Mass. small businesses going through transition period
Many white owners moving on; minority businesses struggling to find capital
THE MASSACHUSETTS SMALL business economy is struggling to recover from COVID-19, even as it enters a major and time-sensitive transitional period. Many long-time small business owners are eying the exits, planning for their retirement and the sale of their businesses. Newer, more diverse entrepreneurs are looking to grow their businesses, but face barriers to realizing their potential. That’s according to a new poll of Massachusetts small businesses commissioned by Coalition for an Equitable Economy in partnership with The MassINC Polling Group and the Mass Growth Capital Corporation.
COVID hurt small businesses in a myriad of ways, both in terms of real revenue and by bringing upheaval to the broader economy. Relief programs helped some but missed many A whopping 33 percent of Black-owned businesses report that they received no COVID funding at all. Now, inflation and hiring concerns are complicating recovery, with only 26 percent reporting higher revenues than pre-COVID.
Even as the recovery and realignment bumps along, another change is afoot. The survey finds 24 percent of White-owned businesses are planning to sell their businesses in the near future, far higher than the rate of Black (10 percent) and Latino-owned (14 percent) businesses. Similarly, 23 percent of White-owned small businesses expect to see a senior leader retire in the next five years, compared to 10 percent for both Black and Latino-owned businesses and 16 percent for Asian-owned businesses.
Transitioning to a more diverse small business landscape poses a range of challenges. Entrepreneurs of color are starting smaller, most with less revenue, shorter histories, less of a financial cushion, and greater difficulties accessing capital. The survey finds their aspirations of growth and expansion are significant and offer the possibility of a vibrant and diverse future on the state’s main streets. Entrepreneurs of color are more likely to say they are seeking a range of business growth opportunities including expansion, hiring, new equipment purchases, and more. They are also more likely to be planning for new space via buying, renting, or opening new locations.
A key challenge in realizing these plans is access to capital, a key concern for many of the state’s entrepreneurs of color. Three-quarters or more of Latino (88 percent), Black (85 percent), and Asian-owned (77 percent) businesses calling capital access a “major concern” compared to just 55 percent among white-owned businesses.
Black and Latino-owned businesses are more likely than White or Asian-owned businesses to say they had to wait a long time for credit decisions and more often get rejected for loans or receive less than what they applied for. Black, Latino, and Asian owned businesses all identified complex loan processes and not knowing where to begin as common hurdles.
This means less access to capital from banks and credit unions, which complicates growth plans. Black and Latino-owned businesses were less likely than White or Asian-owned businesses to say they have a loan or credit card from a bank, and more likely to say they use alternative credit sources such as Square, Paypal, Payday lenders, and more. Past due bills also pose a greater threat to businesses owned by Black, Latino, and Asian American entrepreneurs.
Grant applications, new revenue sources, and capital access were the top three types of technical assistance sought by businesses owned by people of color. Relatively few small businesses (15 percent) say they have made use of technical assistance in the last year mostly because they do not know it is available. Although few know about and utilize the various types of assistance that are available, those that do utilize it find it to be useful.
Navigating these obstacles will not be easy, particularly against a backdrop of inflation and hiring concerns. But focusing on equity as we emerge from the pandemic offers an opportunity for a more diverse small business community in the future. Banks, credit unions, the government, technical assistance providers, and foundations can seize this opportunity to provide support in obtaining capital. This will assist in supporting small businesses owned by people of color in decreasing debt, increasing their capacity, and making expansion attainable.