Virginia Ali, co-owner of Ben’s Chili Bowl, one of the many Black-owned businesses on Avenue U in Washington D.C., sits near photos of her and her husband Ben, on June 15, 2020. Numerous studies have shown that African-American entrepreneurs, particularly in the service sector such as restaurants, have suffered most severely from the economic and health crisis.
BRENDAN SMIALOWSKI | AFP | Getty Images
Black small business owners — and small business owners of color in general — are particularly pessimistic about their enterprises surviving the coronavirus economy. That likely means continued divergence in small business fortunes along racial and ethnic lines.
Just last week, the Federal Reserve Bank of New York released a study highlighting the deep toll Covid-19 has had on Black-owned small businesses, with 41% shutting down between February and April. The shuttering proportions were also elevated among Hispanic (32%) and Asian-owned small businesses (26%) relative to White-owned small businesses (17%).
The latest CNBC|SurveyMonkey Small Business Survey echoes this divergence: Barely more than half of small business owners who are Black, Hispanic, Asian, or another race say their business can last for more than a year under current conditions, compared with nearly two-thirds of Whites who say the same.
Black-owned small businesses are the most likely to be pessimistic about survival, with just under 20% saying they can only operate for a few months or less under current conditions.
CNBC|SurveyMonkey Q3 Small Business Survey
The Q3 CNBC|SurveyMonkey poll was conducted among more than 2,000 small business owners across the country from July 20-27, and it is the latest in a quarterly series of surveys conducted among small business owners dating back to 2017. While the analysis from the New York Fed had a time horizon of February to April of this year, this new poll provides a more updated snapshot of small business sentiment.
Racism and the small business landscape
Since the killing of George Floyd in late May, Americans have been grappling with a renewed realization that racism persists in this country in 2020. Black small business owners deal with the same overt racism that all Black people face, but they encounter additional, more specific and sometimes more insidious facets of discrimination in the business world.
Black small business owners have endured an especially tumultuous few months. They have been hit harder by the coronavirus pandemic, they have received less federal support, and their recovery from the second to third quarter of this year has been less successful when compared with White small business owners in particular.
In our second quarter survey this past April, Black small business owners were less likely than small business owners of any other race to have applied for either an economic injury disaster loan from the Small Business Administration or a loan as part of the Paycheck Protection Program (PPP). The analysis from the New York Fed points to the fact that Black-owned small businesses tend to be concentrated geographically in parts of the country that have faced the most direct impact from the coronavirus, and yet small businesses located in those areas have not received a disproportionate share of the federal small business relief.
Banks are more likely to extend a line of credit or prioritize processing a loan for clients with whom they have long-standing relationships; those clients are most often White.
Claire Kramer Mills, assistant vice president at the New York Fed, attributes the problem to a disparity in the small business world that typically goes unacknowledged: the fact that small business owners of color have weaker ties with the financial industry as a whole, and therefore have fewer opportunities afforded to them in good times and bad times alike.
“The racial disparities in bank relationships prior to Covid-19 detailed here raise structural questions about the presence and functioning of banks in communities of color, questions that have heightened significance when banks are relied on to administer federal, taxpayer-supported relief programs” she stated in the Fed analysis.
Banks are more likely to extend a line of credit or prioritize processing a loan for clients with whom they have long-standing relationships; those clients are most often White. Yet, relative to other small business owners, Black small business owners are overrepresented in the exact industries — such as retail, food services, and health care — that rely on in-person interactions and that have been the most disrupted by the coronavirus pandemic.
This shows up in the CNBC|SurveyMonkey data in several ways. For one, Black small business owners are more likely than average to be incurring new expenses on coronavirus-related safety measures (63% vs. 54%). With revenue falling among small business owners across the board, these additional expenses could be especially problematic for those who have less help from the banks.
Shutdowns persist for Black-owned small business
A diminished access to the banking system is a systemic failure of the small business world’s support for Black small business owners and other small business owners of color, but the current economic climate pushes more immediate disparities forward. Recovering from a complete shutdown is a challenge for any business, and small business owners of color are more likely than others to find themselves needing to figure out how.
In the CNBC|SurveyMonkey survey, a majority of all small business owners say they’ve remained open throughout the shutdown (58%), but Black small business owners fall short of that average (47%). Even by late July, well after the phased-in reopenings that cascaded through the country in early summer, Black small business owners were a bit more likely than average to say that their business has still not yet re-opened after temporarily shutting down (16% vs. 11%).
With these elevated shutdown rates, it’s perhaps no surprise that Black small business owners are less optimistic about their ability to survive for a year or more under “current conditions,” as noted above.
Looking back to the first quarter of 2020, small business owners as a whole had a bright outlook on their business expectations; more than half (56%) described current business conditions as “good,” with no significant differences by race. By the second quarter of the year, that number had plummeted to 18% overall, but only to 33% among Black small business owners. That means the initial drop in small business sentiment was not as precipitous for small business owners of color than for White small business owners.
This quarter, that number has rebounded to 36% overall, though most of the bounce comes from small business owners who are White, Hispanic, Asian, or another race, while Black small business owners report only a small improvement. With many Black-owned businesses still stuck in shutdown mode, even though many other businesses have returned to operations, it makes sense that the recovery among Black-owned small businesses is weaker than it is for others.
Nonetheless, throughout 2020 Black small business owners have actually had higher than average scores on the CNBC|SurveyMonkey Small Business Confidence Index scale, with their responses on most components of the index meeting or exceeding the average scores.
Much like the results regarding business expectations, the Small Business Confidence Index scores among Blacks fell from the first quarter to the second quarter of 2020, then made a slight recovery in the latest survey this quarter. However, both the initial fall and the subsequent recovery were more muted in the responses among Black small business owners when compared to the overall results.
Taken together, these data indicate that Black small business owners’ efforts to come back from the coronavirus have stalled to a greater degree than small business owners overall. More Black-owned small businesses, if they are lucky enough to still be operating, are still stuck in the same situation they were in three months ago.