Three key takeaways for California small business owners
CalMatters reporter Nigel Duara moderated a Milken Institute discussion on July 13 that addressed opportunities and remaining challenges for small businesses.
Here are three key takeaways.
1. We’re not back to normal yet
Several panelists spoke about how small businesses are still struggling, even though they’re starting to open up. Lenore Estrada, whose small baking business Three Babes Bakeshop suffered when companies discontinued their contracts with them, said she laid off a majority of her employees. After receiving two PPP loans, she was able to hire some back, but is still struggling with large amounts of debt.
“People think we’re back, but we’re really not back,” Estrada said.
2. COVID-19 hasn’t affected small businesses equally
Cornelius said that 41% of black-owned businesses could be permanently closed after the pandemic. Only 12% of Black and Latino-owned businesses received the full amount they requested from PPP loans and only 5% of women-owned businesses received PPP loans, according to Carolina Martinez from the California Association for Micro Enterprise Opportunity.
3. Lack of relationships between banks and communities of color presents key barrier
Small business owners from marginalized communities just don’t have relationships with banks, which is a key obstacle to acquiring loans, Cornelius said.
Many are so busy trying to keep up with day-to-day operations, they don’t always keep their tax and financial records. The way that traditional banks evaluate who to give loans to also has systemic bias. For example, basing underwriting on net worth can present a barrier to women and people of color, who traditionally have lower net worths than white men.
Or, using one’s home as collateral for a loan means that marginalized people whose homes may have been redlined have diminished capital, or they may not even own a home to put up for collateral. Community development financial institutions have filled that void with their ability to be more flexible, Mark Robertson, president of Pacific Coast Regional, said.
While banks have to rely on some traditional underwriting guidelines because of federal law, his organization was able to award grants to businesses with credit scores as low as 600.
“Covid has pulled back the sheets on institutional, unconscious bias,” Cornelius said.
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