August 27, 2020 | Research Spotlight: Black-owned Businesses on Main Street and Beyond | By Michael Powe, Ph.D., Director of Research, NMSC and Brittanii' Batts, Associate Manager of Projects and Research, NMSC
This National Black-Owned Business Month, we spent time reviewing what data and research is out there on Black-owned businesses throughout the U.S. Between protests in response to violence against Black Americans and news of the disparate impact of COVID-19 on Black Americans, this has been a deeply troubling and difficult time for many.
Despite many Black business owners’ ingenuity and resilience, Black-owned businesses are confronting especially difficult circumstances related to the novel coronavirus and may take particular benefit from support during the economic crisis of COVID. This blog post is focused on understanding the realities facing Black business owners today—both challenges and opportunities- so that Main Street programs and other economic development organizations are better positioned to support these entrepreneurs. Click the links below to jump to each section of this post.
Recent Government Statistics on Black-Owned Businesses
Data from the U.S. Census Bureau’s 2017 and 2012 Surveys of Business Owners and Self-Employed Persons provide a baseline understanding of the number, geography, and scale of Black-owned businesses across the country. Here are a few quick takeaways from the data:
- In 2012, nearly 2.5 million Black-owned businesses were operated without employees aside from the business owner. 96 percent of Black-owned businesses operate with a sole owner-operator.
- Between 2012 and 2017, there was a 14 percent increase in Black-owned businesses that have employees, from 109,137 in 2012 to 124,004 in 2017. That constitutes a proportional increase greater than those for White Americans (7 percent) or Hispanic or Latino Americans (12 percent), and slightly less than the increase for Asian Americans (16 percent).
- In 2017, there were far more Black-owned employer businesses in large cities and their surroundings than in more rural areas of the country. In the largest 100 metropolitan areas with data on Black-owned businesses, there were about 3.4 Black-owned businesses per 1,000 Black residents. Outside those large metropolitan areas, there were 1.8 Black-owned businesses per 1,000 Black residents.
Above: The 100 most populous metropolitan areas in the country (shown in yellow) cover 6 percent of the U.S. land area but contain 64 percent of the U.S. population. Rural and non-major metro areas (shown in blue) cover the remaining 84 percent of the land area and contain 36 percent of the population along with 65 percent of the 2020 accredited and affiliate Main Street programs (shown as dark grey dots).
The Structural Challenges Facing Black-Owned Businesses
Black-owned businesses often face challenges that other businesses do not. These challenges have their roots in policies that have had a disproportionate and negative impact on Black Americans and African American communities.
Compared to White-owned businesses, Black-owned businesses generate less revenue, have fewer employees, are less profitable, and have lower survival rates (Fairlie and Robb, 2007; Farrell, Wheat, and Mac, 2020). Robert Fairlie and Alicia Robb (2007) analyzed an array of census data to understand what might explain these racial differences in business performance, and they found that Black Americans’ relative lack of experience working in a family-owned business or in a business that sells similar goods and services prior to becoming a business owner is linked to worsened business outcomes. Some of the racial disparities in business ownership can also be explained by the disparate levels of wealth among Black and White Americans (Fairlie, 2018).
Researchers at the Brookings Institution have recently published two major reports on the devaluation of assets in Black neighborhoods. In the first study, Andre Perry, Jonathan Rothwell, and David Harshbarger (2018) analyzed real estate data alongside census records and found that homes of similar quality and in neighborhoods with similar amenities were worth 23 percent less in neighborhoods with a majority Black population, compared to neighborhoods with few or no Black residents. The average home in a majority Black neighborhood was valued $48,000 less than a comparable home in a neighborhood with few or no Black residents, and in aggregate across the 100 metropolitan areas they analyzed, that amounted to $156 billion in cumulative devaluation. This devaluation means Black homeowners accumulate less wealth, which in turn leaves Black Americans with fewer resources to leverage for lines of credit and launch businesses.
In the second study, Perry, Rothwell, and Harshbarger (2020) analyzed Yelp reviews and business records and found that although minority and nonminority business receive comparable ratings on Yelp, businesses located in majority Black neighborhoods received lower Yelp reviews and fewer reviews overall than businesses in other neighborhoods. Given that higher Yelp ratings are statistically linked to more revenue growth and that a greater number of reviews is linked to faster revenue growth, lower Yelp ratings and fewer Yelp reviews represent a form of commercial devaluation. The researchers estimated the cumulative impact of lower and fewer ratings in majority Black neighborhoods represents between $1.3 billion and $3.9 billion annually.
Impacts of COVID-19 on Black-Owned Businesses
Compared to other businesses, Black-owned businesses are more likely to be located in areas of the country that have had major COVID-19 outbreaks since the pandemic began in February 2020 (Mills and Battisto, 2020). In a recent research brief from the New York Fed, Claire Kramer Mills and Jessica Battisto (2020) point out that such a correlation portends greater likelihood of business disruption as a result of mandated closures as well as greater inhibition of spending as consumers try to avoid catching and spreading the disease.
A widely-reported recent study by Robert Fairlie found that 41 percent of Black business owners had shuttered their businesses in the first month of the COVID-19 pandemic, compared to 17 percent of White-owned businesses during the same time period. Subsequent to that study, Fairlie has continued tracking responses to the U.S. Census Bureau’s Current Population Survey and in a working paper update to his study, he reports that as of the June Census data update, 19 percent of Black businesses owners still have not reopened their businesses, compared to 10 percent of Latino business owners and Asian businesses owners and 5 percent of White business owners.
There is evidence that Black business owners have not received the same levels of federal COVID-19 relief from programs like the Payroll Protection Program (PPP) that other business owners have. According to survey results from Goldman Sachs’ 10,000 Small Businesses program, 79 percent of Black business owners applied for PPP funding, compared to 91 percent of small business owners overall, and just 40 percent of Black business owners were approved for PPP funds, compared to 52 percent overall. Geographic analysis from the New York Fed further suggests that the PPP had limited uptake in areas of the country that have high proportions of Black-owned businesses (Mills and Battisto, 2020).
According to analyses from the Center for Responsible Lending and the National Community Reinvestment Coalition, racial disparities in the delivery of PPP loans may be due in part to Black business owners lacking strong relationships with banking institutions. A separate study from the National Community Reinvestment Coalition points to another potential cause: In matched-pair “mystery shopper” testing, Black and White researchers approached 17 banks in the Washington, D.C. metro area to inquire about lending options, including PPP loans, and in 43 percent of cases, White testers received more favorable treatment than Black testers. Despite presenting slightly better economic information, Black testers were less likely to be encouraged to apply for a loan and less likely to be encouraged to become a customer of the bank. Black testers were also given less information about loan options.
Main Street and Black-Owned Businesses
Given these statistics on Black-owned businesses nationally and what we know about the disproportionate impacts that COVID-19 has had on them, we now turn to the state of Black-owned businesses on Main Streets and some outstanding research questions we would like to pursue to have a clearer picture of how Main Street programs can best support them.
We know that there are Black-owned businesses in Main Street districts across the U.S., but we do not currently have a clear sense of Black business owners’ locations, characteristics, successes, and struggles. About six percent of respondents to our March/April national survey on the impacts of COVID-19 on small businesses said their business was owned by a person of color, and about three percent of respondents to our new survey on small business recovery from COVID-19 identified as Black or African American small business owners.
It seems likely that some Main Street programs have much higher rates of Black business ownership than the three or six percent national rates of respondents in our surveys. To test this, we mapped and analyzed the locations of Black-owned businesses listed on Intentionalist.com, an online guide for intentional spending, alongside the locations of Main Street districts in Washington, D.C. Of the 59 Black-owned businesses in D.C. listed on Intentionalist.com, 35 are located in Main Street districts—59 percent of the total for the District.
These findings point to the opportunity to conduct further research on the locations and characteristics of Black-owned businesses, which would enable us to better understand what a force for inclusive revitalization and an advocate for Black entrepreneurs Main Street programs can be. By gaining a clearer picture of Black-owned small businesses in Main Street districts, we can assess the impact of Main Street for different communities and develop programs that build wealth and support new kinds of entrepreneurship.
How Can Main Street Programs Support Black-owned Businesses and Black Entrepreneurs?
We believe that Main Streets are for everyone and we know that Main Street directors strive to support White, Black, and Brown business owners alike. But given the pervasive policies that disproportionately impact Black business owners, more can and should be done to support Black-owned businesses on Main Street and everywhere.
So what can Main Street programs offer Black business owners and Black entrepreneurs? Here are a few ideas to start:
Meet the Authors
Michael Powe, Ph.D: As the Director of Research, Mike develops research projects that demonstrate the power and potential of Main Street communities. This includes work managing research partnerships, steering research efforts from design through execution, and gathering and analyzing data related to the performance of Main Streets across the country. Mike has more than 15 years of experience conducting groundbreaking research on the links between communities’ physical fabric and their social, cultural, and economic vitality. Between 2013 and 2020, Mike led research for the National Trust for Historic Preservation that empirically assessed the contributions that existing buildings and commercial districts offer cities. He holds a Master of Urban and Regional Planning degree (2006) and a doctorate in Planning, Policy, and Design (2010), both from the University of California, Irvine.
Read Mike's bio.
Brittanii' Batts: As Associate Manager of Projects and Research, Brittanii’ serves as a liaison with potential awardees and potential borrowers. She implements grant reporting schedules, tracks loan repayments, and reviews loan applications and their processes. Working collaboratively with the team, Brittanii’ vets potential revitalization related projects and tracks improvement in loan agreements. Working closely with the Vice President of Revitalization Programs, Brittanii’ is helping to expand NMSC’s research objectives using GIS data analysis and visualization. Brittanii’ has a background in environmental biology and urban planning, earning an M.A. in Urban Planning and Policy with a Geospatial Analysis and Visualization Certificate from the University of Illinois at Chicago and a B.S. in Integrative Biology from the University of Illinois at Urbana-Champaign.
Read Brittanii''s bio.