Creative Commons
When COVID-19 exploded in Tennessee in March 2020, it shattered daily routines, confined people to their homes, and increased financial stress.
“Our clients, who were trying to put substance abuse behind them and were battling anxiety, depression, and other mental health conditions, faced enormous challenges,” says Christi A. Davidson, founder and executive director of Customized Medical Needs, a treatment center in Memphis which serves mostly low-income people of color.
The grant forced us to be creative so that we will be in a stronger position to attract customers in other parts of Tennessee and nearby Kentucky when the pandemic ends.
“To alleviate the aftershock of the pandemic,” Davidson relates in an interview, “we stepped up our efforts to provide intensive outpatient treatment and inpatient services for substance abuse.”
As the pandemic dragged on, the eight-year-old treatment center found itself in dire financial straits. Its prudent reserve plummeted as reimbursements by public and private insurers disappeared.
But Customized Medical Needs was not alone. The number of active small business owners in the United States decreased by 3.3 million (22 percent) from February to April 2020, according to a 2020 report by the National Bureau of Economic Research. The drop in active business owners was the largest on record.
Christi A. Davidson has used her Tennessee state grants to keep her business afloat during the pandemic.
The toll on “diversity businesses” owned by people of color, women, veterans, and disabled folks was especially severe. African American businesses experienced a 41 percent drop in business activity. Female business owners reported a 25 percent decrease.
“Staff retention was my top priority,” Davidson says. “The job market had collapsed in Memphis. The nine employees would be unable to support their families if they lost their salaries and benefits.”
Davidson, who has an M.B.A., studied every expenditure to determine where she could save a few dollars. Swallowing her pride, she convinced vendors to continue to work with her and wait to be paid.
But by October, the treatment center was on the verge of closing. That’s when Davidson learned about the Tennessee Supplemental Employer Recovery Grant program. This was the third phase of Republican Governor Bill Lee’s plan to use the state’s share of federal COVID-19 relief funds to help small businesses survive closures during the pandemic.
Even before the pandemic, Governor Lee, the owner of his family’s construction business, had emphasized the importance of aiding small businesses. In 2017, Tennessee’s small businesses employed 1.1 million people, or 42.1 percent of the private workforce. Small businesses created 40,374 net jobs in 2019, with firms with fewer than 20 employees seeing the largest gains.
Unlike the previous awards of $300 million, which had helped 40,000 struggling small businesses, the employer recovery grant program set aside 10 percent of its initial $50 million allocation for diversity entrepreneurs: businesses owned by people of color, women, service-disabled veterans, and disabled persons who had not applied for previous federal and state funds for small businesses.
Davidson received the maximum grant of $30,000, which enabled her to pay basic expenses and hold on until business picked up in February.
“It was a miracle,” she says. “I didn’t have to abandon my lifelong dream of serving my community.”
Rich Holladay and Cecil Stout, co-owners of Waterdogs Scuba and Safety in Clarksville, Tennessee, were on their way to their most profitable year when the pandemic struck.
“As retired veterans, we had pursued the armed forces’ strategy of always having a full backpack since we started the center in 2013,” Holladay says in a phone interview. “In addition to classes for beginning divers, training for professional scuba instructors, and CPR training, we sponsored trips and sold equipment, but all these streams of revenue disappeared except for the occasional CPR training session.”
The veterans used their $30,000 grant from the state to reconfigure their business plan to include renovation of the store, training courses on Zoom, and new destinations for trips.
“The grant forced us to be creative so that we will be in a stronger position to attract customers in other parts of Tennessee and nearby Kentucky when the pandemic ends,” says Holladay.
Like Tennessee, other states have recognized the vital contributions that small businesses will play in overcoming the financial fallout of the pandemic. In addition to revenue from sales, property, and other taxes needed to pay for education, health care, and other state services, small businesses can jumpstart employment.
In 2015, the latest year for which state data is available, the nation’s thirty million small businesses employed about 58.9 million workers, 47.5 percent of the private workforce, according to a 2018 Small Business Administration report.
Around 44 percent of Black Americans reported in April 2020 that they or someone in their household had lost a job or wages; nearly three-fourths said they did not have emergency funds to cover three months of expenses, according to a survey by Pew Research Center.
As of December 2020, thirty-three states had lost more jobs than during the Great Recession of 2008, found a recent report by the University of New Hampshire. Between the start of the pandemic through January, the country was down almost ten million jobs, a 6.5 percent decrease from the pre-pandemic level that hit people of color especially hard.
Being an entrepreneur is a high wire act even in boom times. Normally, about one-third of small firms with employees fail in their first two years; only half survive at least five years.
To ensure the survival of small businesses, many states have developed innovative relief programs with funds provided from the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act.
The CARES Act included $150 billion for state, local, and tribal governments to use for health care, infrastructure, and other pandemic relief efforts. Each state received a minimum of $1.25 billion.
Like Tennessee, some states are now setting aside funds for entrepreneurs from diverse backgrounds who are struggling financially because of a lack of capital for payroll, rent, or mortgage payments, and physical plant improvements to protect the safety of customers and workers.
In June, Indiana Governor Eric Holcomb, a Republican, announced an initiative to ensure an equitable recovery across the state. About $500,000 in federal CARES Act funds would be used for a new partnership with Indiana Black Expo, a statewide nonprofit group.
Rich Holladay has used his Tennessee state grants to keep his business afloat during the pandemic.
Indiana allocated another $30 million in CARES Act funds for restart grants to help small businesses pay for COVID-19-related expenditures. By February 1, about $15.7 million in restart grants had been issued to more than 1,000 small businesses, according to a spokesperson for the Indiana Economic Development Corporation. Businesses owned by women and/or people of color received $2.1 million (13.6 percent of the total). That percentage is expected to rise as additional grants are awarded.
In July, Louisiana Governor John Bel Edwards, a Democrat, announced that the $275 million Main Street Recovery Grant Program for small businesses had set aside $40 million for women, minorities, and veteran entrepreneurs. Small businesses will receive up to $15,000 for COVID-19-related expenses not reimbursed by insurance carriers or the federal Paycheck Protection Program (PPP).
In October, North Carolina Governor Roy Cooper, a Democrat, announced that businesses owned by minorities and women, who had been hardest hit by the pandemic, would have access to guidance on business development and restart grants ranging from $10,000 to $25,000. North Carolina also conducted a statewide review of purchasing practices that may prevent people of color and women owners from participating in the state’s supply chain, according to Nan Sanseverino, a spokesperson for the North Carolina Department of Administration.
The biggest lesson North Carolina officials learned while tackling a large, complicated issue such as COVID-19, says Machelle Sanders, secretary of the North Carolina Department of Commerce, is that it helps to work collaboratively across agencies and sectors to create a supporting, responsive infrastructure.
Valerie Wilson, director of the program on race, ethnicity, and the economy at the Economic Policy Institute, a nonprofit think tank in Washington, D.C., applauds these programs because of the heightened risks that Black-owned businesses face.
“Even before the pandemic, Black-owned businesses had less of a cushion to withstand a downturn because their owners financed the businesses with their savings or funds from their families and friends,” Wilson says in a phone interview.
Although less than 10 percent of all U.S. businesses are Black-owned, they are more likely to be in vulnerable industries. One estimate, Wilson says, showed that 40 percent of the revenues of Black-owned businesses are earned in the five most vulnerable sectors—including leisure, hospitality, and retail—compared with 25 percent of the revenues of all U.S. businesses.
“Black-owned businesses also faced barriers in obtaining PPP loans because they didn’t have a relationship with a bank before the pandemic,” she explains. “Large, publicly traded corporations were the first to get the loans so that the $349 billion originally allocated was quickly depleted.”
The Paycheck Protection Program, which handed out 5.2 million loans worth $525 billion, began in April and ended in August 2020. Congress has approved a third round of small business loans, worth $284 billion, which may help business owners of color.
The federal government and the states, Wilson says, must continue to help Black-owned businesses “because of inequalities in the labor market and [to] support people in their communities who also have faced economic discrimination.”