May 23, 2020 - Economy

Minority-owned businesses are faring worse than others

Illustration of a person of color with hundred dollar bills falling around her.

Illustration: Aïda Amer/Axios

New research suggests that many small businesses owned by people of color are struggling particularly hard to survive the pandemic-induced financial crisis.

Why it matters: Structural barriers and narrower cash buffers had put many minority-owned small businesses at a disadvantage heading into the pandemic. Now, as the situation unfolds, experts say that entrepreneurs of color are having a harder time accessing lending and relief programs.

What's happening: Research conducted by Global Strategy Group and published this week by two civil rights advocacy groups — UnidosUS and Color of Change — offers an early signal that black and Latinx small business owners are struggling to connect with the resources available to them, including but not limited to the PPP.

  • According to a survey of 500 black and Latinx small businesses owners conducted April 30-May 12, 1 in 5 applied for federal aid, and of those who applied, only 12% said they received the full amount; 30% said they were still waiting to hear.
  • Of those who applied, just over half requested a very small amount — less than $20,00o.
  • Among respondents, 15% said they had closed permanently. Of the remainder, 45% said they did not expect to get through six or more months if current circumstances continue.

What they're saying: “Historically, attempts to build wealth by black people in this country have been interrupted," Shelly Bell, a D.C.-based entrepreneur and founder of Black Girl Ventures (a support organization for female entrepreneurs of color), tells Axios. "When we look at COVID, the psychological part of this feels like another big interruption.”

  • Tom Feltner, executive vice president and director of research at the Center for Responsible Lending — a nonprofit dedicated to fighting predatory lending — tells Axios that businesses owned by people of color are more likely to be smaller, to have no employees, and to have lower revenue than white-owned businesses.
  • "Combined, that means these businesses are less likely to have the characteristics that would allow them to fully benefit from PPP."

"When we saw the first round of PPP loan data come through, it was pretty clear that the structural inequities we’d been warning about had been playing out," Feltner says.

Research from Goldman Sachs published in late April found that there were particularly stark disparities for black business owners in terms of accessing aid, compared with other small business owners.

The big picture: Before the crisis, research from the JPMorgan Chase Institute, an internal research organization, found that 89% of small businesses in majority-Hispanic communities and 95% of small businesses in majority-black communities had 14 or fewer "cash buffer days" — days the business could survive with no new revenue.

  • By contrast, 30% of small businesses in majority-white communities and 2.3% of small businesses in majority-Asian communities had a cash buffer of only two weeks or less.

History lesson: According to a Brookings Institution report from April, "small businesses experienced disproportionate job losses during the Great Recession, but the pain was even greater for female- and black-owned businesses."

  • It cites a Census Bureau study that found that of businesses that existed in 2002, 60% of white-owned businesses "survived" the recession through to 2011, but only 49% of black-owned businesses did.

The bottom line: "It’s a very different crisis, but there are some similarities," Feltner says.

  • "We need to make sure businesses have revenue replacement and payroll support to keep people attached to the workforce, so that we don’t see the prolonged recovery we saw last time that left communities of color behind."

Editor's note: This story has been updated to reflect final survey results. 

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