Why some black-owned U.S. businesses are hardest hit by coronavirus shutdowns


WASHINGTON/NEW YORK (Reuters) – After 15 years working as a hair stylist in other people’s salons, Gary Connell opened his “Healthy Hair” studio in Montgomery County, Maryland in early March, sinking his savings into a two-chair shop in a busy mall.

It hadn’t even been up and running for a full month when stay-at-home orders were issued because of the novel coronavirus, shutting down the mall.

Connell, 57, went two months with no income before Maryland loosened restrictions in early June, allowing him to take a limited number of clients. He couldn’t access the federal government’s small business loan program, or get unemployment insurance.

His situation isn’t unusual.

U.S. black-owned small businesses are highly concentrated in retail, restaurants and other service industries most affected by shutdowns and social distancing. Their owners typically have had fewer resources to fall back on and a tough time getting aid, research shows.

Economists are sounding alarms that coronavirus-related damage may be permanent. “A lot of these business owners that are shut down right now are not going to come back,” said Robert Fairlie, an economics professor at the University of California, Santa Cruz who wrote a paper about the pandemic’s impact on small businesses.

The number of black businesses owners in the United States dropped by 41% between February and April to 640,000, compared to a 17% drop in the number of white business owners, Fairlie’s analysis shows.

FEWER BUSINESSES, FEWER RESOURCES

U.S. small businesses are where U.S. jobs are created, Federal Reserve chairman Jerome Powell said during congressional testimony on Tuesday, and any wave of insolvencies would weigh on the economy for years. “That’s all the more so true of minority businesses because of the important role they play in our economy and in their communities,” he said.

Black business owners are under-represented, making up about 7% of the 15 million small business owners who were working in February before the coronavirus pandemic hit, compared to more than 13% of the U.S. population in 2019, Census data (here) show.

Black-owned businesses also had fewer resources to fall back on when the pandemic struck; some 21% were financially “distressed” at the end of 2019 based on their profitability, credit score and earnings, compared to just 5% of white-owned businesses, according to a Federal Reserve survey (here).

Distressed firms were more likely to use the owner’s personal funds, take on debt or close or sell the business if they faced two months without revenue, the Fed study (here) found.

Minority-owned businesses were less likely to borrow from banks, with only 23% of black-owned businesses having turned to a bank for a loan in the last five years, compared to 46% of white-owned businesses, the survey showed.

Long-standing wealth disparities leave black entrepreneurs with fewer funds to fall back on during the downturn. The typical black family had a net worth of $17,150 in 2016, a tenth of the $171,000 held by white families, according to the Brookings Institution (here).

“That’s just not enough money to survive a…



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