‘Permanent damage’: can minority-owned businesses recover from pandemic’s toll?

  • 5/26/2021
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At a block party in Bell, California, a predominantly Latino Los Angeles suburb, food trucks, jewelry booths and other eclectic vendors lined the roads and walkways earlier this month. Multi-generational families brought their abuelitas and teenage kids, savoring the perceived unwinding of a more than year-long pandemic. “It was just an opportunity, just to get out of the house and smile,” said David Favela, CEO of Border X Brewing, the event’s co-sponsor. In many ways, the celebration marked a return to form. Favela is all about community and culture, and from lotería to Latin jazz, there was always something happening at his breweries in Bell and San Diego. Then came Covid-19. The company’s business model of large tasting rooms and direct-to-customer sales was effectively wiped out overnight. Soon, Favela – an MBA-holding former executive at Hewlett-Packard – learned to get intimate with the potential of bankruptcy, dipping into his 401(K) savings to get by. “We had to reinvent ourselves and how we did things. You know, we just got dizzy from so much reinvention and pivoting,” Favela said. Now, infections are finally retreating and vaccines are widely available in the United States, two critical goalposts for the nation’s long-anticipated economic recovery. But while some industries plot their comeback, many business owners of color are still struggling to make ends meet – or have already shuttered – after their clients were ravaged by the virus. “It’s done permanent damage,” said Tiffiany Howard, a former Bank of America small business and entrepreneurship senior research fellow. “These businesses are not coming back.” An ongoing crisis Minority-owned firms have suffered temporary or permanent closures at disproportionately high rates during the pandemic, the Federal Reserve Bank of Cleveland reported. Over the first two months of the health crisis, the number of active Black, Latino and Asian business owners plummeted by 41%, 32% and 26% respectively, versus just 17% for white entrepreneurs. That outsized toll has lasted well into 2021, when half of small and mid-sized minority-owned businesses couldn’t pay all of their April rent on time, according to a recent poll. And, even as the country reopens, more than a third of Black entrepreneurs say conditions are getting worse for their small businesses, while 37% fear “they may not survive the next three months”, a spring survey by Small Business Majority found. “We need to start thinking about the recovery – how we actually build back the minority-owned businesses that we lost,” said Carlos Fernando Avenancio-León, an assistant professor of finance at the University of California, San Diego. Many business people of color went into the pandemic already at a disadvantage, with lower annual revenues than their white counterparts and dismal access to funding opportunities. Black and Hispanic entrepreneurs are also less likely to have emergency savings tucked away, plus they have fewer stocks and other liquid assets to help them weather an economic downturn. Amid the recession, those inequalities have festered, despite a headline-grabbing campaign to support minority-owned businesses last summer. For example, Black and Latina female founders garnered a measly 0.43% of total venture capital investment in 2020, slipping from an already disheartening 0.67% during previous years, according to the non-profit startup digitalundivided. And, because of the health crisis, roughly seven in 10 women of color small business owners say they have experienced a decline in revenue, averaging 46%, IFundWomen of Color reported. “They’re by no means giving up. They’re pivoting. They’re adjusting. They’re making it work. Because that’s how women of color are. We’re committed,” said Olivia Owens, creator and general manager of IFundWomen of Color. But with at-risk or distressed businesses, owners are also significantly more inclined toward dipping into their personal wealth, raising concerns that minority entrepreneurs could deplete their own funds, too. When Progeny Coffee, a mission-driven company, suddenly lost almost all its revenue, co-founder Maria Palacio knew that people were still relying on her and failure wasn’t an option. So she turned to her own money. “I think we put it all,” she said. “100%.” Fewer customers, little help Government resources that were supposed to boost struggling companies have been doled out inequitably, an analysis by Reveal found, exacerbating the pandemic’s uneven impact. In Los Angeles, the New York metro area, Dallas, San Francisco, San Diego, Las Vegas and Phoenix, businesses in majority-white neighborhoods benefited from twice the rate of loans through the paycheck protection program, compared with those in majority-Latino areas. Companies in majority-Black and Asian tracts similarly received PPP loans at lower rates than those in majority-white areas, discrepancies that cropped up in cities across the country. Meanwhile, entrepreneurs of color are facing a clientele devastated by Covid-19. During the pandemic, foot traffic plummeted nearly 40% at small businesses within neighborhoods that were 20% minority, according to data from SafeGraph – juxtaposed with almost no drop in all-white neighborhoods. Black and brown communities have suffered job and income loss, hospitalization and death at far higher rates than their white peers, but have paradoxically been vaccinated at lower rates than their share of the US population. Broke and afraid, those customers may still be skeptical of going out, inadvertently putting their local storefronts in even more danger of closing. That, in turn, could rob entire neighborhoods of the shops they rely on. “The pandemic has created or exacerbated the food deserts that we see, and the commercial deserts in these communities that only have maybe one mini-mart to provide groceries, that only have one pharmacy where people can go to get their prescriptions,” Howard said. “If those businesses are not there and people do not have access to transportation, they may not be vaccinated, it’s also putting their lives at risk to try and get their basic needs met for their family.” Favela’s brewery in Bell lies in south-east LA county, once a center for Covid-19. People have been slow to re-emerge, and any rebound there has been subdued, he said. But the same isn’t true in San Diego’s Barrio Logan, where he is already struggling with crowd control. Business is up about 20% over pre-pandemic levels, partly because of tourists, he suspects. So far, Favela has survived the recession through a mix of benevolent landlords, grants and government programs. He knows – because of his professional experience and support system – he’s been blessed compared to many businesses in the barrio. But he still feels as though he’s been forced through a meat grinder, punctuated by low points with only $200 in his business account. The potential for yet another shutdown still weighs on his subconscious. And, as soon as he receives government funding, it always seems to disappear into back rent or unpaid utilities. “I find myself hanging on to that money like someone tries to hang on to a bunch of sand,” he said. “You know, the harder you grip it, the more it kind of goes through your fingers.”

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