While the Covid-19 pandemic was a major blow for most small businesses, firms owned by people of color were hit hardest, according to a new analysis from the 12 banks of the Federal Reserve.
Among the nearly 10,000 small businesses they surveyed last fall – more than six months into the pandemic – the minority-led firms reported steeper declines in sales than White-owned businesses. They had a harder time accessing capital. And when they did get funds, they were less likely to receive the full amounts requested.
The Fed survey only included businesses with fewer than 500 employees. While the survey isn’t based on a random sampling, the analysis weights the results to reflect the full population of small businesses in the United States.
Regardless of race or ethnicity, the vast majority (95%) of all business owners surveyed said their operations were affected negatively by the crisis.
When asked to characterize the financial condition of their businesses, 57% of all owners said it was “fair” or “poor.” But Asian-owned businesses (79%), Black-owned companies (77%) and Hispanic owned firms (66%) were far more likely to characterize their financial conditions that way.
And getting help was harder for them.
Among the small businesses surveyed, White-owned firms were twice as likely to get fully approved for financing as Black-owned and Latino-owned firms.
The federal Paycheck Protection Program, which offers forgivable loans to small businesses to make payroll and pay some operating expenses, was the most common source of funding sought.
Yet the Fed survey results suggest minority owners had more trouble than other applicants in getting the money they needed.
Only 43% of Black-owned firms surveyed received all the PPP funding they requested, the lowest share of any group. Sixty-one percent of Latino-owned firms and 68% of Asian-owned firms said the same. Among White-owned businesses, 79% reported getting their full ask.
“Black-owned firms [surveyed with one or more employees] were nearly half as likely as [W]hite-owned firms to receive all of the PPP funding they sought and were approximately five times as likely to receive none of the funding they sought,” the Fed report notes.
And plenty of minority-owned businesses didn’t even apply for a PPP loan.
The survey found that small businesses that used banks as their financial service providers were more likely to apply for a PPP loan, but that firms owned by people of color were less likely to use banks than White-owned companies. The survey found, for instance, that only six in 10 Black-owned businesses applied for a PPP loan.
It should be noted that the survey was taken before the deadline for the latest round of PPP funding was extended, before money was earmarked for minority-led businesses and before rules to qualify for the loans were amended to make them more accessible to microbusinesses and sole proprietors.
But even after that, small business advocates say much more needs to happen to better support BIPOC-led businesses.
“[The PPP] was lacking in equitable access since the beginning. It’s not the easiest program to navigate,” said Didier Trinh, government affairs director for the Main Street Alliance.
And while improvements to the PPP have been made on behalf of minority-owned businesses, “each time they layer on a change it makes it all the more confusing,” Trinh said.
The MSA, in alliance with more than 100 other small business groups, called on Congress in early April to provide flexible, unrestricted direct grants to help the smallest and hardest hit businesses, which are disproportionately minority-owned.
Racial inequities accessing other financing sources
Racial inequities persisted even when it came to outside financing for their businesses in the 12 months prior to last fall’s survey.
Among business owners who applied for outside financing beyond emergency pandemic funds (e.g., business loans, lines of credit and credit cards) the survey found that 40% of White-owned firms received all the funding they requested. But that was only the case for 13% of Black-owned firms, 20% of Hispanic-run companies and 31% of Asian-led enterprises.
Strong creditworthiness didn’t necessarily help minority owners.”Black-owned firms with high credit scores were half as likely as their [W]hite counterparts to receive all of the non-emergency financing they sought,” according to the report.
Only 25% of Latino-owned firms that presented a low credit risk got all the non-emergency financing they applied for, nearly half the rate of White-owned firms.
And whether or not they applied for outside financing, businesses led by people of color were more likely than White-owned firms to report unmet funding needs.
Only 19% of Black owners and 31% of Hispanic and Asian owners surveyed reported having sufficient funding for their businesses. By contrast, half of all White small business owners surveyed reported the same.