Small businesses struggling to access capital, harming their financial recovery

Small Business Majority
Wednesday, February 17, 2021

Nearly a year into the COVID-19 pandemic that has devastated our country and economy, small business owners continue to experience significant financial setbacks that are being exacerbated by challenges accessing the capital they need to sustain their businesses. A new national survey of small business owners sheds light on their struggles to secure financing and their views on policy solutions that could help small businesses survive and grow post-pandemic.

The poll was conducted by Lake Research Partners for Small Business Majority and surveyed 500 small business owners nationwide, with oversamples of Black, Latino and Asian American/Pacific Islander (AAPI) entrepreneurs. The survey also 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, more than 1 in 5 (21%) small businesses did not have a business banking relationship with a bank or credit union. Small business owners of color were also much less likely to have a business banking relationship pre-pandemic—31% of Black, 28% AAPI, and 26% of Latino business owners lacked business banking. Overall, roughly 4 in 10 small business owners have not obtained any capital like loans or lines or credit from any lending institution, or even from friends or family. Thirty-one percent of Black and 38% of Latino small business owners had not sought out capital before the pandemic.

When seeking out capital, small business owners of color have encountered more setbacks than their white counterparts. While 1 in 5 (19%) small business owners overall obtained less financing than they sought, this number is higher among AAPI (36%), Black (31%), and Latino (26%) small business owners. Similarly, while 18% overall have been denied a loan, 32% of Black, 23% of Latino, and 22% of AAPI business owners have been denied.

Looking specifically at the economic downturn caused by the pandemic, relatively few small business owners surveyed have secured funding through federal small business relief programs. Thirty percent of respondents have applied for the Paycheck Protection Program (PPP). A mere 7% of self-employed respondents have applied for PPP, and 1 in 3 Black and Latino small business owners have applied for a PPP loan. Of those who received a PPP loan, only a third (33%) received the full amount requested, and the number was even lower for entrepreneurs of color—23% Black, 23% AAPI and 27% Latino small business owners received the full amount.

Four in 10 small business owners report they will need no-cost grants or zero interest loans this year to keep their business open, with 58% of Black, 53% of Latino and 51% of AAPI, and 50% of larger small businesses reporting this. It should come as no surprise then that nearly 8 in 10 small businesses support providing direct grant assistance, with 36% strongly supporting this proposal.

The poll gauged small businesses on additional policy proposals to increase the availability of capital, and the most popular idea is to increase funding to nonprofit small business lenders (71% support), followed by increasing the availability of "patient" capital (60%) and allowing more online fintech companies to participate in more government loan programs (55%). 

As this survey reveals, small business owners, 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. Direct grant assistance, a policy supported by most small businesses, can help address this issue and sustain small businesses through the ongoing crisis. As Congress considers additional stimulus relief a year into the pandemic, it’s important that they structure any additional small business relief to take these issues into account.