On September 29, 2020, the JPMorgan Chase Institute hosted a Data Dialogue to discuss racial gaps in small business financial outcomes – both pre-pandemic and during the pandemic – as well as how policy and programs can promote a more equitable small business recovery. The virtual discussion included experts from the Federal Reserve Bank of New York, NYC Department of Small Business Services, and UC Santa Cruz, who are at the forefront of using data to track and reduce inequities in the small business sector. See below for summary and replay of the conversation.
Data Dialogue: The Road to an Equitable Small Business Recovery
(18847085)092920 JPMC Institute Data Dialogue-The Road to(Archive 92920230 PM)
[00:00:00.00] DIANA FARRELL: Wonderful. Thank you for orchestrating this all. Let me start the welcome and say good afternoon, and thank you all for joining us for this JPMorgan Chase Institute data dialogue. Today, we want to focus on the economic impacts of COVID-19 on small business, and really try to begin the conversation of, what does a road to an equitable recovery look like?
[00:00:25.32] For those of you who are new to call, thank you for joining us. Just to underscore, the JPMorgan Chase Institute is an economics think tank where we really use the bank's administrative data to produce analysis and insights for the public good. We have a range of research themes we cover, from household income and spending, to household debt, labor markets, cities, local communities, financial markets, but the small business component of this has always been an anchor to our work.
[00:00:55.23] Before I turn it over to my colleague, Chris Wheat, who's going to moderate this excellent panel, I want to just acknowledge the extraordinary moment that we're in today, the reckoning that the country has been undertaking in terms of systemic racial inequalities and the critical role that a small business recovery will play to the future that I think most of us are really looking forward to coming, when we settle some of this. We really think it's a moment to reflect on what we've learned, reflect on what is happening, and really prepare ourselves for action.
[00:01:33.03] And I know that we, as an Institute, we as a firm, are absolutely committed to that. Many of you have written about this, have read about this, but certainly our research highlights the very large racial gaps in income and wealth that have positioned Black and Hispanic families with fewer resources to weather any number of economic shocks. And that was true even before the COVID crisis hit.
[00:01:58.38] In the small business sector, we've noted and sized the very large racial gaps in revenues, in profit margins, in liquidity, and survival. And we have been able, through some very creative access to voter registration data, to show the large gaps between Black and white to be particularly striking, where Black-owned businesses had revenues and profit margins less than half those of white-owned businesses, and about 2/3 of the level of cash liquidity. Again, all this prior to the COVID crisis.
[00:02:35.94] We also know that this crisis is hitting many of the small businesses that disproportionately have minorities leading them. And so we want to be very attentive to understanding how this is panning out, and once again, how we can start on the road to recovery. We are honored to be joined today by a terrific group of panelists, many of whom have been involved with our journey from very, very early on, but who we turn to for real advice and insight.
[00:03:08.66] We're going to introduce them briefly. And first, we have Jonnel Doris, who is the Commissioner of the New York City Department of Small Business Services. Rob Fairlie, who's professor of economics at UC Santa Cruz, and Claire Kramer Mills, who is the Assistant Vice President and Director of Community Development Analysis at the Federal Reserve Bank of New York. Chris Wheat, who is joining us here today, and who leads our business research and local and community research, will moderate today's conversation. And that, I'd like to hand it over to you, Chris.
[00:03:45.15] CHRIS WHEAT: Thank you, Diana. And thank you, everyone, for joining. I want to echo some of Diana's remarks about the moment they're in right now. It's not for granted that everyone's able to join today with everything that's been going on, both with the pandemic, things outside of that, and just as we try to continue our working world.
[00:04:06.14] And it's a privilege to have such a great panel, and also the opportunity to connect this panel to this great set of panel participants. I'm really pleased to see some familiar faces and pleased to see so many new faces to have a conversation like this where we have the opportunity to bring together both people who are doing top-quality and hopefully up-to-date research in this area, and also people we're making decisions from a policymaker point of view, really bringing together the threads that we try to bring together all the time here at the Institute. So thank you to the panelists and also to the participants.
[00:04:40.46] A special thank you and a bit of housekeeping. We did receive a number of wonderful questions in advance. I've saved some of those questions for the end, but I've also tried to, where I could, weave some of the content from those questions into the questions for the panelists that we'll be asking here at the beginning. So if you could keep yourself on mute, that would be great. There are a large number of participants, and so this is going to be the way that we try to make that interactive in that particular way.
[00:05:07.35] So with no further ado, let me jump right in. Rob, your research, I feel, has been cited possibly as much as anyone's in terms of helping people understand some of the dynamics. What has happened in the small business sector in terms of the ability of small businesses to stay open, which is a core question that we're interested about and a lot of policymakers have been asking questions about.
[00:05:31.82] I was wondering if you could, first, help us understand what led you to ask these questions in the first place, to us a little bit of the context of where you're coming from. Maybe give us a little bit of review of what you found. I'm sure that many people are familiar with the findings, but perhaps, there are some that aren't. So just to walk through at least the top line of what you found. And help us understand what's happening in the data as you see it. I think that'd be a great way to start off.
[00:05:57.90] ROB FAIRLIE: Hey, yeah. No, I've been studying issues about entrepreneurship and inequality for years. I've looked at differences in access to capital, differences in skills, family background, lots of other characteristics of the business owners, trying to get a handle on why it is that we see so much inequality, not only in business ownership, but also in business creation and the success of those businesses. And so I've been kind of following this for many years, using different data sets and just different ways of analyzing the information.
[00:06:34.63] And one of the things that I work on is I do a lot of work on unemployment and also labor market outcomes. And so one of the chief data sets there is the current population survey. Comes out every month, and so I knew this was coming out back during the beginning of the crisis in February, March, April. And so there was only about a three-week delay in it.
[00:06:57.25] And I thought, well, this would be a really good way of tracking what's happening. Now, all of the tracking that I'm doing is focused on small business owners, which is a group that we really care about a lot. One unfortunate part of it is we don't have anything on the revenues, but it still was a very interesting thing to look at kind of early on.
[00:07:17.34] And one of the things that's really nice about the data that I had access to is that there's demographic information. So I was able to look at differential patterns by race, ethnicity, immigrant status, gender, education level, age, all of these other factors that are usually hard to measure, they're hard to find, especially in administrative data. And so one of the things that I found that was quite striking that I was truly surprised by is going from February to April, there was a massive drop off in the number of active small business owners, especially among African-Americans. So there was a 41% drop in the number of active business owners over the short period of time.
[00:08:01.26] When I looked at other groups, I also found for Latinx and for Asian-Americans there were also very large drops, not at that level, but still very large over that time period. And even for white business owners, there was an 18% drop. But still, there was a fair amount of inequality in terms of who was hit hardest over this period of time.
[00:08:21.97] And so given that pattern, that early pattern in April, I've also studied it in some of the subsequent months, there certainly has been a bit of a rebound in terms of business activity among these small business owners. But certainly not complete. And there's still some inequality in that area.
[00:08:41.39] CHRIS WHEAT: In terms of what you're looking at now, or sort of looking forward, do you have a sense of what might be happen going forward in terms of the ability of businesses to stay open or reopen? I know that's some of what you're starting to look at in, at least the first follow-up piece that I saw, and so I was curious how you're thinking about that in the go forward research basis?
[00:08:58.78] ROB FAIRLIE: I mean, I think one of the biggest problems is going to be accessed to capital and the ability to pay ongoing bills. With COVID-19, essentially what's happened is we've had this big hit in revenues. So firms, especially small businesses that are in high personal contact areas like restaurants and personal services, they've seen a big drop in sales over this period of time. But they still have to pay their rent. And not only the rent for the business, they have to pay the rent for their house or their apartment that they live in.
[00:09:30.03] And so those expenses, employee expenses and other expenses, are ongoing. And so these deficits that these businesses are going to see have not gone away, and they're continuing. And I think it depends a lot on how long we are stuck in this recession that's been created by our shutdown.
[00:09:51.35] CHRIS WHEAT: Got it. Well, that's really helpful. Claire, if I could pivot to you, I would say that the research you and your team did has also been foundational in this area in terms of helping round out the full lens of what the impact on the small business sector has been, not just for the businesses, but also for the communities in which they're situated.
[00:10:12.90] So again, I have been following your work, as you all know, for awhile, but perhaps not everyone is, and they don't have the context of what motivates you to do this research and the bigger picture question that you've generally been trying to get at. But it would also be helpful, perhaps, to lay out a little bit of that background and then, again, to walk through some of the findings for those who aren't quite so familiar with what you found here, and maybe even a little bit before.
[00:10:35.88] CLAIRE KRAMER MILLS: Thanks, Chris. And it is a pleasure to be with you all today. And I will start with the Fed disclaimer, which is that the views I express are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.
[00:10:47.34] So with that said, thanks for your generous introduction. I sit in a part of the Fed that really works to improve access to opportunity in the most marginal communities in America. And so our work over the last number of years has really focused significantly on access to capital, understanding the challenges that business owners have.
[00:11:15.27] And in late last year, we had fielded a survey, the small business credit survey, and we had asked a question about how business owners would deal with a hypothetical, at that time, hypothetical disruption equivalent to a two-month loss of revenues. And of course, we're now living through a much more elongated shock. But what was really interesting and telling in our results was that-- twofold-- one, the overwhelming majority of businesses would have to make a significant changes to their operations, reduce their workforce, reduce operations, they would have to dip into their own pockets was the most common answer from the business respondents.
[00:12:02.37] And so knowing that from work that we had done on previous crises, and coupled with that hypothetical, which just for everyone's awareness, that was data that we collected at what we now know that was the waning days of a 10-year expansion. So this is the time where you would think businesses would be most flush. We saw real vulnerabilities.
[00:12:28.17] And you couple that with Rob's excellent work, and honestly, anecdotal information that we were gathering from conversations with our business outreach contexts in our immediate area in the New York Fed district. And what they were saying to us was, it's extremely hard, we're seeing a lot of shuttering, we, of course, were experiencing that in the neighborhoods that we inhabit as well. And so that really led us to ask the question, the why, the why behind the top-line figures that Rob found.
[00:13:00.99] And our work, our brief that you're referring to, really focused on three factors. One was, particularly in the early days of this pandemic, we saw a correlation between areas of the country, counties that had some of the highest concentrations of African-American and Black businesses and densities of COVID cases. So when you tracked the Johns Hopkins numbers, a really, really strikingly large number of counties that had densities of thriving Black businesses were places that also had COVID cases.
[00:13:41.74] So our thinking was, that's part of it. If you're forced to shut down, if you've got employees who are sick, you've got family members who are sick, you also have populations that are in lockdown or not coming in to your coffee shop or your barbershop, that's going to affect the ability to just keep the lights on. The second factor, though, is one that we've studied for some time. And again, Rob's work is foundational here, and our survey results, I think, jive very well with what he's found and others have found, which is that you see real disparities coming into the crisis in terms of banking relationships and funding gaps, essentially.
[00:14:24.99] So two factors-- we asked a question in our late 2019 survey about borrowing relationships for businesses, what types of institutions they had relied on in the past five years, where had they obtained funding for their business? And what you see is, importantly, we computed estimates for both non-employer firms, solo entrepreneurs, those that don't have part or full-time payroll employees beyond the owner. And that is the overwhelming majority of businesses owned and operated by African-American individuals.
[00:15:06.23] And so what we saw there was that only 1 in 10 had had a recent borrowing relationship with a bank. That number went up to one in four for employer businesses. So those numbers were also quite different from the numbers reported for white-owned businesses.
[00:15:25.31] So the second factor, first, co-location in some of the hardest hit areas from a health perspective, second, differences in lending relationships and also financial cushions coming into the crisis. And then, when we investigated finally in this paper was, where PPP dollars went. And unfortunately, PPP data did not provide the granularity at the loan level of the race or ethnicity of the borrower. So what you're, really, as a researcher, kind of forced to do is use the best next estimate, which is you rely on geography and attributes that you can get from census.
[00:16:09.25] So we looked at, again, areas of the country that had higher densities of African-American and Black-owned businesses. And what we saw was in those counties many of them had below average PPP loan dispersal. So in many of the counties, you saw fewer than 20% of businesses obtained PPP funding. So those were kind of the big takeaways from our piece.
[00:16:37.25] CHRIS WHEAT: Got it. That's super helpful. And not for nothing, at least consistent with some of the things we've seen in our own research, also focusing on that large majority of businesses that are quite small and maybe don't have any employees. And so, thank you for that focus.
[00:16:52.47] Jonnel, we have the privilege of having your perspective in this conversation today. New York City small business services is one of, if not the largest, organization servicing a large number of small businesses on the ground in the day-to-day level. I'm super curious what this is looking like from your point of view, not just because of New York as a place that was on everyone's mind and at the epicenter of the pandemic as it rolled out in the US anyway, but also because in some sense, there's an appropriate focus, I think, on the federal response, but sometimes relatively less attention gets paid by the things that are happening from local government policymakers.
[00:17:37.50] And I think it's a critical piece of the story that people may not know as much about. So I would love to know, from your point of view first, whether what we've seen in this survey data and the data across the board from our research, from Robert's research, from Claire's research, whether that's sits in consistency, or there's something different that you've seeing in your engagement with small businesses, and/or anything else that you're seeing that play out from your perspective? It would be very helpful to know. And I think you might still be on mute.
[00:18:11.18] JONNEL DORIS: Yes, I am on mute. Sorry. Thank you so much for having me, and certainly for bringing this topic up. Look, we have 240,000 small businesses in New York City with employees, and a whole lot more, probably three times as much without, not registered as with employees. And out of that bunch, we've got, I will say, maybe about 3.5% of them are Black-owned businesses.
[00:18:42.21] And when you start to think about the challenges that these businesses face, about 6% or so are Latino businesses, and we've seen numbers about in the 20s around for Asian businesses. But when you compile it all together, you really still have a group of businesses who are challenged and who have experienced the similar thing across, similar challenges across their sector, where they are they, their sectors, their industries as well. And we're seeing that play out in a real time and real way here at the city.
[00:19:18.41] So yeah, from the research mentioned here by Rob and Claire, we certainly agree with what they're reporting out. The economy seems to be working really well for certain groups, even before the pandemic. And for, particularly, minority groups we didn't see that. And women, also, we didn't see that playing out in a way that was inclusive enough so that growth, we're seeing growth in both sectors, across sectors and with individual businesses from different racial backgrounds.
[00:19:51.29] We agree, certainly, around access to capital, biggest challenge that small businesses are facing right now. And have faced, particularly businesses of color. Also, the liquidity challenge, disparities in banking relationships, which actually played out, as mentioned today, with the PPP program.
[00:20:08.51] I always say, you have a broken system which has been proven to not treat these businesses the same, be it that they don't have the relationships, or they don't have the outreach to those communities, small business community, to engage those businesses, and/or the credit boxes that we have are so tight, or how they look at the business to say, well, I'm going to support you with access to capital and get you the funds that you need, are different. They're not flexible.
[00:20:40.28] They aren't flexible and the terms don't really look at the business in a particular way. So obviously CDFIs are stepping in and doing their part and sort of really helping out our small businesses. But when you take a large program like the PPP program and infuse all these dollars into it, and then use the same structure and system to actually generate access to capital, if the system is broken and you fill the system with additional dollars, it's still not going to get to the businesses that we want, ultimately, for it to get to. If the bucket has a hole in it and you keep pouring water in it, it's not going to contain.
[00:21:20.44] And that's what we saw here, again, with minority businesses receiving 12% of what they asked in PPP. And we heard many of them did not even receive any at all. And so those challenges are real, and we're experiencing that on the ground, and we were having to deal with that to come up with our little local programs to supplement.
[00:21:40.97] But as you can imagine, that only goes so far. Certainly, we're in need of federal stimulus, we're in need of long-term borrowing capability because we also are at a deficit due to COVID. $9 billion right now in New York City's budget deficit. And so funds are limited for us as well.
[00:22:02.30] Look, the challenges are there. Some things where we're still looking to hear about and understand a bit more from our small businesses is challenges around investments. And maybe we can talk a little bit about that going forward. Then, of course, certainty around revenue, understanding a little bit more.
[00:22:23.75] Revenue that is coming in from these businesses, we don't really have all the information there. And also, how do we monitor access to opportunity, not just getting the capital, but how do we make sure that these businesses can grow? And also, around how businesses are managing their overhead costs.
[00:22:45.48] With the PPP program, we understood that 25% limitation on overhead-- and then extended, I think it was to 40% or so-- but initially, that was a challenge. In New York City, we have high rents here, we have high utility costs, and it's a big challenge for these businesses. And those are really, really unique challenges there.
[00:23:11.96] We know that these challenges are not new. However, obviously, they've been heightened and a bit more focused because of COVID. And I'll end by saying, COVID, when we talked about the triple impact of COVID on small businesses in the community, we've seen, as Claire mentioned, we have the highest impacted communities are minority communities. We also know the essential workers, the highest number of essential workers in the health care space, the janitors who do the cleaning, all that, are also from those communities.
[00:23:52.64] And on top of that, the small businesses who were already struggling the most are also being impacted. We understand that Black-owned businesses, Latino-owned businesses are twice as likely to close right now. And so all of our programming and what we've been doing is really to address those realities.
[00:24:14.20] CHRIS WHEAT: Thank you. And you touched on some of this as you were giving your answer, but I actually was going to come back to it in a little bit of a more specific way. In part, because we have the benefit and the luxury of having a lot of people on this call who are either researchers, or funders of research, or sort of working near other organizations that might be able to sort of push the agenda forward a little bit.
[00:24:39.42] As a person trying to execute policies and programs on behalf of small businesses, and in supportive communities in New York, perhaps programs might be benefiting outside of New York as well, are there things you would ask for the research community to pay more attention to? Specific questions where, if there was an answer to this question, it would really help you either make a tactical decision, or like, push policy in a certain direction that you think would be helpful and worth calling out? And again, I know you, or I think I heard you sort of point at a couple of things on the way, but if you're going to make a clarion call right now to anyone who's listening, I think there will be some people who might really want to know what the answer to that question is.
[00:25:21.66] JONNEL DORIS: Yeah, we have a laundry list, as you can imagine, of things that could be helpful for us. But when you think about, again, just understanding business, the business revenues, or understanding the small business community, in general, a bit more, I mean, as a community, we don't know enough or have enough information on. And so anything that we can find out as pertains to race and gender per sector, I think is something that we are not, we have sort of aggregated data, but when we think about it by sector, how businesses are doing, race and gender.
[00:26:00.21] Also, along the lines of finding a way, Particularly in New York City, this is a bit complicated. But the correlation between the regular storefront vacancy rates in particular communities and with particular types of business owners when it comes to demographics, and they think that correlation there. And then, tie that to investments either from the federal government through policies like opportunity zones and other things of that nature, and how all that sort of playing out, and the real impact that's bringing to those communities.
[00:26:38.14] When you talk about wealth creation, the studies have been shown, at 223 years it would take Black Americans to actually get to where white Americans are now when we talk about the racial wealth gap. And so what types of structures we can set up to help address that in a more broad, but also comprehensive way? The other area we're looking at is round retail sales in-person versus online.
[00:27:07.87] What's happening right now as we are looking at the digital divide for a lot of the minority-owned businesses and small businesses, and their ability to pivot during this time has been a lot of our work. So we really want to understand that a little bit better. And I would say, also, figure out a way to centralize data on businesses who are starting and businesses who are closing.
[00:27:32.74] It's very hard to get that number. We don't know, so we do a lot of surveys. But we really don't have a mechanism to really capture that data. And then, as we look to opportunities that are coming, how do we then focus those businesses and those areas and sectors, so that we can actually invest our policy shifts and changes to help those businesses stay?
[00:27:55.89] And the last thing I'll say is, look, thinking about, how do we really take a harder look at the way that we invest in our small businesses? Meaning, from a VC standpoint, and others, in New York City, Black businesses were growing four times at the rate as other businesses, meaning we're starting Black-owned businesses four times more than any-- Black women-owned businesses in particular. The fastest group of growing businesses in the country for some time.
[00:28:30.70] Yet, they got, I think it's 0.02% of VC investment. And so we have to think about what that means. And we want to know a little bit more there, because again, from the city standpoint, what are the structural impediments that are there? And where we can ease some of that, either by supplementing with investments from our end, and/or policy to help shift working capital investments, understand a little bit better how we can help those businesses survive, even with renovations, and scaling their businesses, and those types of things, if we can understand a little better the viability those firms to actually exist when we invest in them, I think, to sort of put forth the public policy case for this, in general, I think, is also important.
[00:29:29.43] CHRIS WHEAT: See me trying to write down as many of those as I possibly--
[00:29:31.50] JONNEL DORIS: I'm sorry.
[00:29:33.09] CHRIS WHEAT: No [LAUGHS] The question wasn't mostly for me, but you had a lot of interesting ideas there. Rob, I was wondering if maybe you might kind of weigh in from the other side. So you've been doing research on small businesses, in particular, Black and minority-owned small businesses for a long time, and really setting up some of the foundational things that we know about those kind of differences in the sector.
[00:29:58.38] It strikes me that you surely have insights or things that might have crossed your mind that may be less intuitive or less obvious to either people in the public sector making decisions, or quite frankly, people in the private sector who are rolling out products and services, that might be helpful to know. Or just insights that might be a little bit of a new idea or a different way to think about things. Are there any such things that occur to you, particularly as you hear some of the research questions that might be useful from that end?
[00:30:36.30] ROB FAIRLIE: I mean, some of the things that I find out are ones that you'd expect. Access to capital is definitely the biggest impediment to starting up businesses, especially among minority-owned firms. I mean, when you start with a wealth gap like we have in the US-- I was looking at the latest numbers the other day. The median wealth level for Black families is $13,000.
[00:30:59.31] So that means that half of Black families in the US have less than $13,000. I mean, that's like the value of a used car. A nice used car, but a used car, right? I mean, you can't buy even a new car for that.
[00:31:12.30] So that starting point is really difficult. And clearly, over this period of time, when we've got this loss in revenues, that's going to be, I think, devastating for a lot of minority-owned businesses, not having the capital, the family capital, the personal capital, the other sources, long-going relationships with banks to rely on to kind of fall back and make it through this. So I mean, clearly one of the most important things, and probably the most important things is to be able to get that capital to small businesses.
[00:31:45.51] To get into some of the things that I think have been talked about much less that are very important, also, is we've seen this big shift in everyone's kind of at home right now, we're shifting over to doing a lot more online purchasing. So the online purchasing retail firms, they've really just grown. I mean, you look at their stock prices, you look at the growth in that industry, and that's really been a huge disadvantage for small businesses.
[00:32:13.45] They don't have a big online presence. Customers are not used to going to their local small businesses and buying stuff online, and having it delivered to their house. That seems, to me, to be another big shift. If we had some government support there in setting up web pages, or creating web pages, or some funding for that, that that could really help.
[00:32:34.86] And then, of course, I think we need a big push on the consumer side to get people aware of this and to kind of have a change in behavior. That we all need to kind of change our behavior and start to think about, well, if I really want to see that restaurant that I love next year when things kind of open up again, then I need to support them right now. I need to get takeout right now, I need to order it online right now, or at least show up at the store and the takeout counter, otherwise, we're not going to have those really nice kind of small downtown areas, or even big downtown areas that have lots of open and diverse set of businesses that we all like to go to. It's this sense of community.
[00:33:17.05] CHRIS WHEAT: Yeah, that's really important. I think there is a sufficiently and sort of appropriately large focus on the digital divide that we typically think about it. I think, unless you happen to be in the business of thinking about small businesses and what works for them, the digital divide for small businesses that's getting exposed right now, I think, is not nearly enough attended to and can make a huge difference. Thank you for calling that out.
[00:33:42.41] Claire, one of the things in your role, at least as I've seen it, is you kind of have the breadth across policy and research, but also engagement with small businesses as well. A question that I was going to ask you, and then I saw reflected probably in 10 different ways across some of the great questions that came in in advance, really were in the form of, what can we do that to help small business owners? What resources already exist that could be useful for them that maybe they don't know about? There's just a the number of very tactical questions around, how to help individual small business owners as distinct from ways to sort of move policy, or capital P policy around. And I was wondering if you-- I have a suspicion that you do-- if you had any ideas of a place where people might look, or ways that if you work with small businesses, you might be able to connect them to the resources that would be particularly helpful?
[00:34:41.55] CLAIRE KRAMER MILLS: Yeah, thank you. And I think Rob alluded to it in terms of, first, we all have market decisions that we make as consumers. And so there's that. I absolutely, personally, have stated the words that Rob just uttered, which is, who do I want to survive? What are my favorite establishments in my neighborhood that I actively want to support?
[00:35:07.47] But I think, zooming out a little bit, Chris, to answer your question, I think, first of all, there are a number of resources that have been stood up to sort of start to take a crack at this. How do businesses convert themselves? How can they pivot online?
[00:35:24.33] So you've seen actions by entities like Intuit and others that are service providers. And I think there is a consciousness. Whether we're exactly where we need to be in terms of provision and, first of all, laying the pipes as Jonnel, I think quite appropriately, noted, we're not there yet in terms of connectivity everywhere. But for those business owners that do have connectivity, I think we're starting to see those courses roll out.
[00:35:54.96] I think, in terms of volunteer opportunities, or you're really making a difference locally, it's been fascinating to see, actually, in addition to in networks that preexisted the crisis and will we live long beyond-- small business development centers, for instance, business solution centers in New York City that are doing outreach-- and are kind of walking hand-in-hand with small businesses to get them, first, through the PPP process, now, to kind of clarify what qualifies for forgiveness as that process rolls out, there are both national and local resources and assistance. But what we've also seen-- and this is really interesting-- are sort of ad hoc groups of professionals that have stepped up.
[00:36:43.80] I know of two. One based at the University of Texas at Austin, and a second that started as an informal group of professionals started in Brooklyn and New Jersey. And what they essentially said-- it was like a band of 30 lawyers, financial services, executives, who just wanted to step up and help in their local community. I can imagine that those are two anecdotes, but they exist elsewhere.
[00:37:09.90] And so I think that there are opportunities. And I think as others have described, first, we're going to be contending with PPP forgiveness, so opportunities to be, if you have the skill set that's relevant for that, to volunteer and be a coach. And then, we've got ongoing rebuilding to undertake collectively as we kind of slowly be into to try to emerge from this crisis.
[00:37:41.31] CHRIS WHEAT: Gotcha. Thank you. That's super helpful. I mean, I suppose that a narrower version of this question-- Jonnel, maybe I'll give you first crack at this because I've been watching you nod along at some of these things, and so maybe you have some thoughts here.
[00:37:54.63] A large number of people on this call are my co-workers, quite frankly. JPMorgan Chase, and more broadly from the financial services sector. I'm wondering if there's anything in particular you think that financial services providers, be it through products, equities that individuals have, maybe in the way that Claire was just alluding to, or any of the specialized tools that the industry as a whole has, might do, or that would be particularly useful? And let me open up the aperture here, not just to sort of help the small businesses that are currently struggling, which I think many are, and maybe are increasingly going to, but also to think about what we can do to stand up what hopefully will be a recovery in the sector, maybe even building a stronger sector than it was in the past, as a sector that had its own fragilities, even in the strongest economic time?
[00:38:54.96] JONNEL DORIS: That to me? I'm sorry.
[00:38:56.01] CHRIS WHEAT: Yeah, sorry.
[00:38:56.50] JONNEL DORIS: I didn't hear.
[00:38:59.64] JONNEL DORIS: No, oh, no, listen. If I could step back and take just a half a second and make this a bit personal. So as a small business owner myself, walking into my bank who I had a long relationship with for many years, and trying to get a loan to really scale my business, get an office, and all these things, and was denied. And wasn't denied based upon anything that is logical to me, because I had it all.
[00:39:28.67] I had all the high score, the contracts. I had everything that laid it out. But the box that-- the credit box, I had everything. But somehow, the internal policies of the bank did not allow them to lend to me. That's one.
[00:39:51.03] So I went to a CDFI. And I always like to say their name, Axion. They gave me my first business loan. It was amazing, and it's wonderful. And I appreciate them.
[00:40:00.27] My story is not different than many other small businesses who I think, that's why I think we're having this discussion, particularly the financial sector. So really look at our box, look at our requirements. And then, at the same time, I just spoke with a large bank yesterday, one of the regional vice presidents of this large bank, and they said also, look, we need to be more active in lobbying, if I may, for some relief from the regulators to do things and be a bit more creative.
[00:40:37.32] And just if you talk about-- Claire talked about the PPP loan, talked about forgiveness-- well, look, this particular institution, 80% of the folks that they gave, out of, I think, it was 84,000, 85,000 loans out, were under 25 employees and less than $250,000. So if we find a way we talk about forgiveness that we can find a way to automatically do this instead of waiting six months for businesses with uncertainty, not sure if they're going to be forgiven or not, so everything gets tied up.
[00:41:16.92] So there's an advocacy role for the financial community, I think, to play for some flexibility from the regulators. I also believe that we have to look at your own requirements, internally, and your credit boxes, what is permissible or not, what you can actually go out on a limb on. And thirdly, really to think about how we can influence the broader financial sector when it comes to investing in small businesses, particularly minority-owned businesses.
[00:41:45.36] What does that investment look like if it's VC, if it's other types of working capital? And I think there's got to be a collaborative effort here to really address some of the challenges that small businesses are seeing on the financial front. And the last part, I would say is, as mentioned, the business solution centers. We have seven of them in the city, all around the city where we help tens of thousands of businesses every year.
[00:42:13.88] During COVID, we're already assisted, I think, close to 10,000 businesses in some sort of resources or not. We've got a hotline. 37,000 businesses have called in and we've walked him through the pivoting process, financial assistance process, all those programs. However, I would say that some of the most fruitful programs we have is when we link or connect with either our banks, several who have partnered with us in the city to do some creative things, or those in the financial sector through our CDFI network in which we're able to provide some real affordable loans and some real creative products for small businesses.
[00:42:55.80] And then, on top of that, the technical assistance and support that comes with that. So we're not just giving out funds, or grants, or loans, zero interest loans, et cetera, we are mandating technical assistance support for those businesses that either we provide and/or we bring on consultants, et cetera to provide those services.
[00:43:15.56] CHRIS WHEAT: Gotcha. You raised and you reminded me, Jonnel-- I was going to ask a question, I guess I will ask about federal programs that could be, or things that the federal government could do that might be helpful. But you reminded me about some of the other local programs that might be useful as well, or local programs, again, that might be working quite well and that aren't getting as much a light shined on them. So this is a question, again, to all three panelists.
[00:43:46.66] A, again, the first one, are there particular things that you might be looking to in terms of short-term or quite frankly, even medium-term action? I know that there is some news today about things are maybe getting unstuck in the process, which I think is, all but look at it as progress in a short-term way, but there are many, many things that the federal leverage could do over the next 6 to 12 months. So any thoughts there, and/or programs that you've seen locally, be it though cities or states, that have been effective, or that you think are right-minded in terms of setting small businesses up for success, not just for September, October, November, but for 2021 and beyond? And I realize it is Zoom so it is hard to jump in, so I'm going to just pick on Claire to go first.
[00:44:39.82] CLAIRE KRAMER MILLS: That's fine. I was unmuted.
[00:44:41.66] CHRIS WHEAT: Yes.
[00:44:42.49] CLAIRE KRAMER MILLS: So that was great. So I think just building on Jonnel's comments, I think that there is an opportunity to fortify the pipes. There's been a lot of discussion in the second allocation. In the first wave of PPP, you did have some CDFI participants. You had more of a fortification and set asides following the second allocation.
[00:45:09.01] I think, if I can just press this metaphor of-- I loved that image of the bucket. And to fortify the pipes, I mean, we have multiple pipes that go to different places in America. And I think we've seen that in very, very vibrant terms during this crisis.
[00:45:28.69] I think what's interesting is, there was a policy intervention along the likes we really haven't seen in terms of just magnitude of money that was pumped out through PPP. But there was also an authorization of, first of all, more CDFIs, and second, fintech firms who became SBA-approved lenders. So how do we build on that?
[00:45:52.33] That's an opportunity. And it's an opportunity both for, I think, our short-term, but I also think that what COVID has shown us is that our preparedness for large-scale disasters of all sorts should be reexamined and be tweaked. And so I think what's interesting, just if I can briefly allude to two programs-- one-- I'll do three. There were state-level programs, one, first, in Illinois, relied heavily on CDFIs.
[00:46:24.79] New York Forward. New York, again, collaboration small loans, relatively long terms, kind of forgiving, dispersed through CDFIs of small denomination. I think, like, 50,000 was approximately the most, the upper bound, to small businesses and non-profits. And then, California is working on a program now, that is really an interesting program in that it relies, it is conceived of as a public-private partnership by design, where they are essentially going to be raising philanthropic funds for, first loss position.
[00:47:05.77] There is going to be bank participation and then there is going to be the channel to disburse these small loans to the smallest of small businesses. Those funds will be lent through CDFIs. And there will be an advisory component. How are you thinking about your business plan? How do you plan for your emergence from COVID?
[00:47:27.73] And I think that's an interesting model. One important key piece of the California program is that it's relying on IBank, which is their state infrastructure bank. And essentially, loan guarantees. So if you combine that kind of guaranteed derisking at the state level, combined with philanthropic funds, state participation, and CDFI participation, it's an interesting model for us to think, I think, nationally, how could that play out? And their goals are lofty. I mean, they're talking about a billion dollars, ultimately, being able to lever.
[00:48:07.40] CHRIS WHEAT: Rob, you had mentioned some specific things around access to capital as a well-understood thing, but then, some of the less understood things in terms of access to technology and what that specifically means for small businesses. Have you seen anything that seems promising in terms of more programmatic or policy levers that might address some of those less, or more common things, on either score?
[00:48:34.49] ROB FAIRLIE: Yeah, I was just involved in a discussion with Axios and Google, where that was one of the things that came out of it, also, was just trying to come up with more digital tools that small businesses can access, providing more help on it, providing, maybe, funding, providing some assistance for free in terms of programming help, in terms of setting up web pages and better web pages so consumers can use them.
[00:48:59.24] One of the things that I would mention here, sort of big picture is the health issues with COVID-19. That seems to me, like, fundamentally one of the things that the federal government can work on to really make a difference here, is the faster we can get this under control in terms of getting customers confident again to go back to small businesses, to going back to small downtowns, if that involves more mask-wearing, more testing, more control of that health issue, that fundamentally, that could be one of the most important things, if not the most important thing to kind of help out.
[00:49:39.49] It just seems to me, like, that's an issue that we haven't talked about as much. I mean, obviously, we've talked about it in a broader context. But in just thinking about small businesses and how we can get people back into those stores, that's really important. You have consumers that are not confident. They're worried about going back in. Obviously, there are owners that are worried about getting sick, and then employees of those small businesses are worried about it, also.
[00:50:05.72] CHRIS WHEAT: That's a really good point. Oh, please, go ahead. Yeah.
[00:50:09.48] JONNEL DORIS: No, no, I was just going to jump in, because that is at the core of what the mayor just announced last week around what our recovery efforts going to look like. And it's got to be tied to a public health strategy. And we cannot come back unless that, so Rob, thank you so much for that.
[00:50:31.91] Look, the health crisis really brought on, at least to this magnitude, the economic crisis that we're dealing with. And the quicker and sooner we can strategically deal with the health crisis, and really put all our efforts there, seeing a spike in New York City now. We were at 1%, now we're up to over 3%, even at the same time when 300,000 kids are going back into physical buildings in schools.
[00:51:02.22] So I mean, we are very concerned. We are extremely concerned about the health crisis, then. Because it's one thing to open back up, but then to close again and then to try to open back up and start again, that's something where we were trying to avoid. I just want to just opine a little bit about, like, programs and some of the things we've done, because I think it's important, as we think about some of the programs that are working, one, programs around minority women-owned business enterprises.
[00:51:31.21] New York City has a robust program, which I had the privilege to lead for four years, where we awarded $17 billion to MWBEs and really worked to help them to engage in government contract. So programs that are supply diversity programs or anchor strategy programs we are building around, where we know that dollars are going to be spent, such as with government, with large financial institutions, with the hospital systems who are going to procure. So we're using procurement as a strategy for recovery for our small business community as well.
[00:52:15.66] We're building out upon our MWBE program, but adding our local-based program component to that. Another thing we were able to do, I think, was so important was, initially, when we started several of our programs, we had three major programs. And we more had a focused approach where we wanted to make sure that we were targeting in some strategic way with outreach and/or program design, vulnerable communities.
[00:52:40.87] And so for instance, in our small business continuity loan fund, which you were able to get a zero interest loan from the New York City really early on, by the way, up to about $75,000. 53% of those who received that work were MW or minority women owned businesses 56% of MWBEs also received the employee retention grant. So we gave a grant to our small businesses as well.
[00:53:11.53] And then, 80% for those businesses, unfortunately, who were looted and were targeted, also, 80% were minority or women. And so a targeted approach, when we talk about strategies and programs, if we're very targeted and focus on LMI communities and/or dealing with groups in specific sectors that they may be in or outreach to specific CBOs and communities that deal with these businesses, or even through our solution centers that we have across the city, we're able to get really, really good results.
[00:53:48.96] Also, I'll say, we have a We NYC program, a women entrepreneurship program, that over 50% of our businesses in the city are foreign-born, from foreign-born owners. And so if you think about that, it's a lot of languages being spoken. So we started to partner with the consulates as well. And particularly Hispanic consulates in Mexico, Colombia, Ecuador, Peru, et cetera, to really target their entrepreneurs that were in the city. And we were able to connect to 40,000 individuals through that process.
[00:54:26.31] And really, finally, when we think about the needs of small businesses, particularly now, one of the biggest things, not only access to capital, but their overhead when we talk about rent. And so we've provided some real strategic ways about addressing that. If it's free services from lawyers, or with working with our City Bar, to work with them also to provide these really unique services to small businesses. And of course, our City of fine network, which we have quite a bit of them who we do make referrals to and work in partnership with.
[00:55:02.64] Claire, we do have some great programs that we're adding to this laundry list that you said. I am not here to make an announcement today, but we've got some really exciting things, particularly around our LMI community that we're going to be announcing real soon. But I can't say it right now. I wish I could. I don't want to spook our big announcement. But it goes along a lot of that framework you talked about.
[00:55:28.94] CLAIRE KRAMER MILLS: Well, we'll have to talk.
[00:55:32.18] CHRIS WHEAT: Certainly wouldn't mind it making news. That would always be great. So thank you. I want to first thank all the panelists. If you are not familiar with the work that is coming out of Rob's research, Claire's team, and their research and programs, or quite frankly, SPFs at New York, I think these are all useful places to look to get more insight in terms of what's possible, what might be a problem, and what to pay attention to. That was a long laundry list.
[00:56:07.91] It was a constructive laundry list, in part, because it was responsive to many of the questions that we didn't get a chance to answer. In particular, there was a question that I wasn't sure how to ask. But you actually answered it around how cities were responding to small businesses that have been affected by protests and violence in front of their store fronts, and sort of giving a little bit of a line of sight into that was actually particularly helpful for the person who had that question. So thank you. So thank you to all the panelists. I think I will pivot back to Diana to close us off.
[00:56:37.94] DIANA FARRELL: Well, all I want to do is say, what a wonderful discussion. Chris, thank you for and to our panels. Panelists, for all your insights, we're all busily taking notes. And for the rest of you for joining us, because we get so much from both the questions you submit and from trying to create more of a dialogue. So really appreciate it. We will be under advisement with all the input we've got. And thank you all very, very much. Have a wonderful afternoon.
[00:57:06.64] CHRIS WHEAT: Thank you.
The discussion kicked off with panelists sharing research on small business outcomes during the COVID-19 pandemic and differences by owner race.
- Small Business Owner Race, Liquidity, and Survival (JPMC Institute) – Research documenting racial gaps in small business revenues, profit margins, cash liquidity, and survival that existed prior to the COVID-19 pandemic.
- Small Business Financial Outcomes during the COVID-19 Pandemic (JPMC Institute) – An exploration of small business financial outcomes during the COVID-19 pandemic using data through May 2020, with a focus on industries in which Black- and Hispanic-owned firms are overrepresented and industries where the impact of COVID-19 has been particularly severe.
- The Impact of COVID-19 on Small Business Owners (Rob Fairlie) – An examination of how COVID-19 impacted small business owners in mid-April 2020. The report finds that the number of active Black-owned businesses dropped 41 percent in April, while Latinx business owners fell by 32 percent, and Asian business owners dropped by 26 percent.
- Double Jeopardy: COVID-19’s Concentrated Health and Wealth Effects in Black Communities (Federal Reserve Bank of New York) – Research discussing the effects of COVID-19 on Black communities and Black-owned businesses in particular. The report looks at why Black-owned firms have been almost twice as likely to shutter as firms overall during the pandemic.
Research shows that the challenges small businesses face and the differential outcomes for minority-owned businesses are not new but have been exacerbated by the pandemic. Panelists stressed that liquidity constraints remain one of the biggest challenges for small business owners struggling to pay bills and keep workers employed, as well as one of the biggest impediments to starting a business. Even before the pandemic, there were disparities in small business funding, which contribute to liquidity gaps. The racial wealth gap is likely to exacerbate these dynamics, as minority-owned small businesses have more constrained personal and family capital access.
Panelists also highlighted the digital divide, as consumers have shifted to online purchasing during the pandemic and differences in business-readiness. This shift has disadvantaged smaller small businesses in particular, since many did not have an online presence prior to the pandemic.
Granular data and research can provide policymakers with an understanding of how small businesses are faring and can inform recovery efforts, but panelists noted that information gaps remain. Commissioner Jonnel Doris, New York City Department of Small Business Services, highlighted information that would be helpful to government agencies, including correlations between storefront vacancies and business profiles (e.g. sector, owner demographics), in-person versus online retail sales, and information on the types of businesses that are starting versus shuttering. He also emphasized the importance of analyses cut by race, gender, and sector.
With research as a baseline for understanding the challenges small business owners – and minority business owners in particular – are facing, the conversation pivoted to policies and programs needed to ensure a more equitable recovery. Panelists concurred that a public health strategy should remain the first priority, as consumers will not be fully comfortable returning to businesses until the virus is contained. Additionally, at the federal level, there is an opportunity to build on aspects of the Paycheck Protection Program (PPP), including the role that CDFIs and fintech companies played in dispersing money to business owners. At the local level, panelists saw an opportunity to continue programs that are working, such as targeted assistance to the most vulnerable communities and grants and loans to minority- and women-owned businesses. Local governments can also leverage procurement strategies and supplier diversity programs to help support recovery.
We are grateful to the panelists for their expert insights and perspectives, which are invaluable as we navigate the road to an equitable small business recovery.
NYC Department of Small Business Services
Professor of Economics
UC Santa Cruz
Claire Kramer Mills
Assistant Vice President and Director of Community Development Analysis
Federal Reserve Bank of New York
This event is part of the Institute’s “Data Dialogue” engagements, an ongoing series of conversations with leading experts, policymakers, business and nonprofit leaders linking research with important policy topics of the day.