Small business owners still face the consequences of the pandemic, with marginalized groups facing additional barriers to lending
COVID-19 recovery efforts are finally underway – now most people 12 or older who want a vaccine can get one, businesses and offices are slowly starting to open, and schools are planning a comeback in-person classes. But many small California businesses are still grappling with the devastating effects of the pandemic.
CalMatters reporter Nigel Duara moderated a Milken Institute discussion on July 13 that focused on the remaining opportunities and challenges for small businesses.
Panelists ranged from government administrators to small business owners. They touched on topics such as PPP loans, the characteristics of businesses that are resistant to crises, financial literacy, and the barriers communities of color face when applying for loans and grants. Isabella Guzman of the U.S. Small Business Administration spoke about President Biden’s plans for small businesses and the importance of market access while Gene Cornelius of the Milken Institute discussed institutional biases and how they affect marginalized communities. And Lenore Estrada, founder of the nonprofit SF New Deal, spoke about the challenges she faced during the pandemic as a small business owner and what policy practitioners might not understand.
Here are three key points to remember.
1. We are not back to normal yet
Several panelists explained how small businesses are still struggling, even as they start to open up. Lenore Estrada, with small bakery business Three Babes Bakeshop suffered when companies ended their contracts with them, said it had laid off the majority of its employees. After receiving two PPP loans, she was able to pledge them back, but still struggles with significant debt.
“People think we’re back, but we’re really not back,” Estrada said.
2.COVID-19 hasn’t affected small businesses in the same way
Cornelius said 41% of black-owned businesses could be closed permanently after the pandemic. According to Carolina Martinez of the California Association for Micro Enterprise Opportunity, only 12% of black and Latino-owned businesses received the full amount they requested for PPP loans and only 5% of women-owned businesses received PPP loans. PPP loans.
3. The lack of relationships between banks and communities of color is a major obstacle
Small business owners in marginalized communities simply don’t have relationships with banks, which is a major barrier to obtaining loans, Cornelius said.
Many are so busy trying to keep up with day-to-day operations that they don’t always keep their tax and financial records. There is a systemic bias in the way traditional banks assess who to give loans to. For example, basing underwriting on net worth can be a barrier for women and people of color, who traditionally have lower net worth than white men.
Or, using their home as collateral for a loan means that marginalized people whose homes may have been lined in red have reduced equity, or they may not even have a home to put as collateral. Community development finance institutions have filled this void with their ability to be more flexible, said Mark Robertson, president of Pacific Coast Regional.
While banks have to rely on some traditional underwriting guidelines due to federal law, his organization has been able to provide grants to businesses with credit scores as low as 600.
“Covid has pulled back the sheets on institutional and unconscious biases,” Cornelius said.