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Why are Black-owned businesses twice as likely to close during the pandemic?

August 7, 2020, 11:00 PM UTC

The coronavirus pandemic has disproportionately impacted Black-owned businesses, which have shuttered at nearly twice the rate as small businesses in the U.S. overall, according to new research from the Federal Reserve Bank of New York.

The New York Fed’s data indicates that there was a 41% drop in the number of Black business owners between February and April of this year, as the pandemic forced huge swaths of the U.S. economy—particularly the retail, restaurant, and service sectors—to shut down.

That compares with a 22% decline in the number of active business owners in the U.S. at large, including a 17% drop in white business owners. Latinx and Asian business owners were also hit disproportionately by the pandemic, with their numbers falling by 32% and 26%, respectively.

The New York Fed’s report highlights a number of reasons why Black-owned businesses have been hurt so badly, noting that such businesses are significantly more likely to be located in COVID-19 “hotspots.” Forty percent of receipts from Black-owned businesses are concentrated in only 30 counties across the U.S., most of them in metropolitan areas with large Black populations—and of those 30 counties, 19 of them are among the top 50 COVID-affected areas in the nation.

The report also cites “significant coverage gaps” in the federal government’s flagship small-business bailout initiative, the Paycheck Protection Program. While PPP loans reached an estimated 17.7% of eligible businesses nationally, several of those 30 counties with the highest densities of Black-owned enterprises saw coverage rates demonstrably lower than that—including Bronx County, N.Y. (7%); Wayne County, Mich. (11.6%); and Prince George’s County, Md. (12.2%).

When also factoring in that Black-owned businesses “were less likely to enter the pandemic from a strong financial position than white-owned firms,” the New York Fed says the crisis “left Black firms with little cushion” to deal with the economic damage wreaked by COVID-19. Based on a criteria of profitability, credit score, and the use of retained business earnings to fund the business, only 42% of Black-owned enterprises qualified as “healthy or stable” going into the pandemic, compared with 73% of white-owned firms.

“Even the healthiest Black firms were financially disadvantaged at the onset of COVID-19,” the report notes.

The New York Fed’s analysis concludes by suggesting that the next round of COVID-19 relief measures “should be more targeted geographically to focus on the hardest-hit areas and communities.” It also says that the crisis raises “structural questions about the presence of banks and access to credit in communities of color”—given the fact that Black-owned businesses tend to have “weaker bank relationships,” and that financial institutions are “relied on to administer federal, taxpayer-supported relief programs” like the PPP.

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