Impacts of COVID-19 on Black-Owned Small Businesses and the Outlook

Updated: Dec 1, 2020

How has COVID-19 Affected Black-Owned Small Businesses and What is the Future Outlook?

COVID-19 has affected just about every aspect of daily life, and Black-owned small businesses have not been spared. Within a few weeks of the initial shutdown in the US, small businesses were already reporting layoffs and closures. While everyone felt the effects of COVID, small businesses were hit especially hard.

When the shutdown began in March, many Americans expected it to be brief. Small business owners could deal with a short shutdown, but as the time stretched from a few weeks to months, things changed for many. Small business owners had to be nimble, changing course quickly and adeptly. They had to move to an online business model, which brought its challenges. Many of those challenges were unexpected for traditional brick-and-mortar business owners.

The Black community has been hit especially hard by COVID-19. The American Hospital Association (AHA) noted higher rates of positive test results and hospitalizations for African American patients. One study found while every demographic group has been affected by COVID-19, African-American business owners have suffered disproportionate losses with a loss of 440,000 Black businesses between February and April of 2020.

McKinsey found close to a third of small businesses were operating at a loss or just breaking even before the pandemic. This means less working capital to tide them over during a forced shutdown, as well as less ability to buy new technology or make changes to workflow to adjust. Small businesses have less access to financial assistance as compared with large corporations and may be operating with much less of a financial cushion overall.

Effects of COVID-19 on Black-Owned Small Businesses

There have been several effects of COVID-19 on Black-owned small businesses:

  • Closures – Businesses have had to temporarily or permanently shut their doors. Some may have closed brick-and-mortar storefronts while attempting a digital rebrand, while others may have closed altogether.

  • Lay-offs – Some small businesses have been able to stay afloat by laying off staff or not hiring to replace workers. Businesses that usually have to hire seasonal workers may hold off.

  • Scope changes – Some small businesses pivoted their normal operations to remain profitable. Some were able to modify their business to provide essential pandemic gear, such as face masks being produced by all who could sew.

  • Change to online model – Businesses that could make the move to being online did. There were some businesses where this was easier than others. For example, a pizza takeout place or coffee shop pivoted to online orders and to-go only with little complications, whereas salons, barbershops, and spas that depend on face-to-face interactions suffered.

Did the CARES Act Help?

The president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, offering $376 billion in aid for small businesses and workers. The Act provides several programs to help small businesses, including bridge loans, paycheck protection, and debt relief. One challenge with the government’s program, however, is that many financial institutions prioritized the first loans to customers with whom they had existing relationships. This meant some African American small business owners were unable to access the emergency funds.

Perhaps more helpful was the funding offered by the Magic Johnson Enterprises to the SBA’s Paycheck Protection Program. The company provided $100 million in capital to fund loans for women and minority-owned small businesses negatively impacted by COVID-19 to help them overcome the difficulty they faced in accessing help through the CARES Act.

The Outlook for Black-Owned Small Businesses

The US may be headed for another lockdown as COVID-19 numbers continue to increase. The unknowns make it challenging for small business owners, but financial boosts like the Magic Johnson gift to the SBA for minority-owned businesses are helpful. The outlook is positive if Black-owned small businesses can continue to remain nimble and pivot quickly in response to changing conditions.

Small Business Owner Resources

The CDC offers guidance aimed directly at small business owners on their website’s dedicated page. The US Small Business Administration (SBA) also offers resources and tips on their site. OSHA has a resource guide available for download about how to keep workplaces safe after COVID-19.

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