California small businesses struggling to access capital, need more help to ensure financial recovery

Small Business Majority
Tuesday, February 23, 2021

Nearly a year into the COVID-19 pandemic that has strained California’s economy and public health system, small businesses across the state continue to experience significant financial setbacks. A new survey of California small business owners reveals that their struggles are being exacerbated by challenges accessing capital, and they strongly support policy solutions that would deliver the financial relief they need to survive this year-long crisis.

The poll, conducted by Lake Research Partners for Small Business Majority, surveyed 418 small business owners in California (nearly evenly split between white entrepreneurs and business owners of color). The survey explores how small business owners accessed capital before the COVID-19 crisis, underscoring why many may have struggled with federal relief programs. Before the pandemic hit, nearly 1 in 4 (23%) small businesses in California did not have a business banking relationship with a bank or credit union. This number rises to 28% for small business owners of color, compared to 19% of white business owners.

Figure 1: Small business owners in California without a business banking relationship pre-pandemic

Figure 1

Overall, more than 4 in 10 small business owners had not obtained any capital like loans or lines or credit from any lending institution, or even from friends or family. And when seeking out capital, small business owners of color have encountered more setbacks than their white counterparts. While 1 in 4 (25%) small business owners overall have obtained less financing than they sought, this number is much higher among entrepreneurs of color (32%) compared to white business owners (18%). Similarly, while 25% overall have been denied a loan, 32% of business owners of color have been denied (compared to 17% of whites).

Looking at the economic downturn caused by the pandemic, less than half of California small business owners (46%) have applied for the Paycheck Protection Program (PPP). Of those who received a PPP loan, only 17% received the full amount requested, and once again, the number was lower for entrepreneurs of color—14% versus 25% of white business owners. Even fewer small business owners have applied for the Economic Injury Disaster Loan (EIDL) program, but more small business owners of color have applied: 33% overall compared to 45% of business owners of color.

Four in 10 small business owners report they will need no-cost grants or zero interest loans this year to keep their business open, and nearly half of entrepreneurs of color report this (48%). It should come as no surprise then that most small businesses (82%) support providing direct grant assistance.

The poll gauged small businesses’ views on additional policy proposals to increase the availability of capital, and the most popular idea is to increase funding to nonprofit small business lenders to allow them to make more loans to businesses that may not qualify for financing from traditional lenders.

As this survey reveals, small business owners in California, especially entrepreneurs of color, faced significant barriers to accessing capital before the pandemic, and these struggles likely set many up for failure when trying to access federal relief programs last year. Providing additional grant assistance, a policy supported by most small businesses, can help address this issue and sustain small businesses through the ongoing crisis.