Minority-Owned Businesses at Risk

The COVID-19 crisis will disproportionately affect minority-owned small businesses, according to a new study by McKinsey & Company, which notes that many of these businesses were in financially precarious positions even before COVID-19 lockdowns, and minority-owned small businesses often are in industries more susceptible to disruption. Ensuring that these businesses survive in the current circumstances will require fundamental shifts in how private-, public-, and social-sector organizations come together to support them, according to researchers.

In a poll of more than 1,000 US small businesses conducted last month, more than 40% of minority-owned small businesses added new services to support their communities and employees, compared with 27% of all respondents. A majority of minority entrepreneurs are optimistic about economic recovery in general: 56% of minority small-business owners reported that they were optimistic about post-COVID-19 economic conditions, compared with 49% of all respondents.

The report notes that the public sector has taken steps to support and provide relief to small businesses and their employees. However, the smallest businesses, particularly those with annual revenues less than $250,000, were significantly less likely to apply to the US Small Business Administration Paycheck Protection Program, according to McKinsey's Small Business Pulse Survey. Researchers suggest that may be because of lack of clarity around the programs themselves or changing guidance.

McKinsey suggests expanded access to funding could dramatically enhance the underlying health of minority-owned small businesses, improve the odds that they reach scale, and strengthen their financial resilience. The public sector should incentivize lending and address banks’ concerns about risk of lending to underserved small businesses. Community-development financial institutions could play a significant role, as they are deeply embedded in their local communities and may have a greater understanding than traditional financial institutions of the challenges that minority entrepreneurs face, according to McKinsey.