Pre-Thanksgiving Holiday preparations very often call to mind the upcoming end-of-year prospects for business.
“Black Friday” was traditionally the first day that many large and small retail stores began to experience consistent profits for the calendar year. From the Friday after Thanksgiving to the end of the year, retailers would report a profit for the year. Now is as good a time as any for businesses to take stock of what happened to them in 2021, and make plans for 2022.
It is more than painfully obvious to think that minority businesses, especially in the African American community, have been profoundly impacted by the global outrage sparked by the highly publicized killings of George Floyd, Ahmaud Arbery, and Breonna Taylor, coupled with the onset of the Covid-19 Pandemic.
But the experiences and perspectives of African American entrepreneurs during the period highlight an old saying: It takes an optimist to be a business owner – but you’ve got to be a realist, too.
The sharp drop for black businesses during the height of the pandemic reflects their disproportionate representation in old-line services that feature in-person interaction.
According to a 2021 Federal Reserve Bank Small Business Credit Survey and report on Firms Owned by People of Color, 92% of black-owned firms reported financial challenges in 2020, up somewhat from 85% the previous year. A 2020 Federal Reserve Bank of New York report indicated a 41% drop in the number of black business owners during the period from February through April 2020 at the very beginning of the crisis.
The sharp drop for black businesses was much starker than that for Hispanic (which dropped 32%), Asian businesses (down 26%), and white-owned businesses (down 17%).
The sharp drop for black businesses during the height of the COVID pandemic reflects their disproportionate representation in old-line services — hair care, auto repair, small retail, professional services, and restaurants — that feature in-person interaction. These were just the types of operations that took the biggest hits during the darkest days of the COVID lockdowns during the Spring and Summer of 2020.
Obviously, the relative lack of access to capital among minority businesses – specifically among black-owned businesses – had a significant impact on their ability to operate effectively throughout the pandemic. According to a 2018 U.S. Census Bureau survey, black business owners possess an average of about $35,000 in start-up capital compared with $107,000 for white entrepreneurs.
The persistent lack of capital throughout the lives of African American businesses has been detrimental to their sustainability during the pandemic – with black entrepreneurs much more likely to dip into their personal cash reserves to keep their operations going. The New York Federal Reserve report also reported that black-owned firms were also less likely to receive all of the capital requested through the Payment Protection Program.
But lately there have been signs of optimism — much of which has been expressed by black entrepreneurs themselves.
Will the sharp growth among African Americans in “necessity” start-ups — as well as more opportunity-focused businesses — continue into 2022?
According to a survey by Reimagine Main Street, a non-profit initiative focused on advancing small business efforts to emerge from the pandemic, 83% of black entrepreneurs polled were optimistic about the future prospects of their companies compared with 70% of their white counterparts. The survey was conducted between April 28 and May 12, 2021.
Recent indications of optimism can also be demonstrated by a recent sharp rise in the number of start-ups in the black community. According to a research study by Robert Fairlie, a professor at the University of California at Santa Cruz, the number of African American business owners surged by 38% from February 2020 to August 2021 to nearly 1.5 million.
The study attributed the surge to necessity-driven efforts by recent downsized workers, as well as to the lasting impacts of the Buy Black initiatives sparked by the 2020 protests advocating dramatic restructuring of police and public safety institutions. Regardless of the reasons for the spurt in the number of black businesses, the growth reflects a positive response to longer-term changes in the economy.
It will be interesting to see whether the sharp growth in “necessity” start-ups, as well as more opportunity-focused businesses, among African Americans will continue into 2022. Like ingenuity, successful businesses often sprout from someone satisfying a need.
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