Author: Gigi Dixon Published: 7/23/2020 Washington Informer
It’s no secret that small businesses are struggling under the hardships of the COVID-19 pandemic. But when it comes to small businesses in racially and ethnically diverse neighborhoods, we’re seeing a downturn that grows more concerning every day.
Black-owned small businesses are closing at nearly twice the rate of the industry according to the National Bureau of Economic Research. Even in good times, just over two-thirds of businesses survive for two years and only about half make it to five years.
The impact on our communities is devastating. Why is this happening?
#1: Black-owned businesses are a major economic driver in our economy, so when they suffer, we prolong economic recovery. According to the U.S. Census Bureau, Black businesses account for approximately $138 billion in revenue. In addition, they are responsible for jobs and livelihoods for many who live in the communities they serve. We cannot watch businesses continue to close without taking action.
#2: Industries that have been most impacted by COVID-19 restrictions are the industries in which underrepresented groups are most often employed: retail, the restaurant and food sector, and the service industry. Prosperity Now’s report “The Cascading Impact of COVID-19 on Microbusinesses and the U.S. Economy” finds that these industries disproportionately employ women, immigrants and racial and ethnic minorities. For microbusinesses in these industries, 32% are minority-owned. This means that when these businesses disappear, our communities lose key services like small restaurants, food stores, barber shops, auto repair and clothing stores, all of which impact overall quality of life.
#3: Minority-owned small businesses already faced challenges and now it’s compounded. Out of the gate, Black-owned businesses, along with other racially and ethnically diverse owners, have more challenges ahead of them as they stage a comeback. They are often smaller by way of employees, payroll and startup capital, and they may not have established banking relationships. These factors make them much more susceptible to economic downturns, and they will need greater access to capital and innovation to be resilient in this pandemic.
The time is now to accelerate rebuilding our Black-owned small businesses. No single government program can bring about a full recovery. And, capital alone won’t save neighborhood businesses – or the employment they sustain.
We need multiple avenues of capital, coupled with training, technical support, and long-term resiliency planning to help small business owners find ways to pivot their business models and reimagine their products and services so they can meet the needs of an evolving economy.
There’s a role for the nation’s business leaders to play. Examine your supplier diversity and look for ways to increase minority-owned businesses in it. Invest in growing the small business ecosystem for the communities you operate in and beyond.
This month, Wells Fargo launched an industry-leading commitment through the new Open for Business Fund. We are donating all gross processing fees earned from the Paycheck Protection Program — approximately $400 million — to nonprofits focused on supporting small businesses, particularly those owned by racially and ethnically diverse people. It has three areas of focus: capital and payment relief via Community Development Financial Institutions (CDFIs); technical assistance to help owners pivot in an evolving economy, and long-term recovery and resiliency grants.
The first two grants will allocate $28 million to the Expanding Black Business Credit Initiative (EBBC) and Local Initiatives Development Corporation (LISC), aimed at empowering Black and African American-owned small businesses. EBBC will support the launch of the Black Vision Fund to increase the flow of capital to Black-focused CDFIs for transformational work to close the racial wealth gap in African American communities. LISC will provide grants and low-cost capital to more than 2,800 entrepreneurs with a focus on preventing loss in revenue, sustaining employment, and averting vacancies among vulnerable small business owners in urban and rural markets nationwide. These grants are just the start of the Open for Business Fund, which will distribute roughly $250 million to CDFIs so they can reach small businesses hardest hit by the pandemic.
This program is a step in the right direction, and I hope to see others follow suit. It takes a holistic look at what small business owners need to get back on track. The only way we can accelerate the recovery of our small businesses is by creating many pathways for entrepreneurs to seek the help they need. When we collaborate effectively, we can add employment, increase wealth, and demonstrate entrepreneurial success that will inspire other residents to start businesses.
I hope everyone involved in this crisis – the federal government, corporate America, and our nation’s leaders – will continue to work toward solutions because millions of jobs and entire neighborhoods are depending on it.