Black-owned businesses hit especially hard by pandemic
The statistics are dire: Black-owned businesses are being hardest hit by the COVID-19 pandemic and the economic shutdown it prompted.
But some south suburban Black entrepreneurs say they are battling back by revamping their operations.
The number of active Black owned businesses in the U.S. plummeted 41% during the early months of the pandemic from February to April, more than twice the 17% level of white-owned businesses. That is according to research by Robert Fairlie, from the University of California Santa Cruz, that is based on government data.
There are multiple reasons for the disproportionate impact on Black-owned businesses.
“A lot of them are concentrated in industries that were most immediately impacted by the pandemic,” said Lotika Pai. She is managing director of Access to Capital at the Chicago-based Women’s Business Development Center, which provides technical assistance and loans to small businesses, the majority of which are minority-owned. Among industries most affected by the pandemic have been service and retail businesses.
Tasha Brown, associate director of the Illinois Small Business Development Center at the WBDC’s Richton Park office, estimates she has worked with more than 100 clients since the pandemic began, 95% of whom are African
American business owners. When the pandemic started, she feared Black businesses would be hard hit.
“It’s even worse than I expected,” she said. “The biggest impact on them has been the lack of sufficient resources.”
For many seeking government-funded
COVID-19 loans and grants, having the necessary documentation and navigating the process have been challenging, she and others said.
Countless minority owned businesses were already financially stressed and faced underlying structural problems before the pandemic due in large part to disinvestment in low- and moderate-income communities, Pai said.
Some of that stress can be linked to a lack of access to capital needed to launch, sustain and grow businesses. Black- and other minority-owned businesses have for decades struggled to access traditional bank financing and have often launched businesses with their own savings or personal credit
cards.
Large banks approved about 60% of loans sought by white small business owners, 50% of loans sought by Latino or Hispanic small business owners, but only 29% of loans sought by Black small business owners, according to a Brookings Institution April report. The report cited 2018 data from a small business credit survey conducted by 12 Federal Reserve Banks.
Black-owned businesses faced other barriers to accessing government funded COVID-19 capital assistance programs. Many are sole proprietors and so didn’t qualify for the federal government’s Personal Paycheck Protection funding program. Others didn’t have the technical expertise to act quickly to access the capital. Those that did qualify again faced the hurdle of not having lending relationships with banks, which has been a big factor in getting the loans.
“FICO credit scores are the primary gate keeper used by banks to determine credit worthiness,” and that has also worked against many Blackowned and other minorityowned businesses, Pai noted.
“Credit scoring is one of the truest reflections of the racial economic divide and wealth gap in this country, and its continued use perpetuates economic inequality, and it limits small business owners’ access to future opportunities as well.”
Many small minority-owned businesses now at risk “were solvent with really good operations,” prior to the pandemic, but need help in dealing with of Essations Inc., a maker of hair care products that has a manufacturing site in Park Forest and employs 25 people. She also owns Olympia Fieldsbased hair salon Sophia Brandon Boutique Salon, where 10 stylists work as independent contractors. The pandemic delivered a blow to her business as the salon temporarily shut down in March.
“It’s been difficult,” she said. “We were not allowed to open back up until the end of May, so of course that took us down to zero business … 83% of our manufacturing business comes from professional stylists and salons” that were all closed, so it was a double hit.
Luster applied for an SBA Economic Injury Disaster Loan in March. She was granted a $100,000 loan, she said, “but they didn’t begin funding and approving loans until two weeks ago.”
While she hoped for and waited on the loan, she said she focused on building her e-commerce business.
“Where our e-commerce business had been an accessory, the thought process now shifts to it being a necessity,” Luster said.
She previously sold her products predominantly through distributors that in turn sold them to stylists at salons. She is now focused on selling directly to consumers online, which has resulted in her getting paid faster and keeping more proceeds from the sales. She has also seen sales grow from stylists making purchases online and reselling to their customers.
“I don’t want to lose the business that we accrued in the pandemic,” she said. “I want to expand it going forward.”
She added the company has also expanded into making hand
“Credit scoring is one of the truest reflections of the racial economic divide and wealth gap in this country, and its continued use perpetuates economic inequality, and it limits small business owners’ access to future opportunities as well.”
— Lotika Pai, managing director of Access to Capital at the Chicago-based Women’s Business Development Center