New York Fed Study Shows Why More Black-Owned Firms Are Closing

(Bloomberg) -- Black-owned small businesses are twice as likely to shutter as small businesses overall during the coronavirus pandemic because they suffer from pre-existing vulnerabilities, according to a study released Tuesday by the Federal Reserve Bank of New York.

Data show a 41% drop in the number of active small business owners who are Black from February to April, compared to 22% of owners overall, according to the study. Latinx business owners fell by 32%, while Asian business owners dropped 26% and white business owners retreated 17%.

The reasons found by the study include a concentration of Black businesses in counties hit hard by Covid-19, weaker financial cushions and bank relationships, and the uneven reach of the government's Paycheck Protection Program.

“This tells us that a more targeted geographic focus on the hardest hit and most underserved places is needed,” said Claire Kramer Mills, assistant vice president at the New York Fed. “The racial disparities in bank relationships prior to Covid-19 detailed here raise structural questions about the presence and functioning of banks in communities of color.”

The economic effects on the coronavirus pandemic have hit small businesses especially hard, with Yelp Inc. data indicating that more than half of the business closures that were temporary at the beginning of Covid-19 are now considered permanent. The PPP, a loan program designed to provide relief for small businesses that is set to expire Aug. 8, has come under fire for uneven loan distribution that favored predominantly white parts of the country.

Researchers drew on epidemiological data on Covid-19 cases, census data on business locations, geographical data on the PPP and data on small firms' financial health from the Fed's Small Business Credit Survey.

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