Opportunities for Governmental Support for Small Businesses Owned by Socially- or Economically-Disadvantaged Individuals

Small businesses serve a vital role in the U.S economy, accounting for nearly 44% of U.S economic activity. The U.S economy is built upon entrepreneurship and innovation, which has provided millions of jobs to individuals across the nation. As lawyers specializing in trademarks, patents, copyrights, and business law, it is an exciting time to support this vital means of industry.

A Growing Concern 

Entrepreneurship also has sociological externalities, allowing individuals from lower income classes to compete with multinational corporations that control much of the national economy today.  Although the U.S. government historically has encouraged entrepreneurship and promoted the growth of small businesses, a growing concern has been on how governments can further protect entrepreneurs and small businesses. 

However, as the pandemic has forced many small businesses into financial distress, the issue is raised on what can be done to provide additional support for businesses owned by individuals from socially or economically disadvantaged backgrounds. Recent migrants may have experienced restrictions to economic resources and the ability to network in the entrepreneurial field due to language barriers. In addition, entrepreneurship success is also influenced by racial ethnicity. 

According to the Small Business Credit Survey in 2018, large banks approved nearly 60% of loans for white owned small businesses, in contrast to 50% of those sought by Hispanic or Latinx small business owners, and 29% sought by black owned small businesses.   Moreover, with COVID-19 considered to hurt Black Americans at a much higher rate than other racial groups, the uncertainty of the ability of these minority owned businesses to succeed would most effectively be addressed through law. 

For example, small business owners have struggled with copyright disputes against infringers, which can be attributed in part to litigation costs. Litigation is expensive and costs have proved to be a barrier to small business owners and entrepreneurs, as hiring attorneys and going through the process of infringement actions can be long and expensive.  According to the William Mitchell Law Review, an appeal involving any complex issue is likely to be a $25,000 proposition at minimum. A motion for summary judgment or dismissal could run from $20,000-$40,000 or more.

Positive Legislation

In order to protect small minority-owned businesses, the Copyright Alternative in Small-Claims Enforcement Act was signed into law in 2020 by Congress.  This piece of legislation would instill copyright officers and will allow for parties to represent themselves in copyright disputes before a Copyright Claims Board in the Copyright Office. Notably, small business owners are not required to bring their claims to the Board and can opt out at any time they desire. Having a process such as this for small business owners to overcome litigation costs helps economically disadvantaged entrepreneurs in protecting their intellectual property.

For socially disadvantaged entrepreneurs and small businesses to succeed, it is necessary for these groups to be aware of recently passed legislation. Moreover, making socially/economically disadvantaged entrepreneurs aware of such legislation will encourage them to conduct business freely. 

As an example, The Build Back Better Act passed in November of 2021 would allow the Small Business Administration (SBA) to directly lend to small businesses outside of disaster scenarios. The program is aimed at improving access to capital in economically disadvantaged communities. 

Other resources targeted to assist small businesses include SBA Community Advantage Loans, SBA Microloan program, and the Emergency Capital Investment Program (ECIP), which alone will provide up to $9 billion to community development financial institutions.  With more loans appropriated to small businesses, and with easier access, it is imperative that economically disadvantaged entrepreneurs understand the process and seize the opportunity to obtain capital.

Exit Strategies for Small Businesses

However, with an increasing number of small businesses being forced to leave their markets due to a lack of demand during the pandemic, an important matter for these small businesses to be informed on are exit strategies. An exit is a point at which the owner of a business can leave and withdraw assets from the market. A proper exit strategy entails putting the businesses in the best possible position to maximize financial returns. 

Business owners can take the following exit strategies: Liquidate the business or sell it to existing partners, family members, competitors, or employees.  Liquidation may allow the quickest exit and may allow the owner to avoid additional expenses. 

Intellectual property lawyers can provide support for small business owners by educating small businesses owners and entrepreneurs about the various exit strategy options.  Having legal representation can further facilitate the transfer of ownership such as through a bill of sale, a legal document which provides the owner of the business with a direct way to exit the market, and transfer ownership.

It is important to understand the difference between a bill of sale and a purchase or sale agreement. Ultimately, it is necessary to understand the difference between a bill of sale and a purchase or sale agreement due to the fact that a purchase or sale agreement does not legally recognize new ownership. For new ownership to be bound by the law, an ownership transition must be finalized with a bill of sale.

Actions Needed to Foster Small Business Growth

To foster small business growth, the federal, state, and local governments need to take specific action to provide support for local communities. For example, promoting legislation where consumers are encouraged to shop local and support small businesses can foster economic growth.  Incentives, such as tax reductions, or tax credits to entities who provide consultation to small businesses, can provide a more efficient way for small businesses to garner contracts with their local, state, and federal government. 

Mandating a higher percentage of contracts for small businesses for disadvantaged groups, women, and service-disabled veterans is necessary for economic growth.  The U.S. government only allocated 26% of its contracts to small businesses in 2021. 

Next Steps for Small Business Owners

Small businesses often are faced with a lack of capital and governmental assistance. With the emergence of Omicron and the persistence of COVID-19, small businesses and especially socially/economically disadvantaged entrepreneurs should be aware of the resources available to them through the government. 

Attorneys who have an expertise in business law can be utilized in helping small business owners recover in an economic transition by being aware of financial assistance available to them. Please contact the BCR Firm if you'd like to start a conversation and learn how we can help.