Black-owned businesses nearly twice as likely to close amid the coronavirus pandemic, New York Fed study finds

• Between February and April, 41% of Black-owned small businesses closed, according to a New York Federal Reserve study released Tuesday.
• That's nearly twice the 22% of all businesses that shuttered in the same timeframe, the study showed.
• "These firms had weaker financial cushions, weaker bank relationships, and preexisting funding gaps prior to the pandemic," said Claire Kramer Mills, assistant vice president at the New York Fed, in a statement.

Black-owned businesses have closed at a rate nearly twice that of other firms amid the coronavirus pandemic, likely because they began the crisis on weaker financial footing, were less able to access federal aid, and suffered longer closures, according to a study by the New York Federal Reserve.

Between February and April, 41% of Black-owned small businesses closed, the study released Tuesday found. In comparison, all firms declined 22% in the same timeframe, while Latinx owners declined 32%, Asian owners fell 26%, and white owners decreased 17%.

"These firms had weaker financial cushions, weaker bank relationships, and preexisting funding gaps prior to the pandemic," said Claire Kramer Mills, assistant vice president at the New York Fed, in a statement. "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."

The research found that going into the pandemic, Black-owned businesses were on weaker footing. It cited a 2019 study on the health of small businesses that found that only 42% of Black-owned firms were considered "financially healthy," based on credit score, profit, and net income, compared to 73% of white-owned firms.

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In addition, Black-owned businesses were less likely to have an existing relationship with a bank, according to the study, making them less likely or able to apply for a Payroll Protection Program loan from the Small Business Administration.

"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," the study said.

In some counties with high concentrations of Black-owned businesses, PPP loans were received at rates much lower than the 17.7% national average, according to the New York Fed. Only 7% of firms in the Bronx, New York, received PPP loans, along with 11.3% of firms in Queens, New York; 11.6% of firms in Wayne County, Michigan; and 12.2% of firms in Prince George's County, Maryland.

The New York Fed found that Black-owned businesses are more likely to be located in a COVID-19 hotspot, while white-owned firms tend to be in the least hit areas. This indicates that Black-owned businesses may face larger effects of the pandemic, such as longer closures, social distancing, and fewer customers, the study said.

"This tells us that a more targeted geographic focus on the hardest hit and most underserved places is needed," said Kramer Mills.