COVID-19 Disproportionately Affected Minority-Owned Businesses and Entrepreneurs, Kenan Institute Says

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CHAPEL HILL – It is clear that the federal government has prioritized supporting small businesses during the COVID-19 pandemic, despite issues in the rollout and implementation of federal programs such as the Payroll Protection Program (P3) and Disaster Economic Lending (EIDL), revealed a new report from the Kenan Institute of Private Enterprise and Entrepreneurship Center at the University of North Carolina at the Kenan-Flagler Business School in Chapel Hill.

But many black-owned businesses did not have access to the funds made available through the payroll protection program, and recent research found that there is a documented bias in lending and systemic reasons why black entrepreneurs may choose not to use traditional banks.

The COVID-19 pandemic has disproportionately affected women and minority business owners, according to the report, who already faced pre-existing inequalities in accessing adequate resources for their businesses before the onset of the global coronavirus pandemic. .

The Office of the Small Business Capital Formation Advocate Annual report for fiscal year 2020 found that 26% of women-owned businesses, 26% of Asian-American-owned businesses, 32% of Hispanic and Latinx-owned businesses, and 41% of black-owned businesses were forced to close their doors between February 2020 and April. 2020.

This was just when the P3 was supposed to help business owners avoid closure by providing the funds needed to keep up with the payroll and keep the economy moving.

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the Entrepreneurship trends in 2021 A report from the Kenan Institute found that at the start of the PPP rollout, funding did not necessarily go to businesses that needed support the most, as black-owned businesses received loans of around 50%. lower than the firms, although this effect appears to have disappeared over time with the implementation of additional program changes.

“These findings are a testament to the disconnect that can occur between those who make policy and those overseeing implementation,” write the report’s authors. Research also showed that black-owned businesses tended to receive less capital than they charged physical banks, and a higher percentage of black-and-Hispanic-owned businesses used lenders based. only online or looking for credit unions or community. development finance institutions.

A finding that could help policymakers and government officials as they continue to structure programs to support small businesses: The use of fintech services and businesses seems to “grow the cake,” said Isil Erel, incumbent. the David A. Rismiller Chair in Finance and the University. director of the Risk Institute at Fisher College of Business at Ohio State University.

“Traditional banks base their PPP origins on past relationships and are geographically constrained by the physical location of their branch,” said Erel. “However, fintech has widened access to the PPP program, especially in underserved areas with low income and a greater proportion of the minority population.”

There are policy implications to this finding, said Erel, best summed up as allowing more fintech lenders to participate in fully or partially guaranteed government loan programs, whether the region or country is in crisis or not.

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With the adoption of the American Rescue Plan, which included $ 28.6 billion in industry-focused grants and an additional $ 7.25 billion for PPP, additional funds are being allocated to a lesser-known program, the Subsidy program for closed site operators (SVOG) which will provide more than $ 16 billion in economic assistance to theater operators, performing arts centers, museums and cinemas, and other targeted industries.

“The SBA knows that these sites are critical to the US economy and understands how badly they have been affected because they were among the first to shut down,” said SBA administrator Isabella Casillas Guzman, noting that the program was designed to provide them with a lifeline. companies.

As part of other policy changes that may impact entrepreneurship, the SEC announced changes to its definition of an accredited investor in August 2020, including the addition of joint equivalents, expanding the entities that may be eligible to include tribal governments, rural business investment companies and other entities. with $ 5 million in investment, and authorizing other external thresholds or licensure as a qualifier.

But those changes may not go far enough, argued Martha Legg Miller, director of the attorney’s office for small business capital formation at the U.S. Securities and Exchange Commission. Among two other recommendations Miller and his office made to the U.S. Congress, she advocated for greater diversity among investment decision-makers to facilitate greater fairness, especially by changing historical models that have had a negative impact on businesses run by women and minorities, potentially through training. small funds investing in regional ecosystems.

Three-quarters of small business owners took on debt to offset losses from COVID-19

“Creating racial equity in the Fourth Industrial Revolution is the best way to close the racial wealth gap for all Americans, especially blacks, Latinxes and Native Americans,” said Rodney Sampson, president and CEO of ‘Opportunity Hub; General Partner, 100 Black Angels & Allies Fund; and Venture Partner, Draper Goren Holm. This is especially urgent, because if the trends continue unabated, the median wealth of a black family is expected to be zero by 2053, according to the report.

There are positive trends, according to research from Harlem Capital, which followed the black and latinx founders who raised over $ 1 million in venture capital. The number of companies increased from 117 in 2018 to 305 in 2020, but only about 1% of all venture capital funding went to black-owned startups in the United States in 2020, and racial bias is rife. also indicated by research on how black-led venture capital funds are viewed by investors: less favorably than similarly white-run firms.

Women-owned businesses were also largely excluded from returning venture capital investments in the second half of 2020, according to the report, with women-owned startups receiving only a small portion of all invested capital, with 7% of the capital at start-up. stage, 4% at initial stage and 1% of investments at advanced stage.



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