CLEVELAND, Ohio – 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 June 29 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 that included questions about performance, financial and operational challenges that businesses face, and financing outcomes. It is a follow-up to the 2021 Fed survey, which found that businesses owned by people of color face more financial and operational challenges than their White-owned counterparts but were less successful at obtaining the funds needed to weather the effects of the pandemic.
As the 2022 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 businesses were 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.
• 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% of 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 applicants to report 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.
Ann Marie Wiersch and Lucas Misera from the Cleveland Federal Reserve led the 2022 report team.
SOURCE: Cleveland Federal Reserve Bank