The Great Recession and The Covid Pandemic: Small Black Entrepreneurs and Federal Assistance an Historical Perspective A three part series Part 1 The Great Recession 2008-2010 and Black Small Businesses What did we learn from the impact on small Black owned businesses during the Great Recession of 2008-2010 and the American Recovery and Reinvestment Act of 2009 compared to the Covid pandemic and the CARES Act of 2020 and the new American Rescue Plan Act?
The Great Recession lasted 19 months, from December 2007 to June 2009. Its impact, however, was felt into the 2010s, touching all sectors of the economy and socio-economic groups. Thousands of businesses closed, including many small and minority-owned businesses, leaving employees and entrepreneurs looking for new opportunities to weather the storm. Minority businesses were impacted just as significantly — if not more — than small businesses. Minority Business Development Agency data shows 17 percent of minority businesses receive loans, versus 23 percent for non-minorities. Loan denial rates are nearly three times higher for minorities (42% to 16%). Minority businesses receive an average loan of $149,000, versus $310,000 for non-minorities. Minority communities often experience a lack of wealth, less equity capital, and lower rates of business creation. Research from Stanford found pronounced differences in wealth between black and white business owners. At opening, black business owners contributed $19,500 in personal equity, versus $34,500 for white business owners. The average black owned business had just $500 in external equity financing; the average white-owned business had more than $18,500.
Before the financial crisis, the number of commercial loans to small businesses—the traditional borrowing option—continued to grow at double-digit rates. This came to a virtual standstill during the financial crisis. In fact, loans by large banks to small businesses from 2008 to 2011 were practically nonexistent, while loans by small banks were down dramatically. The total amount of commercial loans to small businesses between the second quarter of 2008 and the second quarter of 2010 declined by $40 billion.
As it turned out, even with the stimulus, we lost almost nine million jobs. Indeed, because of horrific job losses in late 2008 and early 2009, we’d nearly passed the six-million mark before the Recovery Act was even signed. Adding in the estimated effect of the act, the correct no-stimulus baseline was a total employment fall of nearly 12 million. With a loss that big, creating three million jobs was helpful, but not nearly enough.
So what has changed? Since the pandemic in March 2020 the US has lost over 10 million jobs almost identical to the Great Recession. It should be no surprise that this corresponds to the big hit that small, particularly Black owned businesses took at then and now