The Impact of COVID-19 on African American-Owned Businesses

When COVID-19 struck the United States and the whole world, everyone was affected. Some groups, however, were hit harder than others. It was in March 2020 when in an attempt to control the virus, the government had ordered the entire country to halt work and business operations. The effects of this economic shutdown due to the pandemic were experienced immediately by many small-business owners, especially African-Americans.

African-American Businesses Before the Pandemic

The past few years pre-COVID have seen a steady growth of African-American businesses in the US. According to recent studies, black business owners reported annual revenue growth of 23% between 2012 and 2018. African-American business owners were also revealed to have an employee growth rate of 24%, which is far higher compared to 10.8% of the entire small business community during the same timeframe.

In December 2019, a report from the Federal Reserve Banks showed that 78% of black-owned businesses reported financial problems compared to 62% of businesses owned by white Americans. Additionally, reports revealed that 32% of small businesses, in general, were profitable and growing, while 18% were profitable and steady.

Fast forward to the first quarter of 2020, these numbers have plummeted to 12.2% and 12.1%, respectively. Businesses at break-even were faintly down to 17.7% from 19.6%, while non-profitable firms surged to 48.7% from 25.3%.

How COVID-19 Affected African-American-Owned Businesses

Among entrepreneurial groups across the country, African-American business owners have struggled the most. In fact, a whopping 41% or more than 440,000 of these owners have already lost work a month after the mandated business shutdown.

Although a partial rebound was seen in the next months, with a little over 280,000 black businesses not operating in May 2020, this number still accounts for 26% lower than that in February 2020. It remains the largest drop for any major racial group. This is expected to have long-term fatal consequences on savings and wealth.

Profitability

In August 2020, SCORE conducted research via an online survey to find out the impact of COVID-19 on small African-American-owned businesses. Unsurprisingly, only 8.8% of these businesses are profitable and growing, while 56.3% are non-profitable at all.

Outside Funding

Almost 13% of the total population of the US is comprised of African-Americans, but only 9.5% of the total number of business owners are black, according to the latest U.S. Census Survey of Business Owners. Within this 9.5%, more than 95% has no paid employees.

Black business owners have experienced major losses due to the pandemic, reporting greater financial challenges in making payments on debt and operating expenses, and credit availability. Consequently, the use of personal funds to remedy these financial problems is expected.

Wealth disparities, however, leave black business owners with fewer funds to use to stay afloat. That’s why businesses owned by African-Americans are more likely to apply for private funding; however, they’re less likely to receive it than their white-owned counterparts.

Almost forty percent of black-owned businesses applied for delays for existing loan payments, but only 33.6% of this was approved. On the other hand, 19.9% of businesses owned by white Americans applied with 72.4% of it approved.

Almost thirty-eight percent of black-owned businesses sought after expanded credit lines, but only a little over twelve percent were approved. In comparison, 16.4% of white-owned businesses requested, and 32.7% were granted.

Similarly, 47.7% of African-American-owned businesses appealed for new loans, but only 22.3% were accepted. Nearly 27% of businesses run by white Americans applied for new loans, and 54.2% of them were approved.

Government Funding

Moreover, businesses owned by African-Americans were more likely to apply for federal loans and assistance but were less likely to obtain funds.

The Paycheck Protection Program (PPP) was developed to assist small businesses in covering their employees’ payroll and benefits and paying rent and loan interests. Over fifty percent of black-owned businesses applied for PPP, but only 20.3% have been granted the full amount. In comparison, 47.8% of white-owned enterprises applied, and 63.7% received the full amount.

For Economic Injury Disaster Loans, 61.1% of African-American-owned businesses requested, but only fifteen percent received the full amount. On the other hand, 44.3% of firms run by white Americans applied with 42.8% receiving the full amount.

Further, white-owned businesses are more than four times more likely to receive Small Business Administration (SBA) loans in full amount than African-American business owners.

COVID-19 Infection

Due to the national economic shutdown and social distancing protocols in place to combat the spread of the virus, 45.2% of black-owned businesses felt that the need to work remotely has greatly affected their business, compared to 25.1% of white-owned businesses.

Further, 39.1% of African-American business owners have reported being deeply impacted by COVID-19 infection of themselves or their family, and 25.9% by the viral infection of their employees.

Industries Most Vulnerable to COVID-19

None is exempted from the damages and devastation brought about by COVID-19, but the pandemic has threatened and is still especially threatening some sectors. Industries that reported major business losses include:

  • Accommodations, with hotels and leisure down by 35%
  • Food services, with restaurants down by 22%
  • Construction, down by 27%
  • Professional and business services, down by 18%
  • Health services, down by 16%

These industries are some of the many ones with the highest concentration of African-American-owned businesses.

Several small businesses may close or have already closed because they’re in sectors that are influenced by changed customer behavior, especially with all the protocols and restrictions in place during the crisis. Some firms are also vulnerable because of the financial challenges they’re facing that may already be present pre-pandemic.

Conclusion

African American-owned businesses continue to be the hardest hit amid the coronavirus pandemic. The national economic shutdown and social distancing restrictions are the main culprits, but experts also shared concerns regarding the long-standing wealth gaps, difficulty in accessing private and government aids, and the overall social and economic inequality in the country.

Although the future seems bleak for African-American business owners, many still see optimism and hope crystal clear. After all, African-Americans are known for their resilience and innovation to get through hard times.

AACCSA Staff

AACCSA Staff

Dedicated to elevating the African-American business enterprise and community. Want to volunteer to help propel the Chamber? Contact us today!

Leave a Reply

About The AACCSA

The Chamber works to advocate, educate, connect and promote African Americans and other minorities regarding opportunities for entrepreneurship and business enterprise.

Recent Posts

Follow Us On Social Media

Featured Video

Sign up for our Newsletter

Stay up to date with our latest news, receive exclusive deals, and more.