The study draws on epidemiological data on COVID-19 cases, Census data on business locations, data on the geographic reach of the Paycheck Protection Program (PPP), and data on small firms’ financial health from the Federal Reserve’s Small Business Credit Survey. Using these sources, the brief examines the geographic concentration of COVID-19 cases and Black-owned business locations, the reach of federal policy interventions, and business survival rates.
"This brief shows the disturbing relationship between high geographic incidence of COVID-19 and the economic health of Black-owned businesses," said Claire Kramer Mills, assistant vice president at the New York Fed. "These firms had weaker financial cushions, weaker bank relationships, and preexisting funding gaps prior to the pandemic. COVID-19 has exacerbated these issues and businesses in the hardest hit communities have witnessed huge disparities in access to federal relief funds and a higher rate of business closures.
“This tells us that a more targeted geographic focus on the hardest hit and most underserved places is needed. Furthermore, 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, questions that have heightened significance when banks are relied on to administer federal, taxpayer-supported relief programs, as is the case with PPP.”
Key findings from the brief include:
Geographical Concentration of Black Businesses
- Forty percent of receipts from Black-owned businesses are concentrated in just 30 counties (roughly one percent of all counties in the country).
- Of these counties, approximately two-thirds are among the areas with the highest level of COVID-19 cases.
- There is a positive relationship between COVID incidence and the share of a county’s businesses that are Black-owned, indicating that areas with higher concentrations of black businesses are more likely to be facing larger direct (longer forced closures, COVID-19 symptoms) and indirect (social distancing, fewer customers) effects of the pandemic.
Limited Paycheck Protection Program Reach
- Between April and June, nearly $521 billion in the form of loans with an average loan of $107,000, was distributed under the Paycheck Protection Program (PPP). The Small Business Administration (SBA) estimates these loans went to small businesses that supported over 51 million jobs nationwide, or 84% of the nation’s small business payroll.
- Recent analysis of the geographic distribution of PPP loans, however, shows that aid did not reach the hardest hit areas.
- In the 30 counties noted as particularly vulnerable to the effects of Black business closures, most saw about 15%-20% of their businesses receive PPP loans. While these rates are not too different from the national business estimate for PPP loans of 17.7%, there are significant variations across counties. For example, only seven percent of firms in the Bronx, 11.3% of firms in Queens, NY, and 11.6% of firms in Wayne County, MI, received these loans.
- Fewer Black-owned firms entered the pandemic in strong financial positions, with smaller shares of these firms operating at a profit, having a high credit score and using retained earnings to fund the business.
- Fewer than 1 in 4 Black-owned employer firms and 1 in 10 Black-owned nonemployer firms have a recent borrowing relationship with a bank.
- Black-owned employer and nonemployer firms are relatively more likely to turn to online lenders for funding. Fintech providers were not initially authorized to lend PPP funds though they collectively dispersed $4.7 billion in funds through June 30th.
- Estimated decline in Black-owned businesses between February and April of this year is 41%.
- States that re-opened earlier showed some pickup in Black-owned businesses in May and June, but many of those gains are now being paused or reversed as the number of COVID cases has begun to rise again.
Less of a Financial Cushion and Weak Banking Relationships
Black Business Closures