Black barbershops, hair salons, boutiques and restaurants have had to close for good after going months without customers or income.
Already in a weakened financial position entering the economic crisis, Black-owned businesses are twice as likely to fail as businesses overall during the pandemic, according to a study by the Federal Reserve Bank of New York.
That’s because Black-owned businesses “had weaker financial conditions, weaker bank relationships and preexisting funding gaps prior to the pandemic,” according to Clair Kramer Mills, assistant vice president of the New York Fed.
The New York Fed unveiled the study on Aug. 4, showing the virus’s impact on business U.S. business owners, showing disparities across race in how they have fared during the coronavirus. The fed study estimates that 41 percent of Black-owned businesses shut down between February and April compared to 17 percent of white businesses, 26 percent of Asian businesses and 32 percent of Latino businesses.
“These firms had weaker financial cushions, weaker bank relationships, and preexisting funding gaps prior to the pandemic,” Mills said. “Covid-19 has exacerbated these issues and businesses in the hardest-hit communities have witnessed huge disparities in access to federal relief funds and a higher rate of business closures.”
The findings raise so many questions — especially when banks are relied on to administer federal, taxpayer-supported relief programs, such as the Payroll Protection Program (PPP) loans, Mills added.
“The racial disparities in bank relationships prior to covid-19 detailed here raise structural questions about the presence and functioning of banks in communities of color, questions that have heightened significance when banks are relied on to administer federal, taxpayer-supported relief programs, as is the case with PPP.”
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Fewer than one-in-four Black-owned employers and one-in-10 Black-owned nonemployer firms have a recent borrowing relationship with a bank, according to the fed report.
Black-owned firms are more likely to use online lenders for funding. Fintech providers were not initially authorized to lend PPP funds but they collectively dispersed $4.7 billion in funds through June 30.
The government issued $521 billion in PPP loans in all, according to the Washington Post.
The number of African-American business owners fell from 1.1 million in February to 640,000 in April, a 41-percent decline, according to a paper published by the National Bureau of Economic Research (NBER). By comparison, the overall number of small business owners dropped by 35 percent, Quartz reported.
