Virginia black entrepreneurs got less pandemic money

Virginia entrepreneurs have faced waves of challenges over the past year and a half: lockdowns, health risks, staff shortages and access to finance.

But a state grant program designed to help small businesses and nonprofits didn’t reach all applicants equally. On average, through January 2021, black entrepreneurs received less than half as much funding as white entrepreneurs from Rebuild VA, the state’s pandemic subsidy program.

Experts say the pattern reflects broader trends in corporate ownership and investment. Rebuild VA grants require companies to submit eligible expenses, such as payroll, for reimbursement. Black companies in the US bring in average revenues that are one-sixth of the number of non-black companies, according to research by the Brookings Institution. Black entrepreneurs are less likely to get bank loans and more likely relying on high-interest credit cards after a long history of discrimination by financial institutions.

The trend has continued since normal business ground to a halt in March 2020. The first round of the federal Payroll Protection Program came under fire for overlooking black businesses. The pandemic has exposed historic underinvestment in black communities and black businesses, said Andre Perry, senior research fellow at the foundation.

We never get a chance to scale up, Perry said. The data you see on who has received COVID relief funds is really a reflection of how we value people, how we value suffering. The suffering of some people is worth more than others.

There is evidence that black entrepreneurs have continued despite difficult circumstances. one national study of the Kauffman Foundation found rising rates of black entrepreneurship, a trend that several experts say is local.

However, there is still a lot of room for growth. A recent report of Next Street and Common Future found that black residents make up 29% of the greater Richmond population, but only 5% of the region’s employer companies. The study found unmet needs of black and Latino entrepreneurs, ranging from capital to back-office help.

Carol Reese, a strategic advisor who helped write the report, envisions a number of solutions to the situation: one-stop shops for micro-enterprises to find affordable specialists in areas such as accounting; more cooperation between banks, government and local business organisations; and abolishing lending practices that it believes lead to discriminatory outcomes, such as excluding borrowers based on their credit scores.

I believe this is systemic, Reese said. Until this policy changes and the system changes, we are in this ongoing loop.

Policies made more money for white entrepreneurs

About 95% of Black companies did not qualify for the first round of PPP loans because they do not have salaried employees. Next Research found that a majority of black businesses that managed to get loans did so through online banking institutions that automatically vetted candidates, leading some researchers to conclude that racial bias played a role in pushing black entrepreneurs online.

The money was badly needed. a study an estimated 40% of black businesses closed in the first months of the lockdown, double the number of white businesses.

Reese has personally experienced some of the financing problems. Her consulting firm was ineligible for that round because her only employees at the time were contractors. A second round of PPP loans was open to sole traders and reaches a more diverse pool of entrepreneurs. But Reese said the bank she was working with ran out of money. And because she has an office in a relatively wealthy zip code in Glen Allen, Reese found herself out of federal loan. program offering grants of up to $15,000 for businesses in low-income areas.

State officials have touted Rebuild VA’s success in reaching companies left out of early federal grants. Nearly a third of the $120 million in grants handed out through January went to minority-owned businesses, and 49% went to businesses in low-income communities. Two-thirds of beneficiaries through January were owned by women, minorities or veterans, according to Governor Ralph Northams’ office.

Public records obtained by VPM show that white and black companies were approved for subsidies at similar rates during that period. But while black companies received an average Rebuild VA grant of nearly $19,500, white companies received more than double that on average. The pattern persisted to varying degrees among companies with a similar number of employees.

More than 28% of applicants ticked a box saying they did not want to provide racial information or left that portion of the application blank.

Officials waded through more than 20,000 applications last year before finally awarding about 3,000 companies with grants of up to $100,000. Businesses in low-income neighborhoods were prioritized — along with full applications — but that preference sometimes led to results that policymakers may not have expected.

The Commonwealth Club, an all-male private club that only admitted its first black member in 1988, received $100,000 from the state and $814,633 in forgivable PPP loans. The club, like much of downtown, east and south Richmond, falls in an area that has once been assigned as low-income by IRS criteria. The club did not respond to requests for comment.

Several black businesses within a mile radius of the club were turned down or denied funding until the funds ran out. Reese was also one of Rebuild VA’s rejects and said she never found out why; state records list her application as incomplete.

In August, lawmakers approved another $250 million to supplement program funds. But Reese says she has no plans to reapply, citing the time-consuming application process and lack of communication from officials.

I’m over it right now, Reese said.

Amy Brannan, a program manager who oversees Rebuild VA, acknowledged that her team was a little overwhelmed with the amount of communication from business owners. When the program stopped accepting applications in December, a survey on its website was inundated with hundreds of business owners asking what had happened to their businesses and saying they needed funding urgently, according to public records obtained by VPM. Brannan said her team has since added a three-person customer service team.

Brannan said the state is prioritizing the backlog of existing applications when distributing the next funding round. Program staff are currently reviewing applications submitted on or before October 26, 2020. Brannan declined to comment on the differences in grant funding, except that prices were based on three months of recurring expenses plus one-off COVID-related expenses such as masks.

States have taken different approaches to pandemic grant programs and reaching diverse audiences. California offered its application materials for its program, CalRelief, in 18 languages. Pennsylvania put aside more than 50% of its grants go to businesses owned and operated by individuals who are black, Hispanic, Native American, Asian-American or Pacific Islander on the grounds that they have been historically disadvantaged. Perry said this kind of targeted help should be more widespread.

We need to create a recovery culture in this country that says, “Hey, I’m going to invest in places and in people that haven’t gotten investment because of the policy,” Perry said. And that’s like investing in black people.

Some entrepreneurs saw benefits of a pandemic break

For some black entrepreneurs, the pandemic presented an unexpected time to expand their businesses or find new opportunities, sometimes with the help of state funds.

Flower designer Brom Hansboro of Richmond received approximately $20,500 from Rebuild VA in addition to funding from the PPP program, the City of Richmond, home improvement chain Lowes and the Metropolitan Business League. The cash infusion helped him break the wedding suspension and embrace new opportunities, such as the funeral industry.

On a personal level, the slowed speed allowed him to rethink his priorities and even lose 120 pounds. It allowed him to reflect on the toll of burnout after spending the past six years building a business in an industry and city that wasn’t always welcoming to black men, despite designs that have gained international acclaim.

The pandemic gave me the necessary time to slow down the tremor, slow down the expectation, slow down the demand — there was literally no demand, Hansboro said. When things opened up, it was a floodgate.

Business has also been booming at the Beet Box RVA juice bar since personal trainer and gym owner Antione Roc Meredith and Ashley Lewis, his former client, opened it on Cary Street in October 2020. The shop riffs on its eponymous vegetable with murals, hip hop music, and a growing menu of juices and food. Whatever they do, it works. With five stars on Yelp and a legion of loyal fans, Beet Box now plans to open a second location in December.

I didn’t expect us to grow as fast as we are, but I applaud it, Lewis said.

With its perch on the edge of Richmonds Fan district and Carytown, Beet Box attracts a diverse clientele. But Perrys Research with his colleagues at Brookings suggests that not all companies can. It found that black, brown, and Asian businesses had higher Yelp ratings on average than white businesses, but showed slower revenue growth if they happened to be located in a predominantly black neighborhood.

What that means to me is that black, brown, Asian companies are worth investing in, but they just don’t get it, Perry said.

In Perry’s view, cities and states would set goals for scaling black businesses. If we really want to see growth in black companies, it means we’re going to have to invest in them, he said.

Editor’s Note: VPM has received a loan from the Payroll Protection Program.