquor stores • Dry cleaning and laundromats • Specialty trade contractors • Healthcare services • Health & personal care stores • Wholesalers • Social Assistance Key industries • Clothing retailers • Administrative & support service • Professional & technical • Electronics and appliance stores • Construction assistance

Note: Segments adapted from an industry segmentation framework developed by the Brookings Institution; ^ Includes businesses with between 1 and 49 paid employees; Source: Brookings Institution; Moody’s Corporation; U.S. Census County Business Patterns (2016)

29 Source: Raj Chetty, John N. Friedman, Nathaniel Hendren, Michael Stepner, and the Opportunity Insights, 2020 30 Source: Brookings, 2020

What We Found NEW YORK CITY 13 Historical surveys of owner demographics in New York City indicate that disproportionately more Black-, Asian-, Latino(a)-owned businesses operate in the ‘Hardest Hit’ industries than other segments, as shown in Figure 3.31 POC-owned businesses nationally have long been clustered in industries such as leisure, hospitality, and retail due to lower barriers to entry and lower margins that made them less Figureattractive to White business 4.3 owners.32 As a result, COVID-19 has compounded many entrenched barriers in accessing capital, customers, and services existent prior to the crisis that have kept these businesses from sustainability and growth.

Figure 3: COVID-19 risk segmentation breakdown of New York-based businesses, by race and ethnicity

2.0M businesses 0.2M businesses 0.2M businesses 0.3M businesses 100%

32% 80% 41% 42% 37%

60% 27% 20% 28% 31% 40%

41% 20% 38% 35% 29%

0% Overall Black Asian Latino(a)

Hardest Hit Impacted but Surviving Insulated with Potential

Source: Brookings Institution; Moody’s Corporation; US Census Bureau, Survey of Business Owners (2012)

5

31 Source: U.S. Census Survey of Business Owners and Self Employed Persons (2012) 32 Source: U.S. Census Bureau Center for Economic Studies

What We Found NEW YORK CITY 14 CAPITAL SUPPORT LANDSCAPE for businesses owned by people of color. SBA and CDFI lending represent 7.7% and 0.4% of small business debt lending, The New York City small business capital landscape is respectively.38 The guarantee provided by SBA loans offer characterized by a significant shortage of capital, more limited critical risk mitigation in creating access to loans for POC-owned CDFI lending, and disproportionately low rates of traditional and businesses. Low representation of SBA lending coupled with alternative lending in neighborhoods with high concentrations low levels of CDFI funding indicate a gap in financing for those of Black and Latino(a) residents. Over the past several years, businesses traditionally underserved or turned away from demand for equity and debt capital has ranged between $60B traditional financial institutions. When compared to peer cities, and $76B annually.33 While demand for capital has decreased CDFIs in Los Angeles and Atlanta lend significantly more per by 3% p.a. from 2016 to 2019, in part, due to a lack of trust in business annually ($155 and $226 per small employer business, traditional financial institutions amongst business owners of respectively) than New York City, where CDFIs lend $110 per color, demand still significantly outpaces supply.34,35 In 2017, small employer business. Debt capital in NYC has also been $15.7B was supplied to small businesses in the city, with a mix concentrated in microloans under $100k and loans larger than of a growing swath of equity investment ($8.7B) and debt capital $250k, creating a “missing middle” for mid-sized loans between ($7.1B), as illustrated in Figure 4.36,37 As a result, there has been $100k and $250k that are needed for small businesses to a historical unmet demand of approximately $45B in capital for scale..39 Furthermore, there are disproportionately low rates of small businesses annually. traditional and alternative lending in neighborhoods with high Small business lending in New York City is driven by non-Small concentrations of Black and Latino(a) residents, such as in the Business Administration (SBA) bank lending, representing nearly Bronx and eastern Brooklyn, as shown in the Figure 5.40 92% of debt lending in the city, limiting the products accessible FigureFigureFigure 4.4 4.4 4.4

Figure 4: Estimated small business capital demand in New York City

Small businessSmall capital business demand capital in NYC demand in NYC Small businessSmall capital business demand capital in NYC demand in NYC By race, in billionsBy race, of USD in billions (2016 -of19) USD (2016-19) CAGR% CAGR%By ethnicity, inBy billions ethnicity, of USD in billions (2016 -of19) USD (2016-19) Small business capital demand in NYC Small business capital demand in NYC CAGR% By race, in billions of USD (2016-19) (2016CAGR%-19) (2016-19) By ethnicity, in billions of USD (2016-19) CAGR% $80B $80B $76B $80B $80B $76B (2016-19) $76B (2016-19) $76B (2016CAGR%-19) $80B $76B $69B Total $69B-3.0%Total -3.0% $80B $76B $69B Total $69B-(3.0%2016Total-19) -3.0% Other* -3.8%Other* -3.8% $61B $60B$61B $69B$60BTotal -3.0% $61B $60B$61B $69B$60BTotal -3.0% $60B $60B Other* -8.5%-3.8%Black -8.5%$60B $60B $61B $60B Black $61B $60B $60B Black -8.5% $60B Asian 1.0%Asian 1.0% Asian 1.0% Non- -3.0%Non- -3.0% $40B $40B $40B $40B Latino(a) Latino(a)Non- -3.0% $40B $40B Latino(a)

-3.0%White -3.0% $20B $20B White $20B $20B -3.0% $20B White $20B Latino(a) -3.1%Latino(a) -3.1% $0 $0 $0 $0 Latino(a) -3.1% 2016 17 201618 17 19^ 18 19^ 2016 17 201618 17 19^ 18 19^ $0 $0 2016 17 18 19^ 2016 17 18 19^ Demand among Demand among Demand among $43B $33B$43B$33B$33B$39B$33B $39B Demand among $43B $33B$43B$33B$33B$39B$33B $39B non-employersnon-employers non-employersnon-employers Demand among $43B $33B $33B $39B Demand among $43B $33B $33B $39B non-employers non-employers Note: *Other includesNote: populations*Other includes of American populations Indian, of Alaska American Native, Indian, Native Alaska Hawaiian, Native, and Native Other Hawaiian, Pacific Islanders, and Other among Pacific other Islanders, races among not classified other r acesby the not U.S. classified Census by Bureau the U.S. Census Bureau Source: U.S. CensusSource: CountyU.S. Business Census Patterns, County BusinessU.S. Survey Patterns, of Non U.S.-Employer Survey Statistics; of Non-Employer U.S. Annual Statistics; Survey U.S. of Entrepreneurs; Annual Survey Federal of Entrepreneurs; Reserve Small Federal Business Reser Creditve Small Survey Business Credit Survey Note: *Other includes populations of American Indian, Alaska Native, Native Hawaiian, and Other Pacific Islanders, among other races not classified by the U.S. Census Bureau Source: U.S. Census County Business Patterns, U.S. Survey of Non-Employer Statistics; U.S. Annual6 Survey of Entrepreneurs;6 Federal Reserve Small Business Credit Survey 6

33 Note: Detailed capital demand and supply methodology can be found in the appendix, p. [28] 34 Source: Pepperdine Private Capital Markets Project, 2018 35 Source: Federal Reserve Small Business Credit Survey - Report on Minority Businesses, 2016-2018 36 Source: PwC / CB Insights MoneyTree Report 37 Source: Freedom of Information Act (FOIA) to the Small Business Administration for all 504 and 7(a) lending data, CDFI Fund 38 Note: For the purposes of this report, “SBA Lending” does not include SBA loans made by CDFIs, while “CDFI Lending” is inclusive of SBA loans made by CDFIs 39 Source: CDFI Fund 40 Source: CRA and CDFI Fund data for New York City, accessed through PolicyMap

What We Found NEW YORK CITY 15 Figure 4.5: Bank and CDFI lending Figurein New4.5: BankYork andCity CDFIby census lending tract

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Insufficient <$5k $5-10k $10-25k $25-50k $50k+ Insufficient < 25 loans 26-50 loans 51-75 loans 76-100 loans 100+ loans data data

Insufficient < 25 loans 26-50 loans 51-75 loans 76-100 loans 100+ loans Insufficient <$5k $5-10k $10-25k $25-50k $50k+ data data 1 2 Insufficient < 25 loans 26-50 loans 51-75 loans 76-100 loans 100+ loans Insufficient <$5k $5-10k $10-25k $25-50k $50k+ data data

Insufficient < 25 loans 26-50 loans 51-75 loans 76-100 loans 100+ loans 1 Insufficient <$5k $5-10k $10-25k $25-50k $50k+ 2 data data

Figure 5 Source: CRA and CDFI Fund data for New York City (2017), accessed through PolicyMap 2 1 Insufficient < 25 loans 26-50 loans 51-75 loans 76-100 loans 100+ loans Insufficient <$5k $5-10k $10-25k $25-50k $50k+ data data At the start of the COVID-19 pandemic, demand for capital1 surged in the immediate term. Many businesses sought emergency2 financing from federal, state, and local sources, including loans made available by the Paycheck Protection Program (PPP) of the U.S. CARES Act. On the state and local levels, public1 and private emergency funds with varying geographic scope have2 been launched, all with significantly lower capitalization than that of Federal SBA programs. This emergency funding dynamic has made it difficult for 1 2 businesses owned by people of color to access funding successfully, as lender prioritized existing and larger customers with access to 1 2 more support and resources. Only 50% of PPP loans were awarded to businesses with loan sizes less than $25k in New York City, with larger loans overrepresenting loans made in the city by value.41

41 Source: SBA Paycheck Protection Program Loan Level Data

What We Found NEW YORK CITY 16 In this crisis, while some small businesses in New York City have adapted to position themselves for growth, most small businesses have tried to offset lost revenue, creating short- term increased demand for emergency funding but long-term reduced demand for traditional financing. Many businesses were largely unprepared to weather a disruption in business lasting more than a few weeks – prior to COVID-19, the average small business only possessed 15 days-worth of cash reserve buffers.42 By April 2020, median small business cash reserves fell by nearly 13% from the onset of the pandemic.43 As such, the initial influx was driven by businesses desperate for financing in the immediate wake of the crisis. Thereafter, Prior to COVID-19, the it is expected that there will be a subsequent decrease in capital demand driven by fewer small businesses able average small business only take on additional debt or seeking investment capital given possessed 15 days-worth of expectations that fundraising will be more difficult due to tighter 42 underwriting and investment policies. cash reserve buffers.

In numeric terms, the research team forecasted an initial surge of capital demand peaking at $22-25B in the second quarter of 2020, with demand decreasing through a ‘recovery’ period between $8-13B through the end of this calendar year. Subsequently, a ‘post-recovery’ period with stabilized and flattening demand is expected, rising slowly each quarter to an estimated $11-20B by the end of 2021.44

With the research team’s forecast, it was important to note that small business capital demand can serve as a proxy for the health of the small business ecosystem, with higher longer- term demand correlated with stronger ecosystem health. To ensure that capital demand reaches levels prior to the COVID-19 crisis, an integrated small business ecosystem response among capital and service providers should serve as a method to promote the overall health of small businesses and the supporting ecosystem and accelerate recovery.

42 Source: JPMC Institute, 2019 43 Source: JPMC Institute, 2020 44 Note: Detailed capital demand and supply methodology can be found in the appendix, p. [28]

What We Found NEW YORK CITY 17 BUSINESS SERVICES LANDSCAPE The New York City business support organization (BSO) landscape provides small business owners with a breadth of services but falls shorts in depth and potential transformation with small business owners. The analysis of the BSO landscape was informed by research on a sample of 100 providers based in New York City, examining the critical elements of a BSO ecosystem across the following areas depicted in Figure 6.

Figure 6:Figure Critical elements in4.6 the local business services landscape

Impact & Measures: Access & Navigation: There should be mutually held Business owners should be able to measurements of service quality, understand, navigate and access the Business owners reporting impact and outcomes Organizations landscape of service offerings have equal access track outcomes to resources, based on race regardless of race and gender or gender

Sustained Funding: Organizations Businesses Collaboration & Handoffs: owned by led or focused BSOs should collaborate with each other The ecosystem should have sustained people of color funding that supports the collaboration on people of and with capital providers to effectively have a clear between BSOs color have Equity serve business owners equitable growth path funding between BSOs

Organizational BSOs serve the leadership unique needs of reflects the businesses owned communities it by people of color Leadership & Talent: serves or women Specialization & Breadth: The leadership should possess the talent -- Services should cover the continuum of such as the ability to convene, influence needs. There should be a set of specialized and innovative -- to serve the needs of the BSOs serving the unique needs of particular business community types of business owners

8

Access and Navigation

Business support organizations are distributed throughout the five boroughs of NYC, with most easily accessible by public transportation. The New York City’s Department of Small Business Services’ Business Solutions Centers are unique given their reach, with at least one center in each borough. In total, there are seven Business Solutions Centers across the city, with three centers operated by community-based organizations, integrated with the City’s 311 infrastructure. There are also hyper-local business support organizations across the city, funded mostly by the communities they serve.

What We Found NEW YORK CITY 18 Specialization and Breadth

As shown in Figure 7, the BSOs studied for this assessment on-one mentoring and long-term support. Additionally, few were more likely to offer services like business planning, BSOs surveyed have dedicated services for hiring assistance, certification, and marketing support that are foundational indicating a disconnect between BSOs and workforce to startup businesses, with 60% of BSOs surveyed serving development providers. small businesses that are less than three years old. While The historical focus among BSOs in the city may have also this existing concentration of services is supportive for newer limited the ecosystem’s response to the COVID-19 pandemic. entrepreneurs, the services offered in New York City today Among the organizations surveyed, few BSOs in New York are of insufficient quality and breadth to meet the complex City reported having services that support businesses in needs of small businesses owned by people of color. There developing financial statements or managing state, county, and are opportunities for the landscape of BSOs to expand and city government regulations. Without well-developed services improve their portfolio of services to support small business around navigating evolving government protocols to reopen owners past the initial startup phases of their business. Few responsibly and developing the necessary financial statements BSOs surveyed offering services specialized in procurement and documentation to secure emergency financing, many practices, product development, or import / export operations, small businesses in New York City were left under-supported to for example. Moreover, many of the existing service offerings weather their growing needs in response to the pandemic. are transactional, with a limited number of BSOs offering one-

Figure 7: Concentration of business service categories in New York City Number of Business Support Organizations surveyed (n = 100)

80 80 40 40 60 60 70 70 35 35 50 50 59 5962 62 60 60 30 30 28 28 40 40 26 26 40 40 37 37 50 50 25 25 20 20 40 40 20 20 30 30 30 30 27 27 15 15 24 2422 22 12 12 20 20 20 20 10 10 7 7 12 12 10 10 10 10 5 5 0 0 0 0 0 0 General Business Services Operational Services Financial Services BusinessBusiness Planning Planning MarketingMarketing Assistance Assistance Hiring HiringAssistance Assistance Back OƒceBack OƒceSupport Support UnderstandingUnderstanding Financials Financials ContractContract Assistance AssistanceProductProduct Development Development CertificationCertification / Permit / PermitNavigatingNavigating Gov. Regs Gov. Regs AccessingAccessing Capital Capital ImportImport / Export / Export Legal Legal DevelopingDeveloping Financial Financial Stmts Stmts

Leadership and Talent

Leadership of BSOs should possess the talent, such as the ability to convene, influence, and innovate, to serve the needs of the business community. Ideally, organizational leadership reflects the communities it serves. As shown in Figure 8, of 100 BSOs sampled, leadership largely matches the proportion of people of color and women in New York City.

Of the BSOs sampled, a significant number of the leaders are women and/or people of color, which could provide leadership lessons around talent and development for a next generation of ecosystem leaders.

What We Found NEW YORK CITY 19 Sustained Funding While leaders of BSOs are largely representativeFigure of the population, 4.9there is a disparity in funding for sampled BSOs led by people of Figure 4.8color have revenues greater than $1M, as illustrated in Figure 9. This mirrors national trends, as nonprofit leaders of color consistently face barriers to fundraising, driven by inequitable access to social networks, challenges in building rapport with funders due to interpersonal biases, lack of cultural understanding, and White-centric strategic priorities.45 For example, only a third of White nonprofit leaders felt they lacked relationships with funding sources, compared to half of nonprofit leaders of color.46

Figure 8: Distribution of BSOs by demographic Figure 9: Distribution of BSOs by size

People of Color Women Revenue $1M+ Revenue $500k+

% of population 58% 52% White-led BSOs 76% 82% POC-led BSOs 55% 72% % of businesses 30% 23% Male-led BSOs 62% 66% % of BSO CEOs 58% 56% Female-led BSOs 42% 54%

Collaboration and Support

Collaboration among business support organizations and with capital providers in New York City is critical to effectively serve the city’s business owners. While the Business Solutions Centers are considered one of the hubs of the NYC small business ecosystem, they do not represent an effective ecosystem “quarterback.” There is no central database to help business owners navigate technical assistance resources, and few capital providers are connecting businesses to the technical assistance that they need. There is an opportunity for a more efficient, less duplicative business support landscape that ensures the community-based11 BSOs are adequately resourced and the businesses they serve are represented in decisions about ecosystem strategy. 10

Impact and Measures The right set of mutually held measurements of service quality that report impact and outcomes help BSOs hold one another accountable and make for a more efficient ecosystem. However, in NYC, few non-governmental BSOs regularly produce an annual report or publicly report their impact, making it hard to understand and objectively evaluate the quality of services. Local city and federal sponsored BSOs (e.g., Business Solutions Centers, Small Business Development Centers) integrate into a network of service providers, mandating that they have shared metrics and consistency in service delivery. There is a need to increase the practice of reporting impact and outcomes to align efforts towards shared, measurable goals and ensure that services are having the desired impacts.

45 Source: Stanford Social Innovation Review (2020) 46 Source: Building Movement, 2019

What We Found NEW YORK CITY 20 Figure 10: Prioritized small business ecosystem gaps GAPS IN THE ECOSYSTEM Access to Capital From the research and insights from local stakeholders, it is Financing for small businesses to start, survive, clear that New York City’s small businesses owned by people sustain, or scale of color face significant barriers in accessing capital, customers, and services. Extensive quantitative and qualitative research 1. Few small business grant programs dedicated for surfaced almost 50 challenges impeding the success of small people of color businesses owned by people of color. The research team worked with 21 local leaders of the small business ecosystem 2. Few equity funds for entrepreneurs of color in the Working Group and 56 leaders in the Advisory Council, 3. Limited public, philanthropic, and corporate sector representing a broader cross-section of the City’s small support for CDFIs and other responsible lenders business ecosystem, to refine the long list of gaps into a 4. Few lending options with flexible underwriting and shorter list of priority focus areas. Through two working collateral requirements sessions, the groups discussed and further developed the 5. Few modes of collaboration among capital providers gaps analysis and completed a survey to prioritize the final and with business / social service providers 13 high-priority gaps (see Figure 10). Afterwards, the groups came together in two additional working sessions to brainstorm strategies to address those gaps – drawing on the region’s Access to Customers and Markets assets and unique dynamics of the existing New York City small Avenues for small businesses to reach customers and business ecosystem. maintain and grow revenue

Local leaders aligned on the most significant challenges facing business owners of color including accessing capital due to a 1. Need to build capacity among small businesses to market and reach new customers lack of existing relationships with banks, absence of traditional lenders in local communities of color, and lower ability to tap 2. Need to continue developing e-commerce channels for and capabilities among small businesses funding from family and friends; undocumented immigrant business owners often face further difficulties in accessing 3. Greater access to shared and/or affordable commercial capital due to a lack of formal credit. At the same time, POC- spaces owned businesses face challenges in accessing customers and markets through fewer existing business networks to reach new clients and a lack of familiarity to leverage digital Access to Services marketing and e-commerce platforms. POC-owned businesses need high-quality, tailored technical assistance to start-up, Technical assistance support for small businesses to start, survive, sustain, or scale survive, sustain, or scale despite the barriers they face, and a more coordinated business support landscape to ease access to the services they need. 1. Need to deepen and extend relationships with business owners

The COVID-19 pandemic further entrenched these institutional 2. Need for training / tailored support to diversify revenue barriers and disproportionately affected the POC-owned streams and establish new business models

businesses that are over-represented within the ‘Hardest Hit’ 3. No clear “quarterback” coordinating across ecosystem industries. In particular, this crisis exposed the greater need (across the city and by specific focus areas) for more dedicated financing products for business owners 4. Need to facilitate localized ecosystems of BIDS, BSOs, of color, the need to build capacity in e-commerce and digital social service agencies, and other community-based marketing, and the need for deeper relationships among BSOs organizations and small businesses and a more efficient BSO ecosystem. 5. Need for NYC Small Business Services to further coordinate and engage with other city agencies and business / social service providers

What We Found NEW YORK CITY 21 Emerging Solutions

This research culminated in a set of ecosystem strategies designed to move New York City towards creating a more equitable small business environment that narrows the racial wealth gap in the region. The research team worked with the Working Group and Advisory Council through an iterative and collaborative process to advance a robust collection of solutions to address the priority ecosystem gaps. Throughout the solutions design process, the Working Group and Advisory Council developed strategies that recognize and harness the city’s size, diversity, and existing assets. Strategies were designed to address both the root causes of the gaps and to create the enabling infrastructure needed to respond to the prioritized gaps. The strategies were informed by a mix of local stakeholder input and national best practices for place-based small business ecosystems.

These solutions are organized under four key strategic pillars and are recommended to address the broad set of capital, customer, and service needs among small business owners of color within New York City:

HOLISTIC SERVICE DELIVERY Provide holistic services over longer period to transform small business owners of color and create resiliency programming

Comprehensive support*: Affordable and flexible space+: Provide wraparound business services to small businesses over Increase access to affordable and flexible commercial space for a longer period to deepen impact on businesses small business owners of color throughout the city

Resiliency programming+: Create and complement existing programming to help small businesses recover from COVID-19 and build resiliency against future crises

* The strategies were informed by a mix of local stakeholder input | + National best practices for place-based small business ecosystems

Emerging Solutions NEW YORK CITY 22 CONTINUUM OF CAPITAL

Increase availability of free, low-cost, and equity capital products to better finance and strengthen businesses, as well as CDFIs and other responsible lenders

Streamlined access to capital+: Partnerships across the continuum+: Establish new culturally competent mechanisms to streamline Cultivate formal and informal forums among debt and equity borrower experiences and improve access to available capital providers to engage and form partnerships

Expanded network of responsible lenders*: Expanding pools of flexible capital*: Create incentives for responsible lenders47 to enter the NYC Foster enhanced partnerships between mission-driven capital market and establish pathways for service providers to integrate providers and philanthropic, bank, and public investors to capital into service provision expand pools of flexible debt, equity, and grant capital for underserved markets

ENABLING INFRASTRUCTURE

Create digital platforms to connect small businesses to resources and revenue opportunities; advocate for small business-friendly policies

Digital small business hubs*: Small business purchasing platform*: Create a branded, single platform for small businesses owned Aggregate and promote small businesses to increase by people of color to find relevant and high-quality resources, purchasing amongst small business owners and from large learn, and network that is available in multiple languages corporates and anchors

Policy and advocacy platform+: Identify and promote policy and legislative positions that support equitable small business priorities

CITYWIDE COLLABORATION

Create citywide and borough-specific networks to connect small businesses, service and capital providers, funders, and other stakeholders

Small business networks+: Funder collaborative*: Create networks within each borough and across the city to Establish collaborative of funders to significantly scale resourcing connect small businesses for mentorship and partnership for small businesses and relevant efforts, and complement existing City funding Citywide collaboration*: Establish and sustain interdisciplinary communities of practice at the city and borough level to collaborate, share best practices, innovate, and ensure the provision of high-quality services and support across each borough

* The strategies were informed by a mix of local stakeholder input | + National best practices for place-based small business ecosystems

47 Note: In this report, “responsible lenders” refer to CDCs, CDFIs, and minority depository

Emerging Solutions NEW YORK CITY 23 Envisioning ‘Comprehensive Support’

The Need Business services provided in the city today are transactional and short-term in nature. Service providers help business owners address their immediate needs, but they do not work with them for long enough to help them meaningfully address a deep-rooted business challenge. Additionally, services are often provided in timebound sessions or through classes, which does not allow for enough individualized support. This issue is especially acute for people of color who may not have a natural network of advisors they can turn to for advice.

The Solution Small business owners of color need a panel of ‘experts’ or a set of professional service providers who can provide a comprehensive set of services, including legal, marketing, accounting, financing, and technology support. Service providers would provide intensive support to small business owners for a dedicated period to help them transform their business.

An Example Model New York Professional Advisors for Community Entrepreneurs (NYPACE) offers a model for comprehensive support that has the potential to be scaled. Their program pairs small businesses with two to four volunteer advisors for a three-to-four month period. Advisors have expertise ranging from accounting to marketing development and work with small businesses on the largest challenges impeding their growth.

Emerging Solutions NEW YORK CITY 24 Envisioning ‘Small Business Purchasing Platform’

The Need Corporate contracts are a lever for sustained business; small businesses experience impressive revenue growth and significant employment increases after becoming corporate suppliers.48 At the time of this report, there is a large focus on inclusion by corporations in response to recent acts of racial injustice. Large corporations such as Under Armour, Coca-Cola, and UPS have renewed and strengthened their commitment to their supplier diversity programs. However, small businesses owned by people of color often have trouble finding and successfully securing large contracting opportunities, while large corporations struggle to find potential small business partners.

The Solution Ecosystem stakeholders in New York City can capitalize on this momentum and form a small business purchasing platform that aggregates small businesses owned by people of color interested in contracting opportunities. The platform would be populated with MBE-certified small businesses that large companies and other anchor institutions could go to as a trusted source of vendors. The platform would include a clear, structured path to purchase from those businesses.

An Example Model An example of what this small business purchasing platform may look like is Source AZ. Source AZ connects Arizona anchor institutions to qualified Arizona-based companies that match supplier evaluation criteria. One large company participant has sourced 82% of goods and services from Arizonan companies, indirectly supporting 3,600 jobs and having a $500M impact on the state’s economy.

48 Source: Center for an Urban Future, 2011

Emerging Solutions NEW YORK CITY 25 Conclusion and Call to Action

The time to act is now. As part of a broader national initiative and study spanning The research team recommends immediate action on the nine cities and localities, the New York City small business strategies articulated in this report, starting with the steps ecosystem is at a crossroads with the opportunity to lead, learn below to fulfill the vision of closing racial gaps in business from, and coordinate with other cities to build a more equitable ownership, revenue, and employment across all five boroughs small business ecosystem across the U.S. of New York City:

Organize a coalition of funders. Bring together funders to resource the next two phases of work - planning and 1 implementation - and coordinate an immediate infusion of local funding “to curtail further closures of small businesses owned by people of color.

Convene local stakeholders. Continue gathering people involved in this work and include others to foster collaboration, 2 allow grassroots solutions to emerge, and develop implementation plans that are driven by and represent the needs of small businesses and the organizations that support them.

Use the research findings. Use this report as a tool to educate others, attract funding, amplify the needs of small 3 businesses, and pursue business-friendly policy change.

Conclusion and Call to Action NEW YORK CITY 26 Acknowledgements

This report for New York City and the national effort to create more findings bring real value to the city’s small business owners. We greatly equitable small business ecosystems across nine localities was created appreciate your engagement and commitment to this work. with the generous support of JPMorgan Chase Global Philanthropy. In particular, the research team would like to recognize Cheryl Rosario This project was made possible with the collaboration of key partners of CGR Consulting and Lloyd Cambridge of Progress Playbook for in the New York City ecosystem. These individuals supported this their contributions and commitment to serving as Project Leads for this project through participating in the Advisory Council and Working initiative in New York City. Group, sharing local perspectives, and guiding research to ensure that

New York City Small Business Ecosystem Advisory Council Members denoted in bold were also members of the Working Group

Angel Nguyen Swift, Enigma Technologies Javis M. Brunson, Goldman Sachs 10,0000 small Magin Shantz, Super Moon Community Art Space Businesses Anita Pierce, Eleven 3 Seven 5 Marian Cicolello, Queens Business Solutions Jessica Story, Richmond County Black & Minority Center Archana Shah, Impact Hub, NYC Chamber Melissa Plowden-Norman, Bedford Stuyvesant Blair Duncan, Upper Manhattan Empowerment Zone Jessie Lee, Renaissance Economic Development Gateway Bid Corporation Camille Newman, Brooklyn Women’s Business Center Michael Brady, Third Avenue BID Jill Johnson, Institute for Entrepreneurial Leadership Charles Wimbley, Aerialworks Inc. (IFEL) Monique Hector, Queens Library

Cheryl Rosario, CGR Consulting John Choe, Greater Flushing Chamber of Commerce Paisley Demby, Goldman Sachs 10,000 small Businesses Clarence Stanley, Lehman College SBDC John Paul Parmigiani, Impact Hub, NYC Paul Quintero, Accion Serving the East Coast Claudia Solarte Judith Smith, NYC Workforce Funders Paula Culma Colleen Galvin, Citi Community Development Kara Stevens, The Frugal Feminista Ricardi Calixte, Queens Economic Development Dawn Kelly, The Nourish Spot Kelvin Collins, Formerly at Harlem Commonwealth Corporation Capital Delia A. Awusi, Business Outreach Center Network, Inc. Ricardo Devallon, Lower Manhattan Business Ken Inadomi, New York PACE Solutions Center Diana Franco, WE NYC Kerry McCarthy, New York Community Trust Rohit Burman, Independent Consultant Edgar Hernandez, PTAC LaGuardia CC Lakia Williams, Capital One Selam Yemeru, Third Avenue BID Eileen Newman, The Center for Bronx Nonprofits Lauren Giordanella, EDSI (Staten Island BSC) Tammy Greer Brown, Community Leader Elli Papadopoulos, SKOPOS Leah Archibald, Evergreen Theresa Bedeau, Capital One Geri Stengel, Ventureneer Lisa Dolberry Hancock, Columbia University Tokunbo Anifalaje, Brooklyn Navy Yard Hope Knight, Greater Jamaica Development Development Corporation Corporation Lloyd Cambridge, Progress Playbook Tondalaya London, Brooklyn Chamber of Commerce Ionna Jimenez, Brownsville Community Justice Center Luana K. Lewis, Better Business Bureau Wellington Chen, Chinatown Partnership James Bason, TruFund Financial Lynette Battle, BedStuy Gateway BID Yanki Tshering, Business Center for New Americans

About the Research Team Next Street Common Future

The core research team would also like to acknowledge the contributions Charisse Conanan Johnson Crystal German Cydnee DeToy Ingrid Jacobson from Next Street and Common Future, who partnered together to produce Spencer Lau Tracy Lewis this report and underlying research. Frances Yang Ellen Shepard Alexander Pingry

Unless otherwise specifically stated, the views and opinions expressed in the report are solely those of Next Street and Common Future and do not necessarily reflect the views and opinions of JPMorgan Chase & Co. or its affiliates.

Acknowledgements NEW YORK CITY 27 Appendix

APPENDIX 1: DATA ANALYSES AND POTENTIAL LIMITATIONS

Small Business Landscape

The quantitative analysis combined data from several national, publicly available sources. Multiple data sources originate from the U.S. Census, but pose some minor inconsistencies in the data between sources.

Four primary data sources were used to analyze the small business landscapes.

• U.S. Census Survey of Business Owners and Self-Employed • U.S. Census Longitudinal Employer-Household Dynamics Persons (SBO), 2012 data (latest available, business owner (LEHD) Quarterly Workforce Indicators (QWI), 2017 data demographics / business characteristics by 2-digit NAICS (provides business data by 2-6 digit NAICS code) code) • U.S. Census County Business Patterns (CBP), 2011-2016 data • U.S. Census American Community Survey (ACS) Public Use (latest available, provides business data by 2-6 digit NAICS Microdata Sample (PUMS), 2018 5-year data set (workforce code) data by 2-6 digital NAICS code)

The most recently publicly available data consistently available from all datasets is from 2016 (apart from SBO); given this disparity in year that data was collected, it is possible that the data does not accurately represent current business dynamics.

Capital Landscape

Capital Supply Methodology

Four primary data sources were used to analyze the small business and capital landscapes.

• Federal Financial Institution Institutions Examination Council • CDFI Fund Program Awardee Data Release, 2008-2017 data (FFIEC) Community Reinvestment Act (CRA) report data • PwC and CB Insights MoneyTree Report, Series A or Series B made available from the Freedom of Information Act, 2008- or Series C or Series D or Growth Equity or Seed / Angel or 2017 data Convertible Note or Other, 2008-2017 data • Small Business Administration 504 and 7(a) lending databases made available from the Freedom of Information Act, 2008-2017 data

The data provided in this report is representative, but not necessarily comprehensive, of the capital providers located and operating in New York City. There are some limitations and considerations that should accompany any analysis of this capital landscape dataset:

• FFIEC CRA data does not fully represent bank loans to data. As a result, the research team adjusted the data to small businesses, as only banks above a certain asset estimate CDFI loans by scaling up estimates in this report threshold are required to report CRA loans. Banks are also to increase accuracy required report all loans under $1 million to businesses, • Equity data publicly available from the PwC and CB Insights indicating that some loans may actually be to businesses MoneyTree Report is aggregated across the New York- with more than 50 employees Newark metropolitan area restricted to New York State, • CDFI Fund data underrepresents loans to small business which may overrepresent equity deals made specifically to because not all CDFIs in New York City report full loan businesses located in New York City

Appendix NEW YORK CITY 28 Capital Demand Methodology

The research team used a bottoms-up methodology that to directly estimate the historical demand for financing from small businesses across demographic groups in New York City, as shown in Figure 11. Applying this methodologyFigure to forecast 8.1capital demand in 2020 and 2021, the research team made key assumptions to three forecast scenarios that measure the degree of impact the COVID-19 pandemic and resulting economic recession, shown in Figure 12.

Figure 11: Methodology to estimate historical small business capital demand

Number of small employer and non-employer firms in New York City

×

% of firms that apply for capital

Number of small employer and non-employer firms seeking capital

× Note: * Other includes populations Average amount of financing sought of American Indian, Alaska Native, Native Hawaiian, and Other Pacific Historical demand for capital in New York City Islanders, among other races not classified by the U.S. Census Bureau

Figure 12: Forecast assumptions for small business capital demand

17 Number of small businesses % of firms that apply for capital Avg. amount of financing sought

Base case Net growth in employer and non- Proportion seeking capital in 20Q2-Q3 equal Amount sought to decline relative to lower expected employer firms equal to median to 65-70%, estimated from national surveys50 revenue, assuming a direct relationship between Expected scenario with growth rates during financial crisis revenue and capital demand52 assumptions that analysts From 20Q4-21Q4, proportion seeking (2007-10)49 deem most likely to occur financing assumed to decline due to lower revenue expectations51

Optimistic forecast Net growth in employer and non- Proportion seeking capital in 20Q2-Q3 equal Amount sought to decline relative to moderate employer firms equal to growth rates to 65-70%, estimated from national surveys50 expected revenue, assuming a direct relationship Scenario based on during the latter years of the financial between revenue and capital demand52 a moderately severe From 20Q4-21Q4, proportion seeking crisis (2008-10)49 recession due to C-19 financing assumed to decline due to moderate revenue expectations51

Pessimistic forecast Net growth in employer and non- Proportion seeking capital in 20Q2-Q3 equal Amount sought to decline relative to significantly employer firms equal to growth rates to 65-70%, estimated from national surveys50 lower expected revenue, assuming a direct Scenario where C-19 at the height of the financial crisis relationship between revenue and capital demand52 recession results in From 20Q4-21Q4, proportion seeking (2007-09)49 conditions seen at the financing assumed to decline due to height of Great Recession significantly lower revenue expectations51

49 Note: Estimated based on historical data sourced from U.S. County Business Patterns and Non-Employer Statistics 50 Source: Goldman Sachs 10,000 Small Businesses, 2020 51 Note: Based on a logistic regression model assessing the relationship between the percentage seeking financing and the aggregate small business debt-to-income ratio 52 Note: Revenue decline expectations are based on the relative levels compared to estimated 2019 revenues, with expectations ranging from 25% to 90% of 2019 levels

Appendix NEW YORK CITY 29 Four primary data sources were used to estimate historical and estimated small business capital demand.

• U.S. Census County Business Patterns (CBP), 2007-2016 • U.S. Census Annual Survey of Entrepreneurs (ASE), 2016 data (latest available, provides business data by 2-6 digit data (latest available, business owner demographics / NAICS code) business characteristics by 2-digit NAICS code) • U.S. Census Nonemployer Statistics (NES), 2007-2016 data • Federal Reserve Small Business Credit Survey, 2016-2019 (latest available, provides business data by 2-6 digit survey results (latest available, provides data on capital NAICS code) demand trends by demographics / business characteristics)

The data sourced to estimate capital demand in this report provides a directional representation of capital demand but may not precisely account for capital demand among all small businesses operating in New York City.

There are some limitations in the datasets used to estimate capital demand that require additional considerations and assumptions:

• U.S. Census County Business Patterns and Nonemployer demographic breakdown by race and ethnicity across the Statistics data is available up to 2016. To estimate the historical and forecast period, the research team assumed baseline number of small employer and non-employer firms that the breakdown remains fixed at 2016-levels. following 2016, the research team scaled the total firms • The Federal Reserve Small Busines Credit Survey reported in 2016 by the annualized growth rate from 2014 measured capital demand among small businesses across to 2016 the U.S. As a result, the small business capital demand • U.S. Census Annual Survey of Entrepreneurs data is dynamics measured in the annual surveys may not fully available up to 2016. To estimate the business ownership represent the small business sentiments in New York City.

Appendix NEW YORK CITY 30 APPENDIX 2: SOURCES AND FULL WORKS REFERENCED

Interviews Webinars

• Executive Director, Bronx Small Business Development • New York Federal Reserve: Too Important to Fail: Minority- Center at Lehman College Owned Businesses Navigating COVID-19 and Beyond, May • Senior Loan Officer, Business Center for New Americans 2020 • Executive Director, Celebrating Real Family Life • Urbane Development and the NYC Mayor’s Office of MWBE • Partner, Galleros Robinson – Collaboration for an Inclusive Recovery: Advancing Equity • Business and Financial Services Manager, Greater Jamaica for Businesses and their Workers, June 2020 Development Center • Director of Business Services, Greater Jamaica Development Center • Project Manager of Small Business Services, Greater Jamaica Development Center • Dean of School of Business, Medgar Evers College of The City of New York • Director of Small Business Services, Restoration Plaza • Founder and Executive Director, Start Small Think Big • CEO, Upper Manhattan Empowerment Zone

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Appendix NEW YORK CITY 31 15. JPMorgan Chase Institute, Farrell, D., Wheat, C., & Mac, C. (2020, June). Small Business Financial Outcomes during the Onset of COVID-19. https://institute.jpmorganchase.com/institute/research/small-business/small-business-financial-outcomes-during-the- onset-of-covid-19 16. National CAPACD. (2019, March). Small Business, Big Dreams. https://www.nationalcapacd.org/wp-content/uploads/2019/03/ CAPACD_SmallBusinessReport_final_web.pdf 17. New York City Mayor’s Office of ImmigrantA ffairs. (2019, March). State of our Immigrant City for Calendar Year 2018. https://www1. nyc.gov/assets/immigrants/downloads/pdf/moia_annual_report%202019_final.pdf 18. Office of the New York City Comptroller Scott M. Stringer. (2017, January). Our Immigrant Population Helps Power NYC Economy. https://comptroller.nyc.gov/wp-content/uploads/documents/Our-Immigrant-Population-Helps-Power-NYC-Economy.pdf 19. Opportunity Insights, Chetty, R., Friedman, J. N., Hendren, N., & Stepner, M. (2020, June). How Did COVID-19 and Stabilization Policies Affect Spending and Employment? A New Real-Time Economic Tracker Based on Private Sector Data. https:// opportunityinsights.org/wp-content/uploads/2020/05/tracker_paper.pdf 20. Pepperdine University, & Everett, C. (2018, March). 2018 Private Capital Markets Report. https://bschool.pepperdine.edu/institutes- centers/centers/applied-research/research/pcmsurvey/content/2018-private-capital-markets-report.pdf 21. Pew Research Center, Kochhar, R., & Cilluffo, A. (2018, July). Income Inequality in the U.S. Is Rising Most Rapidly Among Asians. https://www.pewsocialtrends.org/2018/07/12/income-inequality-in-the-u-s-is-rising-most-rapidly-among-asians/ 22. PwC MoneyTree & CB Insights. (2008–2017). PwC and CB Insights MoneyTree Report [Dataset]. https://www.pwc.com/us/en/ industries/technology/moneytree/explorer.html 23. SBA Paycheck Protection Program Loan Level Data | U.S. Department of the Treasury. (2020, July 28). U.S. Department of Treasury. https://home.treasury.gov/policy-issues/cares-act/assistance-for-small-businesses/sba-paycheck-protection-program-loan-level-data 24. Stanford Social Innovation Review, Dorsey, C., Kim, P., Sakaue, L., & Savage, B. (2020, May). Overcoming the Racial Bias in Philanthropic Funding. https://ssir.org/articles/entry/overcoming_the_racial_bias_in_philanthropic_funding 25. The Aspen Institute, Klein, J., & Liang, J. (2015). The Racial Wealth Gap, Narrowing the Racial Wealth Gap through Business Ownership. https://assets.aspeninstitute.org/content/uploads/2015/11/AFN-RacialWealthGap.pdf?_ ga=2.223686045.704985258.1596208611-261144156.1596208611 26. The NYC Mayor’s Office of Immigrant Affairs. (2020, April 16). Mayor de Blasio Announces New York City COVID-19 Immigrant Emergency Relief Program with Open Society [Press release]. https://www1.nyc.gov/office-of-the-mayor/news/262-20/mayor-de- blasio-new-york-city-covid-19-immigrant-emergency-relief-program-open 27. United States Census Bureau. (2007–2016a). County Business Patterns [Dataset]. United States Census Bureau. https://data. census.gov 28. United States Census Bureau. (2007–2016b). Nonemployer Statistics [Dataset]. United States Census Bureau. https://data.census. gov 29. United States Census Bureau. (2012). Survey of Business Owners and Self-Employed Persons [Dataset]. United States Census Bureau. https://data.census.gov 30. United States Census Bureau. (2016). Annual Survey of Entrepreneurs [Dataset]. United States Census Bureau. https://data.census. gov 31. U.S. Department of Treasury Community Development Financial Institution Fund. (2008–2017). CDFI Fund’s Searchable Award Database [Dataset]. U.S. Department of Treasury Community Development Financial Institution Fund. https://cdfifund.gov 32. U.S. Small Business Administration. (2008–2017). Small Business Administration 504 and 7(a) lending [Dataset]. https://sba.gov 33. U.S. Small Business Administration. (2020a). SBA Paycheck Protection Program Loan Level Data [Dataset]. https://home.treasury. gov/policy-issues/cares-act/assistance-for-small-businesses/sba-paycheck-protection-program-loan-level-data 34. U.S. Department of Commerce Minority Business Development Agency. (2016, December). Contracting Barriers and Factors Affecting Minority Business Enterprises. https://www.mbda.gov/sites/mbda.gov/files/migrated/files-attachments/ ContractingBarriers_AReviewofExistingDisparityStudies.pdf 35. U.S. Small Business Administration. (2020, May). Paycheck Protection Program (PPP) Report: Second Round. https://www.sba.gov/ sites/default/files/2020-05/PPP2%20Data%2005012020.pdf 36. Wang, Q. (2013). Industrial Concentration of Ethnic Minority- and Women-Owned Businesses in the United States. US Census Bureau Center for Economic Studies Paper, 13–34. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2286372

Appendix NEW YORK CITY 32 Let’s build a better future for small business together