The pandemic has had a severe impact on Main Street. Small business have closed down across the U.S. by the thousands. The situation is worse for minority-owned businesses, however. The advocacy group Small Business Majority released a survey on Jan. 27, which found that nearly one in five Black and Hispanic entrepreneurs. Expects to close their business permanently within the next three months.
This is a higher rate than white business owners. This is in response to a Federal Reserve of Cleveland report that suggests that the impact of coronavirus. Could be more severe for Black and Hispanic-owned companies than for white-owned ones.
Researchers on racial inequities, entrepreneurship and the impact of economic downturns have found. That Black-owned and Hispanic-owned businesses were more susceptible to recessions than white-owned ones. The capital of minority-owned businesses is lower than that of white-owned businesses.
This makes it more difficult for them to protect themselves against economic downturns. Black-owned and Hispanic-own companies tend to be concentrate in industries. And areas that have most severely affect by the pandemic like retail and restaurant.
Income Is Lower, But Capital Is Less Business
Long-standing disparities in homeownership rates are a major reason for the gap in capital available for Black and Hispanic entrepreneurs. Hispanic Americans and Black Americans have lower homeownership rates, which limits their ability to use their home equity to create or maintain businesses. Higher mortgage rates, premiums for mortgage insurance, and property taxes will mean homeowners have less wealth to help keep their businesses afloat during tough times.
The 2019 Survey of Consumer Finances revealed that white business owners have almost five times as much home equity than their Black or Hispanic counterparts. Moreover, income from minority-owned businesses was 10 times lower than that of white-owned.
This means that white-owned businesses have greater liquidity to weather sharp drops in revenues such as the one experienced during the pandemic. We found that Black and Hispanic business owners are 25 percent less likely to have emergency savings than those of white business owners. They also hold significantly fewer stocks and other liquid assets.
Minority business owners often have to rely on other income sources, such as family income or debt, to finance their operations. However, entrepreneurs might need cash when they most need it. Therefore, higher interest rates on debt can drain cash.
The pandemic’s impact on small business clients and customers only adds to the problem. Many minority-owned businesses are located in areas with high minorities populations. These communities have particularly affect by the pandemic through job loss and illness. This affects the demand for minorities products and services, particularly since recessions often hit Black and Hispanic communities in America earlier and harder.
SafeGraph, an analytics website, shows that foot traffic to businesses in minority communities has fallen more than in white neighborhoods. Small businesses located in predominantly white neighborhoods saw a decline in foot traffic of almost zero during the pandemic. Small businesses with a 20% minority population saw almost 40% decline in foot traffic.
Black and Hispanic own enterprises tend to be concentrate in certain sectors, which can also lead to racial disparities in closings. American Community Survey data shows that the most vulnerable sectors, such as restaurant and retail, have a higher percentage of minority ownership. It is not surprising that the number of job losses in the worst recession was greater for those who own minority businesses.
Businesses owned by minorities in crisis are less likely to receive government aid. This is what seems to be happening during the pandemic. To assist small businesses affected by the coronavirus lockdowns, the federal government established the Pay check Protection Program in April. It was administered in two rounds and offered loans worth more than US$500billion. If funds were used to pay payroll, the loans could be forgiven. Many small businesses have found these loans a lifeline.
Research has shown that the first round was not equitable in terms of distribution. The majority of funds were given to neighborhoods with low Black and Hispanic populations. Due to the high number of business closings during the first months of the pandemic, it may have been crucial that federal assistance was not given to minority business owners.
We believe that it is vital that the Biden administration directs more of its small-business aid to Black and Hispanic businesses and the most vulnerable communities in order to mitigate the negative effects of the downturn on minority-owned business. If aid is not distributed more fairly, there will be further suffering for the Black and Hispanic businesses.