For many people, the holiday season means shopping for gifts for loved ones. But, while you might be tempted to shop online at a big-box retail store, consider spending money at your local small businesses. Retail small businesses, most of which have under 100 employees and don’t exceed $6 million average annual revenue, make up 99% of the businesses in the United States, according to data from the U.S. Small Business Association (SBA). The over 30 million small businesses in the country provide jobs (employing nearly 58.9 million people in 2015), and they also pump revenue into the local community. However, despite their distinct value, these businesses only have a 50% chance of surviving long term, even in more certain and consistent years.
In 2020, of all of the country’s small businesses, Black-owned small businesses were some of the hardest hit. According to The Federal Reserve Bank of New York, more than 40% of Black-owned businesses in the United States closed between February and April 2020. In September 2020, nearly half of Black-owned small business owners said that, without support, they would not be able to continue doing business past six months. Fortunately, entrepreneur and philanthropist Robert F. Smith has at least one solution to help Black-owned small businesses in these trying times — the 2% solution.
The 2% Solution to the Problem
In order to better support small businesses, Smith championed the infusion of capital into community development financial institutions, also known as CDFIs, which are private financial institutions solely dedicated to providing affordable lending to help disadvantaged communities. This is where the 2% solution comes into play. In short, the 2% solution advocates that corporations donate 2% of their annual net income for the next decade to empower minority communities. While the money could be allocated anywhere within the communities, Smith urges companies to put the money into Black-owned banking systems, which would help small businesses in Black communities.
During his keynote speech at the ninth annual Forbes 400 Summit on Philanthropy in summer 2020, Smith stated, “The first thing to do is put capital into those branch banks to lend to these small businesses to actually create an opportunity set…drive it into these small businesses, which employs 60%-plus of African Americans.” With the support of corporations nationwide, banking institutions and, in turn, black communities, would have the assistance needed to survive even in troubling times.
Aside from the 2% solution, Smith went through additional avenues to try to help Black-owned small businesses. He helped persuade Congress to create a $10 billion pool of money for CDFIs to help finance small businesses that may have not been properly assisted by the government during the first round of the Paycheck Protection Program (PPP). What’s more, he encouraged small businesses that aren’t served by large banking institutions to implement new technology tools that support transparency and facilitate operations. Finastra, a partner company of Vista Equity Partners, of which Smith is Founder, CEO and Chairman, rose up to help these businesses. It assisted 575 smaller regional banks and CDFIs automate their loan -processing capabilities to get PPP funding into their communities.
How You Can Best Support Small Businesses This Holiday Season
While not everyone can be directly a part of the 2% solution, we can still help to support small businesses in our local communities this holiday season. If you are going shopping this year for your family’s holiday gifts, consider a local shop over a big-box retailer. That’s the best way to help our local favorites. See what stores in your area have great gifts, or buy a gift card to a local store or restaurant to be used in the new year. You might even discover a new brand or store that eventually becomes your go-to for clothes, shoes, cookware, books and more in 2021.
More of us are shopping online this holiday, but that doesn’t mean we have to forgo our local favorites. Many small businesses have online shops, and they may even offer extra incentives like free shipping or curbside pickup — just like many of the larger retailers.
To make the greatest positive impact on your favorite small business, spread out your shopping. Contributing over a greater period of time will be the most beneficial. And, if you are unsure about buying something now, then purchase a gift card to provide cash flow to the business right now, when they need it the most.
Finally, share a positive review or a friendly referral for your favorite small businesses online. It may encourage others to seek them out. This may include posting about them on a social media platform or even sharing a positive comment about your experience there when talking with friends.