Black Business Status post covid

 Nearly half a million closures

There were more  than 1 million black-owned businesses in the U.S. at the beginning of  February, according to research from the University of California at  Santa Cruz, which drew from Census survey estimates. By mid-April,  440,000 black business owners had shuttered their company for good — a  41% plunge. By comparison, 17% of white-owned businesses closed during  the same period, the UC Santa Cruz research shows.

Several  factors explain the high rate of closures of black-owned businesses.  Perhaps most important, many lack access to bank credit, making it  harder to survive financial emergencies. Many are micro-enterprises,  providing a livelihood to a sole proprietor or a few employees at most.  Profit margins are thin, while owners' financial savings are often  meager, making them vulnerable to sudden downturns.

Surveys also  show that the vast majority of black business owners who applied for  emergency relief after the virus struck through the Paycheck Protection  Program were denied a loan. Selmon said she applied for a $50,000 PPP  loan shortly after the program was launched, but the funds were  exhausted before her loan could be approved. An analysis by the Center  for Responsible Lending found that 95% of black-owned business were shut  out of the small business initiative. 

Challenges for African-American business owners

Lack  of capital and cash flow is the biggest challenge for African-American  small business owners, according to Guidant. That’s not really a  surprise since those are the same problems most small business owners  face.

But fewer African-American small businesses are approved  for financing, often at lower amounts of money with higher interest  rates, according to a report in The Washington Post. Guidant reports  that the “wealth gap also contributes to financing challenges…making it  harder to [get] financing. Without the funds to invest in as many  resources as other businesses, such as hiring talent or marketing and  advertising, competing for contracts or attracting clients becomes  exponentially more difficult.”

Small business can be a lonely venture

A  report, 8 Insights on the State of Black Entrepreneurship, from  American Express reports 47% of African-American small business  owners run their businesses by themselves, compared to the 33% of  average small business owners. And African-American businesses have  fewer employees: 38% have 2-5 employees and only 7% have 6-10 employees.  This compares with the average small business owner, with 41% employing  2-5 workers and 12% employing six to 10 workers.

More  African-American small business owners (44%) use cash to fund their  businesses than the average small business owner (37%), according to the  Guidant report. Only 15% get help from friends and family, which was  the second most popular source of capital for African-American business  owners.

And according to Project Diane, the picture for  African-American women is equally challenging—since “2009, Black women  led startups have raised $289MM in venture/angel funding, with a  significant portion of that raised in 2017. This represents .0006% of  the $424.7 billion in total tech venture funding raised since 2009.”

UC  Santa Cruz professor Robert Fairlie said many black owners will face  considerable obstacles resurrecting their business after the pandemic  eases, citing the huge wealth gap between black and white Americans.  Many African-American households lack the financial resources required  to rebuild, such as bank savings, access to a home equity line of  credit, or the ability to borrow from family and friends, he explained.