Before the coronavirus’s financial onslaught, economists and experts feared a recession would precipitously hurt black entrepreneurs. New data validates the concern. A report published this week by the National Bureau of Economic Research found that “the number of African-American business owners plummeted from 1.1 million in February 2020 to 640,000 in April.”
“The loss of 440,000 black business owners representing 41 percent of the previous level is disconcerting,” writes University of California Santa Cruz economist Robert W. Fairlie. This loss, he argues, means an increase in unaddressed “racial inequality,” with countless opportunities for “job creation, economic advancement, and longer-term wealth” disappearing. The report, which was based on census data, found that, like the coronavirus itself, the shutdown disproportionately affected black Americans — overall, the United States lost 22 percent of its business owners over the same period.
In April, experts established that black businesses stood on precarious footing heading into sweeping coronavirus-related shutdowns. According to a study from the Federal Reserve, most black-owned companies — 58 percent — were already suffering financial distress at the end of last year. The Federal Reserve found these companies had low profits, low credit scores, or weak earnings — all issues that left their post-shutdown health in doubt.
That underlying issue metastasized during the sluggish rollout of the Paycheck Protection Program, which initially failed to reach black entrepreneurs. During April, as historic numbers of black-owned businesses shuttered, the Center for Responsible Lending estimated that up to 95 percent of black firms remained ineligible to receive PPP funding because they did not have employees. Neglected by government assistance, these one-person firms endured the extreme drop in consumer demand created by the lockdown alone, all while navigating Depression-era unemployment, which was more acute in black neighborhoods.
In April, national black unemployment sat at 16.7 percent versus white unemployment, which hit 14.2 percent. In May, the disparity grew, with the black unemployment rate at 16.8 percent versus a 12.4 percent white unemployment rate. This inequity is particularly significant to black entrepreneurs due to residential segregation. Black neighborhoods, with their higher unemployment rates, contain far less spending power than white neighborhoods during this recession. For black-owned businesses, the federal government’s insufficient support combined with the recession’s disproportionate impact on black consumers has made the economic consequences of the pandemic doubly painful.
Segregation and violent protests also drain black entrepreneurs
The longstanding, banal discrimination black entrepreneurs face means it isn’t just small, one-person black businesses that have had to shutter due to the coronavirus. The Brookings Institution’s Andre Perry notes that even successful, larger black businesses regularly receive less revenue than similarly situated white firms due to segregation and bias.
A February 2020 report he wrote with his colleagues Jonathan Rothwell and David Harshbarger finds “locating in a Black-majority neighborhood eliminates the advantage of being a highly rated business,” on review sites like Yelp, an issue that leads to “highly-rated businesses in Black-majority neighborhoods” suffering from “annual losses in business revenue as high as $3.9 billion.”
Other researchers have sussed out this type of neighborhood bias as well. For example, NYU sociologist Jacob Faber also found adverse neighborhood effects for sellers of secondhand goods living in black neighborhoods, reporting that “residence in a poor community of color negatively affected sellers’ ability to attract buyers in a classified marketplace.”
Also leading to a difficult business environment for black entrepreneurs were protests that harmed some black-owned storefronts in the early days of the uprising protesting racism and police brutality following the death of George Floyd. Perhaps the only silver lining for many businesses is the message of these recent protests, and the new spotlight they placed on inequities black people in the country face.
Following the rallies, presumptive Democratic presidential nominee Joe Biden published an op-ed in which he decried how “African American entrepreneurs are rejected for loans at a rate nearly 20% higher than white entrepreneurs” and called on the Small Business Administration to expand “programs that are most effective at helping launch black-owned businesses.”
The proposals stand as pillars of Biden’s Lift Every Voice plan, his policy platform for black Americans. Biden’s platform is reminiscent of others released earlier in the Democratic primary, like former South Bend, Indiana, Mayor Pete Buttigieg’s “Douglass Plan,” which had similar goals of bolstering black entrepreneurship. Of course, Democrats’ ideas to support and reinvigorate black business are still just hypothetical proposals at the moment. In the meantime, black businesses remain under extreme economic pressure, with little sign of any new federal aid or relief.
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