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COVID-19

One reason why Black-owned businesses have fared worse in the pandemic: weaker banking relationships

Kristin Schwab Aug 4, 2020
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A beauty product booth at a Black-owned business expo in Florida. The number of Black business owners in the U.S. fell more than 40% between February and April, according to a New York Fed study. Octavio Jones/Getty Images
COVID-19

One reason why Black-owned businesses have fared worse in the pandemic: weaker banking relationships

Kristin Schwab Aug 4, 2020
Heard on:
A beauty product booth at a Black-owned business expo in Florida. The number of Black business owners in the U.S. fell more than 40% between February and April, according to a New York Fed study. Octavio Jones/Getty Images
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For the last several months, we’ve been watching the COVID-19 pandemic hit Black-owned businesses particularly hard. A new report from the New York Federal Reserve confirms it — and looks into the reasons why. A lot of it comes down to relationships with banks.

Getting that first round of Paycheck Protection Program funding was like running a race. And Vera Daniels was miles away from the starting line when the gun went off.

“I sent emails out to a listing of about 100 banks,” she said. “It just felt helpless.”

Daniels owns Wellness Tea Therapy, a teahouse and wellness center in Brooklyn, New York. She banks with a credit union, but it couldn’t help her apply for a loan. So she had to find a bank that would. But “the banks suggested that their primary concern would be their customers,” Daniels said.

She still hasn’t found funding. She’s pivoted to online sales and said she’s hanging in there. But a lot of other Black entrepreneurs can’t say the same. The number of Black business owners in the United States fell more than 40% between February and April, according to the New York Fed study. That’s more than double the decline of white business owners.

“We saw that there were real differences going into the crisis between Black- and white-owned businesses,” said Claire Kramer Mills, who co-authored the study.

She said a lot of this had to do with access to capital. Traditionally, Black businesses have had to look to friends or family, to 401(k)s, to short-term and often predatory lenders — and not to banks.

Meanwhile, Black-owned businesses are concentrated in places COVID-19 has hit hardest.

“These places have had a double whammy,” Kramer Mills said.

“It’s just like really worsening an already bad situation in the Black community,” said Belinda Archibong, professor of economics at Barnard College. She said Black health and Black wealth are intertwined. And the only way to change the outlook for Black-owned businesses where COVID-19 has hit hard is to directly allocate funds to them.

“And that’s something that needs to happen with federal regulation,” Archibong said, like a targeted federal loan program.

That’s important now that it’s clear this COVID-19 crisis is a marathon, not a sprint.

Additional reporting by Lukas Southard.

COVID-19 Economy FAQs

What’s the outlook for vaccine supply?

Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.

How has the pandemic changed scientific research?

Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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