• June 9, 2023

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Businesses owned by people of color faced more financial and operational challenges than their white-owned counterparts and often were less successful at obtaining the funding needed to weather the effects of the pandemic, according to a report released by the Federal Reserve on June 29, 2022.

The Fed’s Small Business Credit Survey (SBCS) 2022 Report on Firms Owned by People of Color, a collaboration of all 12 Federal Reserve Banks, collected key demographic data on nearly 11,000 business owners and their enterprises, including the race and ethnicity of a company’s owners. This report highlighted key data from the 2021 SBCS across Asian-, Black-, Hispanic-, and white-owned businesses.

The report found that despite some improvement in revenue and employment performance among employer firms, businesses owned by people of color were less likely than white-owned companies to report that their performance had reached pre-pandemic levels.

Equally troubling is the discovery that whether seeking pandemic-related funding such as Paycheck Protection Program (PPP) loans or more traditional loans or lines of credit from lenders, firms owned by people of color continue to report lower approval rates than their white-owned counterparts.

When looking at PPP loans specifically, 70% of white-owned firms in 2021 received all of the PPP funding for which they applied. In contrast, only 31% of Black-owned firms received the funding they requested. Hispanic-owned firms (44%) and Asian-owned firms (55%) faired better than Black-owned firms but did not receive the same funding as white-owned companies.

Firms owned by people of color were less likely to apply for pandemic-related financial assistance in 2021, despite needing the funding. The SBCS found that Black-owned firms were most likely to expect their business would not qualify for financing.

Business borrowers are more likely to seek business loans, lines of credit, and cash advances at large or small banks than at nonbank lenders. However, at both bank and nonbank lenders, 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. They were only a third as likely to be fully approved at a nonbank finance company, according to the report. The gaps in financing access for firms of color are consistent with prior years’ findings from the SBCS.

Cash flow is the life blood of any small business. Without capital, it is hard for businesses to survive. However, lenders can be skittish, especially when they see that 72% of Black-owned firms reported that their revenues had not yet returned to 2019 levels. That may be why 36% of Black-owned firms reported that their business was in poor financial condition at the time of the SBCS survey. Meanwhile, only 17% of white-owned firms reported their financial condition as poor.

What the SBA is doing

Earlier in the year, the SBA announced the first Women’s Business Center in the Greenwood District of Tusla, OK, a district known as “Black Wall Street” before a white mob rioted and destroyed 35 blocks of businesses, homes, churches, and more in an effort to put an end to one of America’s wealthiest Black communities in 1921. The violence resulted in over three hundred deaths and 800 injuries to Black Americans, and the state of Oklahoma did nothing to repair damages.


The opening of a Women’s Business Center in Tulsa is both practical and symbolic. Further, the SBA has announced five more WBCs operated by established Minority Serving Institutions around the country. This tripled the number of WBCs located in Historically Black Colleges and Universities. The total number of WBC’s is now at 146, the largest in the history of the SBA.

Additionally, the SBA recently announced a collaboration with historically Black fraternities and sororities to address the wealth gap through black entrepreneurship. Its focus is to improve financial literacy, outreach, and capital access opportunities across African American communities.

The SBA signed a Strategic Alliance Memorandum with the National Pan-Hellenic Council, comprised of nine historically Black fraternities and sororities, referred to as the “Divine Nine.”

“This historic alliance between the SBA and the NPHC—the first of its kind for a government agency—will bring SBA’s valuable small business resources into reach for many small businesses and entrepreneurs, furthering the Biden-Harris Administration’s commitment to build equity and close historic wealth gaps that have held back America’s Black entrepreneurs, small business owners and their families and communities for generations,” SBA administrator Isabella Casillas Guzman said.

The goal is to provide the Black community access to networks, financial literacy, technical training, and capitals readiness to help create business ownership, jobs, and advance the economy.

Overall, the SBA has continued to support African American, Black, and historically disadvantaged small business owners in other ways. The agency is making reforms to its Community Advantage Pilot loan program to give equitable access to capital for low-income borrowers and other underserved communities.

Among the reforms:

  • The SBA will extend the pilot program to Sept. 30, 2024, providing more certainty for the Community Advantage program, which was set to end in September 2022.
  • Lift the four-year lender moratorium and enable the SBA to grow this important lender network, opening up a critical capital program to more mission-based lenders across the country.
  • Increase the maximum loan size, the new expanded number of lenders will be allowed to access the SBA’s 7(a) government-guaranteed loan program at lending levels up to $350,000, which represent an increase over the current levels of $250,000.
  • Remove the restrictions that can keep individuals with criminal backgrounds from accessing the Community Advantage program.
  • Simplify underwriting and collateral requirements for borrowers and lenders, including increasing the maximum unsecured loan size from $25,000 to $50,000, removing barriers that disproportionally impact underserved borrowers.
  • Introduce additional abilities for lenders to make revolvers and lines of credit, interest-only periods, and other loan modifications that meet borrowers where they are to best serve their capital needs.
  • Redefine packaging fee guidelines to better enable CDFIs, CDCs, and mission lenders participating in the Community Advantage program to scale and increase volume to underserved communities.

Designed to meet the credit, management, and technical assistance needs of small businesses in underserved markets, the SBA’s Community Advantage pilot loan program was intended to provide mission-oriented lenders, primarily nonprofit financial intermediaries focused on economic development, access to 7(a) loan guarantees previously for loans of only $250,000 or less.

Community Advantage continues to be the best avenue to allow mission-driven lenders to access SBA 7(a) loans. The SBA’s goals for the Community Advantage program include increasing access to credit for small businesses located in underserved areas; expanding points of access to the SBA 7(a) loan program by allowing participation of non-traditional, mission-oriented lenders; and providing Management and Technical Assistance (M&TA) to small businesses, as needed.

To learn more about Community Advantage and additional small business financial assistance programs, visit www.sba.gov.


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