From retail to restaurants, the COVID-19 pandemic has taken out tens of thousands of businesses nationwide. But minority-owned companies have fared much worse than their white counterparts, largely due to limited access to capital.
The number of active business owners nationally fell by 22% from February to April this year, the largest recorded drop on record, according to an August report from the Federal Reserve Bank of New York.
Researchers found that Black-owned businesses experienced the most dramatic decline, with a 41% drop, though other minority groups also suffered disproportionately. Latinx business owners declined 32%, while Asian business owners fell 26%. White business owners declined 17%, according to the New York Fed.
A significant factor was that funds from the Paycheck Protection Program only reached 20% of eligible firms in states with the highest densities of Black-owned firms. And in counties with the densest Black-owned business activity, coverage rates were typically lower than 20%, researchers found.
The report said that the volume of COVID-19 cases also coincides with locations of Black-owned businesses, as two-thirds of counties with high levels of Black business activity pre-COVID-19 are in the top 50 COVID-affected areas. By contrast, white-owned businesses are less likely to be in COVID-19 hotspots.
To date, it hasn’t matter if the Black-owned business had a weaker bank relationship or were considered a healthy relationship, there was still minimal funding for Black-owned businesses entering the pandemic versus white-owned businesses, per the report, which was released.
“A large number of Black firms entered the crisis in a weakened position and may have been reluctant to apply for a PPP loan given uncertainty about future activity,” the report said.
Any recovery is going to largely hinge on Black business owners’ access to capital. The New York Fed expressed concern that fewer than one in four Black-owned employer firms had a recent borrowing relationship with a bank.
Black business owners said they are more likely to be turned down when applying for financing: 37.9% of Black employer firms reported being discouraged, while only 12.7% of white-owned firms said the same.