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Minority-owned small businesses are suffering the most during COVID-19 backlash

Updated: Jul 14

By Sunita Sohrabji/EMS Contributing Editor and ONME News


African-American small and micro businesses throughout California have been decimated by the backlash of the COVID-19 pandemic; the federal government is attempting to streamline specific opportunities for such businesses, according to Ethnic Media Services media briefing May 29.


However the various speakers warned that the process has been very grim for minority small businesses across the board, according to Rep. Ted Lieu, D-California; businessman and philanthropist Charles Phillips, director of the New York Federal Reserve Bank; venture capitalist Shelly Kapoor Collins, a member of California Governor Gavin Newsom’s Entrepreneurship Task Force; and Sumita Batra, CEO of ZIBA Beauty Salons.

More than 100,000 small businesses have had to shut their doors permanently, according to a study released in April by the National Bureau of Economic Research. Of the businesses it surveyed, 43% have closed temporarily and owners have laid off 40% of their staff.

Six out of 10 small businesses will close by Labor Day if the current environment continues, reports the National Federation of Independent Businesses. In California, 95% of businesses are classified as small businesses.

Congress’ $350 billion stimulus package — approved in April and known as the Paycheck Protection Program — is a loan program to help small businesses survive during the COVID 19 pandemic by providing eight weeks of payroll and some additional funds for operating expenses. The Small Business Administration defines small businesses as those with fewer than 500 employees.

Fourteen days after the program began, it ran out of funds. Money had been quickly gobbled up by larger businesses — many backed by venture capital — and by hotel and restaurant chains with fewer than 500 employees at various locations.

“It wasn’t even a fair fight,” said Phillips.

Larger entities had relationships with big banks and artificial intelligence bots that filled out loan applications, he explained. Smaller businesses, also known as micro businesses, normally are funded by Community Development Financial Institutions, not by large banks.


Of the more than 1,000 CDFIs in the United States, only 90 participated in the first round of stimulus funding, said Phillips, noting that the process for applying was extremely difficult.

Many micro businesses are sole proprietorships, especially in the African American small business community. Such businesses were unlikely to receive PPP loans because they had no employees and thus no documented payroll.


Phillips gave the example of a barbershop where the owner simply rents out chairs to barbers who are independent entities. For many micro businesses, payroll is not its largest expense, but the PPP program stipulates that 75% of the loan must be used to cover payroll.

Phillips expressed optimism for the second round of funding, an additional $484 billion approved by Congress in late April to keep the PPP program going. It set aside $60 billion to be distributed by smaller banks with less than $50 billion in assets.

In this round, 324 CDFIs are participating, and an additional $10 billion was set aside specifically to channel loans through them.

Loan amounts also have dropped, from $260,000 in the first round to an average $115,000, which means smaller businesses are applying and getting funded, Phillips said. To date, about 4.5 million loans have been distributed.

Rep. Ted Lieu, who represents California’s 33rd Congressional District, said Democrats fought hard to make the second round of stimulus funding accessible to businesses with fewer than 20 employees. The challenge, however, lies in letting business owners know these funds are available.

Re. Lieu used his own immigrant parents, who ran a small gift shop as an example of a typical very small business: “We had no idea what a chamber of commerce was. We had no idea what really was happening in most of government. We were just trying to survive and try to sell gifts and make sure that we had money to make payroll,” he said.

Every member of Congress has a staff member dedicated to helping business owners manage their PPP loan applications, Rep. Lieu noted, and added that he is advocating for future rounds of stimulus funds. “We just have to provide additional sustenance to the American people, both to families and to businesses.”

Even if governments all across America lifted the stay-at-home orders, the economy would still be sluggish, he said.


“People are simply not going to engage in a lot of activities that they previously did because they want to protect themselves and their families. That’s going to keep our economy slow until there’s a drug therapy or a vaccine.”

Shelly Kapoor Collins, a general partner at the Shatter Fund, which invests in women-founded businesses, said even in a good economy, women get only 2% of venture capital funds. “So, can you imagine what will happen in a post COVID era?”

Collins, who also served in the Obama administration’s National Women’s Business Council, stressed the importance of ensuring that women have access to capital to start and grow their businesses. About 12.3 million businesses nationwide are owned by women. They employ nine million people and generate $1.7 trillion in revenue.

“If women continue to scale their businesses, we have the opportunity to grow our GDP by $500 billion,” Collins said.

"The United States must have an economy that includes businesses owned by diverse founders," she said, “especially [in] minority communities and especially [by] women. It’s the right thing to do, without which we cannot have a full economic recovery.”

Sumita Batra shared the story of ZIBA Beauty Salons, a business her mother founded that brought the centuries-old beauty technique of threading to this country. In March, before Newsom issued his statewide stay-at-home orders, Batra made the difficult decision to close all 14 branches of her salon and laid off 144 employees. Their final paychecks came out of her personal savings.

She applied for a PPP loan when the program began and received funds 10 weeks later. Those funds can only be used for operations and payroll after receipt and not for past debts, such as unpaid rents or leases.

Touch-based services, such as threading and nail salons, will have a harder time recovering postpandemic. Batra said she will not re-open her salons until she can ensure that her employees and clients are absolutely safe. She advocated for having stimulus funds directed specifically to services like her own.

“Touch services coming back too soon will be one of the things that ends up spreading COVID,” Batra said.

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