Latresa McLawhorn Ryan knows well the havoc that COVID has reaped upon small businesses of color in the Atlanta area and believes the effects of COVID are likely to hang over these businesses for some time. She also knows that small businesses of color can bounce back if they get the right kind of assistance.
“We’ve lost a lot of businesses, some that were really anchors in their community,” said McLawhorn Ryan, executive director of the Atlanta Wealth Building Initiative, a nonprofit organization of community investors, advocates, and activists that supports Black-owned firms. She added that the casualties have included yoga studios, restaurants, and other businesses that rely on high traffic and face-to-face interaction. “It will take three to five years, depending on the sector, for businesses to recover from the impact of COVID.”
Because small businesses of color are an important driver of employment and asset building in their communities, the COVID-related business failures send a message throughout the community that perhaps it is more vulnerable to market forces, McLawhorn Ryan added.
The Federal Reserve Banks of Atlanta and Kansas City published a recovery guide in late 2020 to offer strategies that can help small businesses of color bounce back from the COVID crisis. The guide begins by discussing the state of small businesses of color before the COVID-19 pandemic, placing these firms’ challenges into historical context.
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A second section provides recommendations for communities looking to assist small businesses of color in the areas of credit and capital, education and training, policy, and community support. The final section shares tools for communities to develop an entrepreneurship network focused on small businesses of color.
Atlanta Fed president Raphael Bostic led a January 14 panel discussion with Southeast community leaders discussing ways to support small businesses. The webinar focused on the need to establish networks that can deliver resources and coaching.
Issue number 1 is funding
Janelle Williams, a senior adviser in the Atlanta Fed’s Community and Economic Development group who wrote the recovery guide with two Kansas City Fed advisers, said businesses owned by nonwhites face especially daunting challenges to regain their footing, with access to funding and credit topping the list.
“There are still structural barriers that limit small businesses of color from securing the capitalization needed to sustain and scale their businesses in a valuable way,” she said.
Much of the funds approved by U.S. lawmakers last year under the Paycheck Protection Program (PPP) to help businesses preserve employment did not reach the smallest companies and many firms owned by people of color. For example, a Federal Reserve Bank of New York analysis found that PPP loans were given to just 20 percent of eligible companies in states with the highest densities of Black-owned firms. In Fulton County, Georgia—which includes the city of Atlanta—a total of 20.8 percent of businesses received loans from the program. In Florida’s Miami-Dade County, just 15 percent of eligible firms obtained PPP funds.
In mid-January, a third round of PPP loans opened. Small business owners of color are hopeful that more funds will reach them this time. A portion of the $284 billion approved for small businesses in the December 2020 COVID relief legislation was set aside for firms with 10 or fewer employees and lenders that cater to underserved communities, including minority-owned banks and community development financial institutions.
Small businesses of color face barriers that make it harder to gain access to capital. They often lack relationships with traditional banks and access to social networks that could help them learn about and apply for available loans. Most entrepreneurs of color don’t have family wealth that could be used to start a business.
Other factors hinder the success of nonwhite small businesses. Williams noted research showing that in the six southeastern states that are part of the Atlanta Fed’s coverage area, small businesses of color are overrepresented in sectors such as food services and retail that have been particularly vulnerable during the pandemic because of required lockdowns, social distancing guidelines, and lower demand for goods and services.
“There is a need for a broader conversation around addressing barriers to entry for small businesses of color that seek to access higher-growth industries that are moderately insulated from market pressures,” Williams said.
Different approaches to financing
The tougher path to viability that small businesses of color face has been well documented. A 2017 report from Prosperity Now, a public policy nonprofit group, notes that deep and persistent patterns of racial discrimination against business owners of color have resulted in greater loan denials and higher interest rates for loans they do obtain. Those financing outcomes result in lower profit margins and limit the opportunities for businesses of color to build thriving enterprises.
The Reserve Banks’ recovery guide notes that the needs of small businesses of color call for financing methods that are nimbler and more accessible to help level the playing field. Those could include interest-free loans, loans with rates that start low and gradually rise, deferred payments and longer repayment time frames, and flexible underwriting terms. Many community organizations consulted in developing the recovery guide “shared that grants, forgivable loans, and patient equity capital will be needed” to help these businesses spring back, the report states.
Williams said the pandemic has challenged the funders that support small businesses of color to think about the kinds of financial assistance that would be meaningful and to understand that some types of aid may not help. “Small businesses of color already are debt averse, so asking them to incur additional debt is a challenge, especially when many rely on their personal income to stay afloat,” she said.
To address these issues, community stakeholders have begun to embrace alternate financing solutions, Williams said. She noted that philanthropic groups were offering program-related investments that provide capital at lower interest rates, while community development financial institutions were introducing funding products that include opportunities for credit enhancement.
The Atlanta Wealth Building Initiative launched a COVID relief fund last year that has provided money to at least 65 small businesses and 18 nonprofits, mainly located in the northwest, southwest, and southeast parts of metro Atlanta where residents’ health and personal income both suffered acutely. The program offers loans that include flexible terms, a six-month grace period, and 30 months of repayment. Through three rounds of grants and two rounds of loans to date, the nonprofit group has dispersed about $800,000 to Black-owned businesses, McLawhorn Ryan said.
The grants and loans have helped in many ways. One restaurant, for example, used a loan from the nonprofit to acquire a food truck that enabled it to sell in different communities and expand its customer base, she said.
“All of our loans were accompanied by specific technical assistance—it helps to have capital, but it also helps to have access to expertise to help think through how to get to the next stage or how to manage cash flow,” McLawhorn Ryan noted.
McLawhorn Ryan said it’s important for funding partners to keep offering funding and general support that will enable small businesses of color to recover and advance to the next phases of development, and she cautioned against a return to business as usual over the next few years.
“This is a new economy, and therefore it requires a new perspective,” McLawhorn Ryan said. “If we are intentional about creating inclusive products, inclusive opportunities for businesses to thrive and survive during this time, we have to be dedicated to the tools that are needed to create a truly equitable environment.”
Staff writer for Economy Matters
Source: For Small Businesses, Recovery from COVID Could Take Years – Federal Reserve Bank of Atlanta
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Lockhart: Economy Achieving Liftoff Conditions
January 14, 2016
In a recent speech, Atlanta Fed President Dennis Lockhart observed a number of improving economic barometers. Can a monetary policymaking move be far behind? Economy Matters summarizes his remarks.
Expecting Solid Growth, Lockhart Focusing on Inflation
January 14, 2016
Setting monetary policy requires an understanding of current conditions, but it also takes into account how policy changes reverberate down the road. Economy Matterslooks at recent remarks by Atlanta Fed President Dennis Lockhart about considerations that go into the policymaking process.
Going Inside GDPNow
January 14, 2016
Since its 2014 debut, the Atlanta Fed’s GDPNow tool has compiled an impressive track record in estimating changes in the gross domestic product. In this episode, Atlanta Fed economist Pat Higgins, the creator of GDPNow, discusses the tool, how it works, and some of the challenges involved in measuring the economy.
Keeping Up with the Gazelles, Part 3: Financing the Herd
December 23, 2015
Founders of small businesses face innumerable challenges, chief among them financing. Economy Matters talked to some founders of gazelles–or fast-growing small businesses–about how they financed their endeavors and how financing affected their business strategies.
Of Cars and Capital Flows: Mexican Central Bank Leader Discusses Auto Production, Global Challenges
December 17, 2015
Mexico, one of the largest trading partners of the United States, has been experiencing significant economic changes. A representative of Mexico’s central bank recently visited the Atlanta Fed to discuss some of them, and Economy Matters recaps his remarks.
A Story in Charts: Who Works for Minimum Wage?
November 12, 2015
Most minimum wage workers work part-time. This week, Economy Matters tells a story of minimum wage workers in a series of charts.
Keeping Up with the Gazelles, Part 2: Why Gazelle Founders Set Sail
November 12, 2015
There are as many reasons for founding a business as there are businesses. Economy Matters talked to some founders of gazelles, or fast-growing small businesses, to learn their reasons for setting out on their own.
The Death of a Reserve Currency
November 12, 2015
The Dutch bank florin—the dominant currency in Europe during much of the 17th and 18th centuries—lost its reserve currency status during the period 1781–92. In this Economy Matters podcast, Atlanta Fed economist Will Roberds talks about the rise and fall of the currency and what lessons it holds for today’s central bankers.
Atlanta Fed’s Hotchkiss: Don’t Be Overly Alarmed by Shrinking Labor Force
November 5, 2015
Some economists have been fretting about the declining labor force participation rate. But how big a source of concern should it really be? Economy Matters looks at a recent examination of some trends to draw conclusions.
The Relationship between the Minimum Wage and Rates of Youth Drinking and Driving
October 15, 2015
If a young person gets a raise at work, could the extra money lead to increased reckless behavior such as drinking and driving? A new Economy Matters podcast discusses Atlanta Fed research into the question.
Atlanta Fed President Lockhart’s Economic Narrative Considers the Long View
October 15, 2015
Setting monetary policy requires an understanding of current conditions, but it also takes into account how policy changes reverberate down the road. Economy Matters looks at recent remarks by Atlanta Fed President Dennis Lockhart about considerations that go into the policymaking process.
Tools for the Armchair Economist: Taking the Pulse of GDP
October 1, 2015
Gross domestic product, or GDP, is an important measure of the economy’s health. However, official figures are released with a delay, posing challenges in gauging current conditions. Economy Matters explores the Atlanta Fed’s GDPNow model, which provides several real-time forecasts each month.
Gender Equality Is Smart Economics, Expert Says
October 1, 2015
Economists often base decisions on efficiency, but does this sort of decision making consider its gender impact? Economy Matters sat in on a recent talk by an academic who discussed the question.
What History Can Teach Us about E-Money
October 1, 2015
Could government-issued and privately issued electronic money coexist? Based on the 1914 to 1934 experience in the United States, the answer is yes, according to an Atlanta Fed working paper. Economy Matters summarizes the paper.
A Story in Five Charts: Who Works Part-Time?
September 24, 2015
More than three-quarters of all part-time workers in the United States choose to work fewer hours. The remaining quarter are involuntary. Economy Matters tells you who the part-timers are and their reasons for working part-time.
Keeping Up with the Gazelles, Part 1: Is the Herd Thinning?
September 17, 2015
Young, high-growth companies—sometimes known as gazelles—have traditionally been an important source of job creation, but the number of U.S. start-ups is in long-term decline. Economy Matters looks at the impact a diminishing herd of gazelles could have on the employment market.
Tools for the Armchair Economist: What’s Your Number?
September 17, 2015
Track your own personalized level of inflation with myCPI, a new calculator from the Atlanta Fed that tailors the U.S. inflation measure to individual circumstances. Economy Matters introduces this tool for the “armchair economist.”
The Government’s Conservatorship of Fannie Mae and Freddie Mac
September 17, 2015
When the U.S. housing market swooned in 2008, the housing agencies Fannie Mae and Freddie Mac became distressed and entered into a government conservatorship that was intended to be temporary. In this Economy Matters podcast, Atlanta Fed economist Scott Frame discusses the circumstances leading to the ongoing conservatorship.
How Was Steve Jobs Unlike Mark Twain? A Conversation with Economist David Galenson
September 10, 2015
Conceptually creative people do dramatic things, while experimentally creative people just keep working away, eventually accomplishing great things. Economist David Galenson posits two types of creativity, and argues for more research.
Tools for the Armchair Economist: Atlanta Fed Adds Wage Growth Tracker
September 3, 2015
Healthy wage growth has been an important missing ingredient in an otherwise strengthening economy. But recently, the Wage Growth Tracker, a new tool from the Atlanta Fed, showed a sharp rise in wages. Economy Matters introduces this tool for the “armchair economist.”
Ask the Economist
September 3, 2015
Atlanta Fed research director Dave Altig recently sat down with Economy Matters to discuss productivity, technological innovation, and the reasons he feels optimistic about the future of the U.S. economy.
Getting to the FOMC
August 20, 2015
All eyes have been on the Federal Open Market Committee as the central bank’s main policymaking body considers when to raise the federal funds rate for the first time since 2008.
The ABCs of the FOMC: Atlanta Fed President Dennis Lockhart Discusses the Policymaking Process
August 20, 2015
Not many people get the opportunity to sit in on a meeting of the Federal Open Market Committee. But in this debut Economy Matters podcast, Atlanta Fed President Dennis Lockhart, a voting member of the FOMC, takes us behind the scenes, describing how participants conduct deliberations, reach consensus, and cast votes on setting national monetary policy.
Wage Growth Is Intertwined with the Fed’s Dual Mandate
August 20, 2015
Wage growth matters to the Fed. Wages and broader labor costs are crucial to both components of the central bank’s dual mandate: price stability and maximum employment.
How Much Can Monetary Policy Do?
August 20, 2015
Through 2014, a range of indicators suggested that the underutilization of labor market resources gradually diminished. But how much labor market slack remains?
The Smallest of Small Firms: How Are They Financed?
August 20, 2015
Every business has to start somewhere, and most start with one employee. New Atlanta Fed research—summarized in this Economy Matters article—looks into how these firms—known as nonemployers—obtain financing.
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