MReport September 2020

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16 | M R EP O RT FEATURE 1—table-size-standards 2 3 4 U.S. Census Bureau's 2016 Annual Survey of Entrepreneurs 5 10 11, 12 13 medium=email&utm_campaign=newsletter_axiosam&stream=top T he stats are in, and they are sobering. Over 50% of small businesses with employees, face im- mediate risks to survival due to the impacts of COVID-19. 1 This represents about 4 million compa- nies, with "small business" being roughly defined as those with fewer than 250 employees. Within the small business category are minority- and women-owned business enterprises (MWBEs). Going into the pandemic, research found that minority- and women-owned business develop- ment is limited by disparities in education, personal wealth, and access to capital. 2 An additional factor is historical discrimina- tion: highly rated businesses in majority Black neighborhoods earn less revenue than businesses with similar ratings outside of Black neighborhoods, amounting to nationwide annual revenue loss as high as $3.9 million, by some estimates. 3 Studies find that these same disparities limit growth and ex- pansion of MWBEs. On average, MWBEs have 305 fewer employ- ees than male- or white-owned businesses, and average sales are 50-90% of male- or white-owned businesses. The COVID-19 economic crisis is heightening these disparities. Of small businesses in immediate-risk industries (food service, retail, and accommodation), 39% are female- owned, or equally female- and male-owned, compared to 29% of business in industries at near- term risk and 36% at long-term risk. Similarly, 20% of businesses in immediate-risk industries are run by Asian American or Black owners, compared to 7% of busi- nesses in industries at near-term risk and 12% at long-term risk. 4 Looking Back W hat parallels can be drawn with the last big economic crisis? The U.S. Census Bureau found that about 60% of white- owned business that existed in 2002 survived until 2011, compared to 49% of Black owned businesses and 55% of women-owned busi- nesses. 5 Conversely, MWBEs assisted the recovery after the recession of 2009 by creating jobs in health care, accommodation, and food service industries. MWBEs added 1.8 million jobs from 2007 to 2012, while businesses owned by white males lost 8000,000 jobs, and businesses jointly owned by white men and women lost another 1.6 million jobs. 6 Curiously, the increase in MWBE ownership seemed to be connected to higher unemploy- ment rates for people of color, namely that unemployed people are more likely to start a business during a recession to avoid pro- long unemployment and financial hardship. 7 COVID-19 Impact Varies by Industry A s contrasted with the Great Recession of 2009, the current crisis puts food services, retail, and accommodation industries at immediate risk. 8 A chart 9 prepared by the Brookings Institution, a nonprofit public policy organization based in Washington, D.C., and dating back to 1916, illustrates these findings, based upon U.S. Census data from 2016 showing the industries the most impacted by the pandemic and its accompanying shutdowns. 10 MWBEs tend to be younger companies, with 45% in business for five years or less, compared to 31% of white-owned business, and 40% more likely to rely on personal funds, mainly home equity, to finance their companies. 11 Roughly 22% of all women-owned businesses are hair salons, nail salons, and pet groomers, and women also own 16% of the business in the hospital- ity and food service sector. 12 A small business survey taken by Goldman Sachs at the end of March showed that 44% of Black business owners said their person- al finances were greatly damaged, compared with 33% of all owners, and 26% of Black owners said they had less than one month of cash reserves, compared to 17% of busi- ness owners overall. 13 In this current crisis, the U.S. Congress authorized the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDLs) from the Small Business Administration. Large banks primarily managed the PPP funds, which have gone mostly to bank customers, which disproportion- ately do not include MWBEs. Historically, banks approve 60% of loans sought for white small business owners, 50% for Latino owners, and 29% for Black owners. Black business owners made more use of funding Survival Threat Minority- and women-owned companies are disproportionately impacted by COVID-19. What can be done to ensure these companies don't disappear? By Michelle Garcia Gilbert, Esq.

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