Covid-19 Has Killed Almost Half Of Black Owned Small Businesses

Generational disparities in banking pre-Covid have wiped out nearly half of Black owned businesses nationwide.

By Abu Khalil

Photo by Chris Knight

Just under 50% of Black-owned small businesses nationwide have gone out of business since the end of April according to a recent report by The New York Fed. The pandemic and its economic fallout have disproportionately minority communities. 

African-American owned businesses were twice as likely to close their doors as white businesses the study determined.

“Nationally representative data on small businesses indicate that the number of active business owners fell by 22% from February to April 2020—the largest drop on record,” the report concluded.

“Black businesses experienced the most acute decline, with a 41% drop. Latinx business owners fell by 32% and Asian business owners dropped by 26%.”

The report offered little explanation as to why the massive disparity exists in survival of white versus minority owned businesses.

The number of white-owned businesses dropped only 17%.

The report offered little explanation as to why the massive disparity exists in survival of white versus minority owned businesses.

 The report did however examine correlations between banking relationships, lending decisions, localized Covid-19 cases, and business survival.

“Volumes of COVID-19 cases coincide with Black-owned business locations: two-thirds of counties with high levels of Black business activity pre-COVID-19 are in the top 50 COVID-affected areas,” the New York Fed said.

Further, the coverage disparities in the ‘Paycheck Protection Program’ created a landscape of Black-owned businesses becoming left out of widely spread stimulus dollars.

Fewer Black-owned firms entered the pandemic in strong financial positions, with smaller shares of these firms operating at a profit, having a high credit score and using retained earnings to fund the business.

• Fewer than 1 in 4 Black-owned employer firms and 1 in 10 Black-owned nonemployer firms have a recent borrowing relationship with a bank.
• Black-owned employer and nonemployer firms are relatively more likely to turn to online lenders for funding. Fintech providers were not initially authorized to lend PPP funds though they collectively dispersed $4.7 billion in funds through June 30th.

“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%,” the report demonstrated.

Many Black owned businesses were already reeling from the last recession and the pandemic simply exacerbated existing shortfalls. “Weaker cash positions, weaker bank relationships, and pre-existing funding gaps, ” were cited as causes. 

The report summarized the distinct disadvantage many Black owned businesses have despite their relative success: “Even the healthiest Black firms were financially disadvantaged at the onset of COVID-19.”