Prosperity Now lays out the crisis facing America’s Underserved Small Businesses and what needs to be done
Washington, D.C. – The COVID-19 pandemic has already had a deep and severe impact on the wellbeing of America’s small and microbusinesses. A report released today by Prosperity Now details the scope and importance of microbusinesses in the United States; the role women, racial and ethnic minority business owners have in this sector; and how these firms have been devastated by the pandemic and left behind by the implementation of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The report, “The Cascading Impact of COVID-19 on Microbusinesses and the U.S. Economy,” shows that even in the strongest economy, just over two-thirds of businesses survive for two years and only about half survive at least five years. Microbusinesses, defined as firms with one to nine employees and non-employer firms, are historically the most vulnerable to financial shocks. The report lays this out in full relief.
According to the Center for Responsible Lending, roughly 95% of Black-owned, non-employer firms and 91% of Latino-owned, non-employer firms will not be able to receive a Paycheck Protection Program (PPP) loan though a mainstream bank or credit union due to such firms being unlikely to have existing relationships with major financial institutions.
The report raises the alarm that industries most affected by social-distancing, mandatory closings and related measures include the food service industry, retail, and accommodation services—all of which employ women, immigrants, and racial and ethnic minorities at disproportionate rates. Of the microbusinesses in these industries, 24% are owned by women and 32% are minority-owned businesses. These figures are significantly higher than the rates for microbusinesses generally.
Furthermore, the report shows that:
- Businesses led by women, racial and ethnic minorities, non-White immigrants, and young firms are smaller as measured by employees, payroll, receipts, and startup capital, and are thus at greater risk of contraction and closure as a direct result of the burgeoning economic crisis.
- Almost one in five people in the U.S. labor force own a microenterprise, a business that requires $35,000 or less in start-up capital and has five or fewer employees.
- Thirty-six percent of microbusinesses are owned by women and 20% are minority-owned.
- Nationally, only 2.4% of micro firms are Black-owned, just 7.4% are Latino-owned, and a mere 0.6% are Native American-owned.
- Women- and minority-owned businesses have average sales of about 67% to 91% of their male- or White-owned counterparts, leaving them more susceptible to the pandemic’s economic fallout.
While the CARES Act is a vital component of our nation’s recovery from and response to COVID-19, the implementation of key components has excluded too many small and microbusinesses. Prosperity Now is encouraged that the House is considering the Heroes Act to address these shortcomings. That said, Congress must:
- Set aside funds specifically for small Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs) and other such lenders that serve the businesses overlooked by the CARES Act;
- Expand economic resources for small businesses with 10 or fewer employees;
- Dedicate additional aid, including PPP funds returned to Treasury by large corporations, to America’s most vulnerable small businesses, particularly women- and minority-owned firms, and start-ups;
- Extend the PPP through December 31, 2020;
- Provide technical assistance grants for small CDFIs and small depository institutions;
- Require real transparency on COVID-19 relief program data, including lending data disaggregated by gender and race.