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How Minority Businesses Have Been Affected by COVID-19

8-minute read

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Morgan Mullings

Morgan Mullings

22 October 2021

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It may seem evident that businesses would thrive as the economy thrives and struggle as it struggles, but that may be true if the path to owning a business was equal across every race. No one understands this disparity like Black, Latino, Asian, and other business owners of color.

These inequities already existed for minorities in the United States well before the COVID-19 pandemic, which only worked to demonstrate just how challenging it is to recover from an economic crisis—and various studies and surveys validated this reality. In June 2021, McKinsey & Company reported that Black-owned businesses are 20% less likely to get a loan than businesses with white owners.

To further understand how the COVID-19 pandemic impacted minority-owned businesses, Simply Business analyzed a survey conducted by the Federal Reserve's Small Business Project, fielded from September to October 2020, of 9,693 minority-owned small businesses in all 50 states and the District of Columbia.

Though each business reported different challenges and expectations for the future, the vast majority experienced a decline in sales, marking the start of a long road to recovery. Read on to learn the problems minority business owners suffered amid the COVID-19 pandemic and what they hope will change going forward.

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Expected challenges business will face as a result of pandemic

  • Government-mandated restrictions/closures: 51.5%
  • Supply chain disruptions: 35.5%
  • Limited credit availability: 33.6%
  • Labor shortages: 26.7%
  • Weak demand for products/services: 58.1%
  • No significant challenges: 5.4%

What businesses have gone through is unprecedented enough, but now they’re having to base their next quarter on a year full of delays and closures. They’re right about these challenges, including limited credit availability.

According to Bloomberg’s August 2021 report, Chicago is just one example of where the pace of reopening and recovery in majority-Black neighborhoods was slower than in other areas. The data compiled also found “the infusion of Paycheck Protection Program funds has failed to translate into a meaningful economic recovery in many of these neighborhoods.” What’s more, the revenue of minority-owned businesses located in co-ethnic markets, in which business owners are of the same ethnicity as their customers, may suffer if their community is financially struggling.


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Likelihood of survival

  • Neither likely nor unlikely: 13.4%
  • Very unlikely: 12.1%
  • Somewhat unlikely: 18.6%
  • Somewhat likely: 30.0%
  • Very likely: 25.9%

Will minority businesses survive the pandemic? Google has returned mixed answers to this question. In March 2020, experts were positing they may not. The rates of survival for small Black-owned businesses were abysmal, with CNBC reporting, “Eight out of 10 Black-owned businesses fail within the first 18 months.”

It would be likely to assume the rate of failure would increase when a pandemic is ebbing and flowing across the country.

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Current financial situation

  • Excellent: 5.7%
  • Very good: 10.6%
  • Good: 24.1%
  • Fair: 35.6%
  • Poor: 24.1%

Construction made up 17% of Hispanic-owned businesses, according to a study by Biz2Credit. The study also showed that, before the pandemic, the average annual revenue and credit score of these businesses increased. This season of positive change was interrupted by rising costs once lockdowns began.

Though numbers improved during Summer 2020, the study reveals all Latino-owned businesses saw a 42% drop in revenue. But if construction businesses are the example, the number of limits they faced is unmatched. Building timelines were completely halted, supply chains broke down, and essential workers got sick. The businesses that depended on finished construction jobs also saw roadblocks.

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Financial challenges

  • Accessing credit: 34.1%
  • Purchasing inventory to fulfill contracts: 32.5%
  • Paying operating expenses: 65.4%
  • Making payments on debt: 45.6%
  • Paying rent: 43.8%
  • No challenges: 18.1%

As they find ways to survive, small business owners are unfortunately diving head-first into debt. It is possible, ProPublica reports, for the U.S. to lose an entire generation of Black-owned businesses. The last time this was a major concern, according to ProPublica, was during the 2009 recession, another crisis that was disastrous to minority wealth.

In June 2021, McKinsey detailed some of the ways in which minority businesses have faced hurdles in acquiring federal aid amidst the pandemic, from lacking established relationships with financial institutions to not having the resources to apply for the Paycheck Protection Plan.

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Revenue change, prior 12 months

  • Increased: 13.4%
  • Decreased: 78.4%
  • No change: 8.3%

Whether there aren’t enough staff or patrons to do business, sales are bound to decline in economic anomalies like a pandemic. Small Asian-owned businesses suffered greatly all over the country. Reuters reported small Asian-owned businesses, especially those owned by the older population, saw a drop in sales by 60%.

Remote work is a worthy consideration in this conversation. Minorities own several small businesses that don’t fare well for teleworking if sales depend on face-to-face interaction. Rakesh Kochhar, a senior researcher at the Pew Research Center, said that restaurants and health care firms suffered for this reason.

Expected revenue change, next 12 months

  • Will increase: 41.3%
  • Will decrease: 39.7%
  • Will not change: 19.0%

Decision-making during the pandemic is volatile. Whether or not people will buy goods and services, and what kinds of goods and services will have increased or decreased demand, is incredibly hard to predict. To call the survey respondents optimistic or pessimistic based on this data is nearly impossible unless analysts are able to know how COVID-19 numbers will shift.

When the vaccine rollout began, reports of “herd immunity” ending the pandemic—a phenomenon where enough people are immune that the spread stops—were promising. Now, McKinsey & Company says the endemic COVID-19, where it is too widespread to eradicate (think chickenpox) as long as there are unvaccinated persons who contract it, is more likely. This leaves the future of minority businesses unpredictable for the foreseeable future.

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Actions taken by businesses reporting financial challenges

  • Cut staff, hours, and/or downsize operations: 54.5%
  • Made a late payment or did not pay: 38.7%
  • Obtained funds through grants, crowdfunding, donations, etc.: 50.2%
  • Took out debt: 48.2%
  • Used personal funds: 63.7%

Minority businesses don’t have as many safety nets, such as savings or credit lines, as others may. Researchers at the New York Federal Reserve have the data to prove it. While 17% of businesses with white owners became inactive in April 2020, 41% of Black-owned businesses plummeted. Latino-owned businesses dropped by 32%, and Asian owners came in at 26% lower.

The New York Fed’s study found that businesses who didn’t have to go completely inactive had savings, trusted banks ready to loan them money, better connections to those who give grants and donations, and likely had better credit.

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  • Paycheck Protection Program: 78.8%
  • Main Street Lending Program loan: 3.2%
  • Loan from state/local government fund: 7.6%
  • Grant from state/local government fund: 27.1%
  • Grant from nonprofit or foundation: 8.6%

While Paycheck Protection Program loans were offered to businesses all over the country, many who were approved didn’t disclose race, meaning demographic data is limited. However, many independent studies have been done that capture the disparities in loans.

Brookings scholars analyzed the U.S. Treasury’s data and found loans were systematically delayed in areas with high minority populations. This is where other funding, from Main Streets organizations, state and local governments, and nonprofits, comes in.

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Expectations for PPP forgiveness

  • Full forgiveness: 78.9%
  • Partial forgiveness: 9.5%
  • Does not expect forgiveness: 1.4%

When the Paycheck Protection Program loans were first rolled out, small business owners were encouraged to apply because they were nearly guaranteed to be forgiven at some point. The most recent data from the Small Business Administration (SBA) shows that out of over 11 million PPP loans, less than half have been forgiven.

The process is currently under scrutiny. The Intercept recently reported that small businesses are struggling to have their loans forgiven because banks have no incentive to do so. Big banks like PNC and Bank of America have already opted out of the SBA’s process. The U.S. Treasury Secretary wanted Congress to consider automatically forgiving small loans, but it never happened.

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Employment change, prior 12 months

  • Increased: 11.2%
  • Decreased: 47.1%
  • No change: 41.8%

Americans are leaving their jobs in record numbers, and it has a lot to do with mental health. COVID-19 has made working scary for bosses and employees alike. According to Today, some are calling this time “The Great Resignation,” citing declining mental health as the main reason for the trend.

And it may continue as COVID-19 cases begin to go up. California, New York, Florida, and Texas have the highest number of minority-owned businesses: Three of those states are averaging more than 10,000 cases per day as of August 2021.

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Expected employment change, next 12 months

  • Will increase: 31.8%
  • Will decrease: 16.5%
  • Will not change: 51.0%

Though there are many reports that claim we are far from returning to “normal” life, this data matches the unemployment trends. Pew Research Center reports that full recovery is distant, despite positive movement. In July 2021, the unemployment rate dropped to 5.4%, meaning minority businesses can look forward to some stability.

However, some authorities, like the Economic Policy Institute, say the shrinking labor force is the reason for these trends, not an increase in jobs. Whether minority businesses will be able to hire more is up for debate because of the conflicting data.

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Attempting to rehire

  • Did not rehire: 31.7%
  • Attempted to rehire: 68.3%

Depending on the industry, some minority businesses may have more trouble rehiring than others. Worker demand is highly competitive—and data from Crain’s Cleveland Business shows that in Ohio, for example, in-demand industries are dominated by white people and are attracting more applicants in fields including human resources, occupational therapy, web development, and finance.

Forgivable PPP loans, given to businesses that rehired or kept workers on their payrolls, were lopsidedly awarded to larger businesses, which was disadvantageous to minority-owned businesses that would have otherwise rehired.

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Most important expected challenge

  • Demand for products/services: 35.1%
  • Supply chain disruptions: 8.2%
  • Limited credit availability: 15.0%
  • Government-mandated restrictions/closures: 25.2%
  • Labor shortages: 6.7%

Some industries have fully reopened: restaurants, movie theaters, and even clubs are up and running. But as cases rise and fall, it’s up to local governments to decide whether to reinstitute mask mandates, social distancing, curfews, and even full shutdowns. All of those changes affect the demand for certain services and job availability.

CNN recently reported that even though industries like tourism are ready to be back in full force, many workers are simply declining to come back to work—and for many reasons. Unemployment affects minorities more than anyone else: A Seattle nonprofit CEO told the Seattle Times many Black workers, who are overrepresented in the service industries, enhanced this disparity.

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Expectations for COVID-19 effect on sales

  • Will decrease by more than 50%: 33.1%
  • Will decrease by 26%-50%: 33.1%
  • Will decrease by 10%-25%: 23.6%
  • Will decrease by less than 10%: 6.1%

These findings are less than optimistic, and they indicate how recovery is going to look different for minority businesses. Though there have been some improvements in the economy since the height of the pandemic in 2020, minority businesses did not see the same benefits. For example, Fortune reported Black-owned businesses “have less access to capital” and had a hard time securing Paycheck Protection Program benefits through large banks.

Preparing for a solid recovery is harder for minority businesses. If they’re women-owned businesses, that may compound the hardship. Vickie Gibbs, a director at UNC-Chapel Hill’s Kenan-Flagler Business School, told Fortune many women often have more family obligations to attend to than men, causing these businesses to close down.

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Time until sales return to 2019 levels

  • Sales at/above normal: 11.0%
  • 2022 or later: 27.8%
  • First half 2021: 15.1%
  • Second half 2021: 42.6%
  • By end of 2020: 4.3%

As 2021 ends, minority businesses are counting on sales to return to normal. Locally, reporters have been talking to minority businesses in every state about losing major facets of their business that contributed to sales. Commerce centers run by people of color, such as San Francisco’s Chinatown, need to see a return to 2019 levels of tourism and foot traffic for sales to be at previous levels.

Because of the Delta variant’s unpredictability, some commerce hubs don’t want to see foot traffic return in the form of tourism. Other minority businesses can’t have customers standing too close together, and they are still reconfiguring how to sell products and provide services safely.

Morgan Mullings

Written by

Morgan Mullings

This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer

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