Coronavirus Economy: Black-Owned Businesses Twice As Likely To Fail As Businesses Overall, NY Fed Finds

Research released Tuesday by the Federal Reserve Bank of New York finds Black-owned businesses are twice as likely to go under during the pandemic than businesses overall, largely because of the concentration of coronavirus cases in the community.

The bank called for more targeted focus on hardest hit areas and an examination of structural issues that prevented such businesses from benefiting from the paycheck protection program.

The report estimated 41% of Black-owned firms declined between February and April compared with 22% of firms overall. Latinx businesses fell by 32% while Asian-owned businesses dropped 26%, the report found. White-owned businesses fell by 17%.

In areas where states opened too quickly in May and June and then were forced to retreat as the pandemic surged, many of the early gains were reversed.

"This brief shows the disturbing relationship between high geographic incidence of COVID-19 and the economic health of Black-owned businesses," Claire Kramer Mills, assistant New York Fed vice president, said in a press release. "These firms had weaker financial cushions, weaker bank relationships, and preexisting funding gaps prior to the pandemic. 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 research found 40% of receipts from Black-owned businesses are concentrated in just 30 counties, about 1% of the nation’s counties, and two-thirds were in areas with the highest level of COVID-19 cases.

Additionally, analysis of the paycheck protection program indicated the $521 billion distributed by the Small Business Administration failed to reach the hardest hit areas, with just 15% to 20% of Black-owned businesses receiving aid.

Fewer than 25% of Black-owned employer firms and 10% of Black-owned firms without employees had borrowing relationships with banks, making them more likely to turn to online lenders – a problem for the paycheck program since fintechs initially were not among authorized lenders although they did eventually distribute $4.7 billion.

A recent survey by the Society for Human Resource Management indicates more than half of all small businesses expect to fail as a result of damage inflicted by the pandemic.

“Small business is truly the backbone of our economy. So, when half say they’re worried about being wiped out, let’s remember: We’re talking about roughly 14 million businesses,” SHRM CEO Johnny C. Taylor told Bloomberg.