CLEVELAND – Businesses owned by people of color continue to face more financial and operational challenges than their white-owned counterparts, according to the Small Business Credit Survey 2022 Report on Firms Owned by People of Color, released this week by the Federal Reserve Bank of Cleveland.
The report, a collaboration of all 12 Federal Reserve Banks, is based on a survey of small businesses across the nation that includes questions about business performance, the financial and operational challenges that businesses face, and financing outcomes.
It is a follow-up to the SBCS 2021 report, which found that businesses owned by people of color often face more financial and operational challenges than their white-owned counterparts but often were less successful at obtaining the funding needed to weather the effects of the pandemic.
As new report shows, those disparities persisted a year later.
Among the Key Findings:
- Firms owned by people of color were more likely than white-owned firms to report that revenues had not yet recovered from the effects of the COVID-19 pandemic.
- Firms owned by people of color disproportionately reported difficulties accessing the funding needed to overcome their financial challenges and continued to report lower approval rates than their white-owned counterparts.
Performance and Expectations:
- Seventy-nine percent of Asian-owned firms reported that their revenues had not yet reached 2019 levels compared to 72% of Black-owned firms, 67% of Hispanic-owned firms, and 59% of white-owned firms.
- Thirty-nine percent of Asian-owned firms reported that their business was in poor financial condition at the time of the survey, as did 36% of Black-owned firms, 28% of Hispanic-owned firms and 17% of white-owned firms.
Pandemic-Related Financial Assistance:
- In 2021, firms owned by people of color were more likely to seek pandemic-related financial assistance than white-owned firms.
- Seventy percent of white-owned firms in 2021 received all of the PPP funding for which they applied. The same was true for just 55% Asian-owned firms, 44% of Hispanic-owned firms, and 31% of Black-owned firms.
- Firms owned by people of color were more likely than white-owned firms to report not applying for pandemic-related financial assistance, despite needing the funding.
Access to Credit:
- Applicant firms owned by people of color were half as likely as white-owned applicant firms to report that they received all the traditional financing they sought.
- Firms owned by people of color were half as likely as white-owned firms to be fully approved for a loan, line of credit, or cash advance at a small bank and approximately a third as likely to be fully approved at a nonbank finance company.
The SBCS collects information from firms with fewer than 500 employees, which represents 99.7% of all employers. The results are weighted to reflect the full population of small businesses in the United States.
Acknowledged as leading the report team are Ann Marie Wiersch and Lucas Misera from the Federal Reserve Bank of Cleveland.
SOURCE: Cleveland Federal Reserve Bank.
Published by The Business Journal, Youngstown, Ohio.