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2021 Report on Firms Owned by People of Color: Based on the 2020 Small Business Credit Survey

April 15, 2021
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Firms of color were more likely to experience financial and operational challenges stemming from the pandemic. These challenges are particularly salient given the important role business ownership plays in wealth building and employ­ment in communities of color.

The COVID-19 pandemic has deeply im­pacted communities of color and small busi­nesses of color, in many cases to a greater extent than their white counterparts. Prior to the pandemic, small businesses owned by people of color, in aggregate, faced greater challenges than white-owned firms.1 The 2020 Small Business Credit Survey (SBCS) provides evidence that the pandemic exacer­bated those challenges, an important finding as those businesses continue to weather the impact of the COVID-19 pandemic.

At the time of the 2020 SBCS—six months after the onset of the pandemic—the US economy had undergone a significant contraction of economic activity.2 The SBCS finds that firms owned by people of color, both small employer firms and nonemployer firms,3 were among the firms most likely to experience financial and operational challenges stemming from the pandemic. The challenges these firms are facing are concerning, given the important role the firms play in wealth building and employ­ment in communities of color.4

While firms owned by people of color account for just 18% of small employers,5 they are a rapidly growing segment of small businesses, increasing at a rate of 11% com­pared to white-owned firms (1%) between 2014 and 2016.6 Yet firms of color continue to face structural barriers in acquiring the capital, knowledge, and market access necessary for growth. The SBCS finds that firms owned by people of color tend to have weaker banking relationships, experience worse outcomes on credit applications, and are more reliant on personal funds.

The challenges that firms of color dispropor­tionately face make it important to disaggre­gate small business outcomes by race and ethnicity of firm ownership. Understanding the differences between the experiences of Black-, Asian-, and Hispanic-owned firms can help policymakers better address the unique needs of small businesses of color and implement programs to support the sur­vival of these small firms and their recovery from the effects of the pandemic.

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Endnotes
  1. Mills, Claire Kramer and Jessica Battisto. 2020. "Double Jeopardy: COVID-19's Concentrated Health and Wealth Effects in Black Communities." Federal Reserve Bank of New York. August. Misera, Lucas. 2020. "An Uphill Battle: COVID-19's Outsized Toll on Minority-owned Firms." Federal Reserve Bank of Cleveland. October. Return to 1
  2. Bauer, Lauren, Kristen Broady, Wendy Edelberg, and Jimmy O'Donnell. 2020. "Ten Facts about COVID-19 and the U.S. Economy." The Brookings Institution. September. Return to 2
  3. Small employer firms have between 1 and 499 full- or part-time paid employees, in addition to the owner(s), on payroll. Nonemployer firms have no paid employees other than the owner(s). Return to 3
  4. Klein, Joyce. 2017. "Bridging the Divide: How Business Ownership Can Help Close the Racial Wealth Gap." The Aspen Institute. January.

    Association for Enterprise Opportunity. 2017. "The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success." March.

    Stoll, Michael A., Steven Raphael, and Harry J. Holzer. 2001. "Why Are Black Employers More Likely Than White Employers to Hire Blacks?" Institute for Research on Poverty. Discussion Paper 1236-01. August.

    Toussaint-Coumeau, Maude, Robin Newberger, and Mark O'Dell. 2019. "Small Business Performance in Industries in LMI Neighborhoods after the Great Recession: Atlanta, Baltimore, Chicago, Houston, and Los Angeles." ProfitWise News and Views (No. 3). Federal Reserve Bank of Chicago. Return to 4
  5. Based on authors' calculations from the US Census Bureau's 2018 Annual Business Survey. Return to 5
  6. Toussaint-Coumeau, Maude and Victoria Williams. 2020. "Secular Trends in Minority-Owned Businesses and Small Business Finance." "ProfitWise News and Views (No. 2)." May. Federal Reserve Bank of Chicago. Return to 6
Suggested Citation

“2021 Report on Firms Owned by People of Color: Based on the 2020 Small Business Credit Survey.” 2021. Small Business Credit Survey. Federal Reserve Banks. https://doi.org/10.55350/sbcs-20210415

The views expressed here are those of the authors and not necessarily those of the the Federal Reserve Banks. Data used in this report may be subject to updates or changes.