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Remarks to the Small Business Capital Formation Advisory Committee

Aug. 4, 2020

Thank you, Carla [Garrett]. Good morning, everyone, and welcome to our new members Kesha [Cash] and Sue [Washer]. I am as always glad to be here with you, and glad to see that the committee will spend the day discussing one of the most important issues we face: how to make sure our economy is serving all Americans. I’m grateful for the continued commitment of this committee and our Advocate for Small Business Capital Formation to addressing the particular challenges faced by women- and minority-owned businesses.

We know we have a problem. We know there are significant disparities in access to capital for women and people of color.[1] We know at least some of the likely causes: a persistent wealth gap between minority and non-minority communities that can prevent minority entrepreneurs from investing their own capital in their businesses or using it as collateral;[2] disparities in lending practices that can hinder or discourage minority and women founders from seeking or obtaining loans;[3] and unconscious bias in investment behavior,[4] among other potential factors.

We know also that these problems may be compounded in the current financial stress. Small businesses are particularly at risk during the downturn. Credit may be more difficult to obtain across the board. Women and communities of color will disproportionately suffer the effects of the economic downturn.[5]

Thus we have a convergence of challenges right now. But perhaps also a convergence of opportunities. If we can find ways to support women and minority-owned businesses and shrink racial and gender disparities in capital raising, these small businesses can be job providers, sources of wealth, and drivers of economic growth in our communities. They can help ameliorate some of the very problems that may hinder their growth at present. One recent analysis estimated that if, for example, “Black Americans enjoyed the same business ownership and success rates as their white counterparts, there would be approximately 860,000 additional Black-owned firms employing more than 10 million people.”[6] Women and minority-owned businesses are a tremendous, under-utilized resource that could help drive our recovery if we can more effectively find ways to support them and dismantle the barriers they face.

That brings us to the hard part. We know there is a problem. We know that problem could also represent an opportunity. What can we at the SEC do to contribute to the solution? Outreach for one thing, just as this committee is doing today, and just as I know Martha’s office does throughout the year. We must also work to ensure that we, within our own ranks here at the SEC, at all levels of seniority, better reflect the communities that we serve. We must engage with other regulators to understand how we may work together.

What are the ways in which we should more systematically consider gender and racial disparities in our regulatory efforts? Perhaps, for example, we should enlist our Division of Economic and Risk Analysis to analyze whether and how our rule proposals are specifically tailored to assist underserved populations. Perhaps our Office of Women and Minority Inclusion should play a larger role in policy discussions and rulemaking. Perhaps we can take a more active role in addressing the lack of diversity in the financial services industry, and better empower investors to identify and target investment opportunities from women- and minority-owned businesses.

I hope you will help us think through these questions. I look forward to the discussion, and to your recommendations on how we can do better to help create economic opportunities and level the playing field for underserved communities. We will all be better off for it. Thank you for your valuable time in this effort.

[1] See Office of the Advocate for Small Business Capital Formation Annual Report for Fiscal Year 2019, available at

[2] See Alicia Robb, “Access to Capital among Young Firms, Minority-owned Firms, Women-owned Firms, and High-tech Firms,” Small Business Administration Office of Advocacy (April 2013) (“African-American wealth levels are just 8 percent of non-minority wealth levels, and Hispanic wealth levels are just 12 percent of nonminority wealth levels. Only Asians have wealth levels similar to those of non-Hispanic Whites. Low levels of wealth and liquidity constraints can create substantial barriers to entry for would-be entrepreneurs because the owner's wealth can be invested directly in the business, used as collateral to obtain business loans, or used to acquire other businesses. Investors frequently require a substantial level of an owner’s investment of his/her own capital as an incentive.”).

[3] See Small Business Credit Survey: Report On Minority-Owned Firms, Federal Reserve Bank of Atlanta (Dec. 2019) (finding that “[s]ignificantly larger shares of minority-owned firms reported they shied away from applying for financing because they did not believe they would be approved” and “Black- and Hispanic-owned firm applicants received approval for smaller shares of the financing they sought compared to White-owned small businesses that applied for financing”); Susan Coleman and Alicia Robb, “Empowering Equality: 5 Challenges Faced by Women Entrepreneurs,” Third Way (April 26, 2017) (finding that “women are still less likely to apply for loans because they fear the will be denied, and when they do apply, they request smaller loan amounts.”).

[4] See e.g., Understanding the Landscape: Access to Capital for Women Entrepreneurs, A Report Prepared by the Federal Research Division, Library of Congress under an Interagency Agreement with the National Women’s Business Council (Mar. 1, 2018) (finding that “[w]omen in business are often tied to an unconscious association with less credibility and a lack of legitimacy”).

[5] See, e.g., Alexandra Kalev, “Research: U.S. Unemployment Rising Faster for Women and People of Color,” Harvard Business Review (April 20, 2020).

[6] See Connor Maxwell, Darrick Hamilton, Andre M. Perry, and Danyelle Solomon, “A Blueprint for Revamping the Minority Business Development Agency,” Center for American Progress (July 31, 2020).

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