As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

Small business owners have been hit hard during the COVID-19 pandemic and the resulting reopening across the United States. Minority business owners, in particular, have been hit significantly hard by the pandemic and shutdowns, but many were operating with slim margins and without a safety net before the pandemic began. The reasoning for most of these issues stems back centuries to systemic racism – and implicit bias against non-white-male owned businesses – in a capitalist society.

Looking at economic analyses from Biz2Credit (and our new platform Biz2X), a webinar with two Congressmen, and research conducted throughout the United States, we will work to unpack how a once-in-a-generation global pandemic has upended business and led 66 percent of minority small business owners to worry about having to permanently close.

Where We Started

There are over 1.1 million minority-owned small businesses in the U.S. “employing more than 8.7 million workers and annually more than $1 trillion in economic output,” according to McKinsey & Company, with women owning nearly 300,000 of the businesses and employing 2.4 million workers. The economic impact of these businesses is huge, but they have been left on the precipice for too long. From not enough credit to weak ties to banks and lending institutions, these businesses have been set up to fail while they work to support their communities.

Before the pandemic, many minority-owned businesses were deemed to be “at risk” or “distressed” before the COVID-19 crisis, which led to exacerbated damage when the coronavirus pandemic and shutdowns hit. According to data collected by McKinsey & Company from multiple U.S. Federal Reserve Banks, small businesses in the “at risk” or “distressed” fell into the following four categories:

• Non-Hispanic white: 22 percent at risk (+) 5 percent distressed for a total of 27 percent of small businesses with low financial health
• Non-Hispanic Asian: 23 percent at risk (+) 8 percent distressed for a total of 31 percent of small businesses with low financial health
• Hispanic: 31 percent at risk (+) 18 percent distressed for a total 49 percent of small businesses with low financial health
• Non-Hispanic Black: 37 percent at risk (+) 20 percent distressed for a total 57 percent of small businesses with low financial health

It is important to understand the number of small businesses in each of the categories we are talking about. A paper from Professor Robert W. Fairlie at U.C. Santa Cruz and published as a working paper by the National Bureau of Economic Research utilizes Current Population Survey (CPS) data from the U.S. Census Bureau and the U.S. Bureau of Labor Statistics for labor force statistics. Fairlie found that in February 2020 there were approximately 15 million small business owners in the U.S. By April 2020 that number would drop 22 percent to 11.7 million. Breaking down these numbers further we can see where small businesses started in February 2020 before the pandemic:

Gender Breakdown

• 15.012 million total small businesses in the U.S. (22 percent would be lost by April 2020)
  • 9.623 million were male-owned (20 percent lost by April 2020)
  • 5.389 million were female-owned (25 percent lost by April 2020)

Race & Ethnic Breakdown

• 15.012 million total small businesses in the U.S. (22 percent would be lost by April 2020)
  • 10.553 million were white-owned (17 percent lost by April 2020)
  • 4.039 million were minority-owned (33 percent lost by April 2020)
    • 2.071 million were Hispanic- or Latinx- owned (32 percent lost by April 2020)
    • 1.079 million were Black-owned (41 percent lost by April 2020)
    • 0.889 million were Asian-owned (26 percent lost by April 2020)

Immigrant Breakdown

• 15.012 million total small businesses in the U.S. (22 percent would be lost by April 2020)
  • 11.892 were non-immigrant owned (18 percent lost by April 2020)
  • 3.120 were immigrant-owned (36 percent lost by April 2020)

With this data, we can look at how the pandemic affected businesses and how millions of minority-owned small businesses were lost in a matter of months due to the COVID-19 pandemic and institutionally racist policies.

The CARES Act and Community Support

On March 27, 2020, the CARES Act was signed into law after passing the House of Representatives and the Senate. The $2.2 trillion economic stimulus bill was Washington, D.C. policymakers’ response to the effects of COVID-19 across the country. The biggest part of the legislation for small business owners was the establishment of the Paycheck Protection Program (PPP), which provided forgivable loans to businesses (the program concluded on August 8, 2020). The PPP program had a total of $669 billion in funding for PPP loans distributing by the Small Business Administration (SBA).

But that does not mean that PPP loans and the SBA’s program immediately helped minority-owned small businesses recover. According to an article in Bloomberg News, “majority-white areas got loans quicker” from the Paycheck Protection Program, and the SBA backed that up with data collected for 11 percent of loans disbursed that showed white business owners received 83 percent of first-round loans in April.

An economic analysis from the Biz2X Weekly Cash Flow Monitor showed that the economy recovered slowly in May and June but since the end of June it has been weakening with reopening and shutdowns continuing across the United States. With the weaker recovery, costs have also increased for Hispanic-owned businesses with a weaker cash flow leading to smaller margins.

The Problem with Funding & Banks

An article in the Associated Press brought a lot of this information to the forefront of discussions around lending practices for Black business owners: “Black businesses historically have struggled to gain access to financing due to discriminatory lending practices and a lack of relationships with big banks.” Black and minority-owned businesses were running out of capital during the early weeks of the pandemic, and although the CARES Act funding was meant to help them, systemic racism in banking and lending practices actually hurt the businesses and their communities.

The Federal Reserve Bank of New York and the University of Chicago found that “loans from the first round of PPP were not correlated with the number of COVID-19 cases in a state. Instead, more likely reasons for businesses receiving these loans included having a prior banking relationship as well as community banks’ market share.” A prior banking relationship was implicitly required for PPP funding, and “most Black owned firms lack strong bank relationships,” the New York Fed reported.

If PPP funding was meant to immediately get money to small business owners across the United States, how did inequities partner with the effects of COVID-19 to impact business loans? According to Bloomberg News, it has a lot to do with the banks that were tasked with distributing the early money from PPP loans. Community banks, clustered in rural America, outpaced major financial institutions as lenders to small businesses. It was only during the second round of funding that large banks “with more urban and racially diverse customer bases, such as JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co.” were able to provide more loans and even out the distribution of funds. OneUnited Bank, the nation’s largest black-owned bank, also participated in the PPP program through the SBA, helping minority-owned businesses gain funding. But the damage was already done.

“The difference for minority businesses is they can’t walk into a bank and get the same treatment and if anything, I believe COVID-19 has exposed much of our disparity,” said Michelle Sourie Robinson, the Michigan Minority Supplier Development Council’s president and CEO. The institutional racism that perpetuates these lending practices is also leading to higher rates of COVID-19 cases in minority communities. The Federal Reserve Bank of New York found that 40 percent of Black-owned businesses are concentrated in just 30 counties, and 19 of those counties are areas with the highest numbers of coronavirus cases. So, the economic fallout on minority businesses is directly tied to the pandemic decimating communities of color.

However, the Global Resilience Institute at Northeastern University found that 40 percent of “minority-owned private ventures” are helping their communities and workers, which exemplifies the need for people to support “small minority-owned businesses in order to help build community resilience.” This is just one of the many reasons why these businesses need support. They not only provide jobs to community members; they are also part of the backbone of their communities.

Worries About Closing

Businesses are hurting and people are wondering what to do next as COVID-19 cases continue to rise at higher rates. In a Biz2Credit Webinar on October 15, 2020, Rep. Kevin Hearn (R-OK) said there is roughly $135 billion left in the PPP fund and that the funds “should be going to help small businesses and not just sitting on the balance sheet of the U.S. government.” Legislation is in Congress to reopen the PPP until December 31, 2020 – or until the funding is exhausted – to help small businesses. Rep. Hearn noted, “Small businesses remain the backbone and core of the American economy. 70 percent of jobs in America are in small business.”

However, that may not be the only way forward. As Rohit Arora, the CEO of Biz2Credit, said during the webinar, the next steps have to be bi-partisan and go beyond PPP because small businesses are going to need help for the next 2-3 years. Looking beyond PPP and the usual financial lenders, the Associated Press noted, “Several business companies and entrepreneurs, including Facebook, Magic Johnson and Mark Cuban, the billionaire owner of the Dallas Mavericks, have announced plans to help businesses owned by people of color, but some worry the assistance might come too late.”

Many minority-owned businesses were in difficult financial positions before the pandemic hit and lockdowns ended in-person business, but also McKinsey & Company noted that a lot of these businesses are often in “industries more susceptible to disruption. Ensuring that these businesses survive in the current circumstances will require fundamental shifts in how private-, public-, and social-sector organizations come together to support them.” This could lead to larger discussions around conglomerates and credit practices.

Unfortunately, discussions may not even get that far as a U.S. Chamber of Commerce poll found that “two in three (66 percent) minority small businesses are concerned about having to permanently close their business versus 57 percent for non-minority small businesses. However, the gap has narrowed significantly from May, when 52 percent of non-minority-owned businesses said they were concerned about closing versus a staggering 78 percent for minority-owned businesses.” Although these numbers are better, minority business owners still have difficulty obtaining loans and are predicting declining revenues – coupled with fears of permanent closure – for the coming year. This is on top of COVID-19 worries for their customers and employees, too.

“The pandemic’s disproportionate impact on minority-owned small businesses is further evidence of systemic inequalities in our country. Even more concerning, the pandemic could exacerbate and elongate the economic struggles already facing minority-owned businesses and families,” said Suzanne P. Clark, president of the U.S. Chamber. Although COVID-19 has been deemed an equalizer – as it does not infect based on race or gender – its effects are disproportionally felt by minority communities. From COVID-19 hospitalizations and deaths to the closing of businesses, the pandemic has direly impacted small businesses and their communities.

What’s Next?

One of the best ways to support minority-owned businesses is to visit them (online or through social distancing if they are open) and utilize their services. Many small businesses are struggling to compete with larger retailers who have more money and resources. Supporting these businesses also supports their communities.

In this time of anxiety and uncertainty, it is more important than ever to support your neighbor. A lot of local businesses are adding services to support their employees and community development because they have a vested interest. The pandemic has exacerbated the financial differences in business, but one of the great facets of American business is its diversity. It’s time to fight for them.

Frequent searches leading to this page

biz2credit ppp loans, new business lending