It’s safe to say that 2020 was not a year that any of us expected. The coronavirus pandemic forced the world into lockdown as leaders scrambled to prevent the spread of the virus. Small businesses felt the strain of the pandemic the most, and studies reveal that black business owners were hit the hardest.

A study from the University of California Santa Cruz conducted by Robert Fairlie (2020) found that there were 1.1 million black business owners in February 2020 in the United States. By April 2020, this figure had fallen to 640,000, a 41 percent drop in black business owners. This is a stark contrast to the loss of 17 percent of white business owners in the same period. The United States’ long history of racial inequality lies at the heart of this injustice (Fairlie, 2020).

A report by the Federal Reserve Bank of New York, written by Claire Kramer Mills (2020), clearly lays out reasons why the coronavirus has disproportionately impacted black communities. This study identifies three key factors: geographic location, limited financial protection, and weak bank relationships (Mills, 2020).

According to the study, Black communities are often clustered in metropolitan areas. Such areas were more likely to enforce stricter measures to prevent the spread of Covid-19 (Mills, 2020). This includes measures such as store closures, reduced hours, reduced capacity, and mandatory masks all of which may contribute to stores receiving less business.

The second factor identified was the Paycheck Protection Program’s (PPP) failure to reach communities hit the hardest by COVID-19 in its first round of relief. The study says, “these loans reached only 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%” (Mills, 2020).

Knowing this the question remains, why have Black owned businesses not received PPP loans? The answer may be rooted in past economic injustices. This study analyzed relationships between Black business owners and banks and showed evidence that Black business owners were less likely to have previous banking relationships. This is not due to Black business owners applying less for financing. Instead, data show that they apply for financing more than white business owners, but are denied at a higher rate. This has discouraged other Black business owners from applying for financing out of fear of being denied (Mills, 2020).

The next step that must be taken by government officials is to bridge the funding gap so that Black businesses are equally protected and given the chance to survive this pandemic.

Author: Sarah Johnshoy

References:

Fairlie, R. W. (2020). The impact of COVID-19 on small business owners: evidence of early-stage losses from the April 2020 current population survey (No. w27309). National Bureau of Economic Research. https://siepr.stanford.edu/sites/default/files/publications/20-022.pdf

Mills, C. (2020, August). Double Jeopardy: Covid-19’s Concentrated Health And Wealth Effects In Black Communities, New York Federal Reserve. https://www.newyorkfed.org/medialibrary/media/smallbusiness/DoubleJeopardy_COVID19andBlackOwnedBusinesses