Are black companies ready for a new recession?

Black businesses have been hit by the recession caused by the 2020 pandemic.

Although they recovered relatively strongly in 2021, according to a study by Robert Fairley, a professor at the University of California, Santa Cruz, many black companies still have some of the vulnerabilities that existed before, such as low cash reserves and difficult access to credit. other groups.

These vulnerabilities are likely to persist in the event of another decline, the chances of which increase.

“If we go into recession, I predict it will be bad for black businesses,” Fairley said. Forbes. He added that many such companies have already fought the pandemic “and do not have large cash reserves, wealth of the owner or access to bank credit to withstand a new recession.”

The Wall Street Journal reported earlier this week that the economists he studies have dramatically increased the likelihood of a recession, now putting it at 44% over the next 12 months, up from 28% in April and 18% in January. Reporting at this level is rarely seen outside of real recessions, the report said.

During the last recession, the number of black-owned companies fell by 31% to about 770,000 in April 2020 from pre-pandemic levels, according to a Fairley study. His latest research shows that the ranking of black business owners is 9% higher than before the pandemic, lagging only behind Latin American property.

Kevin Kohi, CEO of OneUnited Bank, believes that Black America is in a better position to withstand the decline now than in the past. The economic strength of this demographic group will help dictate the state of many black-owned businesses, especially those like OneUnited, which primarily serve black clients.

“As human beings, we are becoming much stronger,” Kohi said. “We are moving further and further away from the old model of … the last hired and the first fired.”

Kohi added that he did not believe that the Federal Reserve Board would be too aggressive in raising interest rates and cause a recession. Nevertheless, he said, the bank is diversifying its revenue streams with products such as business loans and mortgages.

Some black entrepreneurs are preparing for a possible downturn. Imani Watts and Alexandria Hadley are co-founders of the clothing company Bazaar Los Angeles. The two started their business in September 2020 during the pandemic. Hadley said he had not heard advice on how to prepare for an impending recession, but the two said they believed the pandemic had helped boost their business. For example, instead of just selling clothes, the company also rents out retail space to other small local clothing companies.

“We had made a lot of planning for how another pandemic would affect us, so we made sure that our business model was designed to have flexibility and leverage for growth,” Watts said.

An increasing number of historic black colleges and universities have programs designed to nurture black entrepreneurship, and their leaders believe such proposals will be vital for young entrepreneurs in the event of a downturn. One example is Bowie State University and its Academy of Entrepreneurship, which offers more than 500 students physical space and other resources for building a business.

“HBCU is in a unique position because we are in areas where the needs of black consumers are not being met,” said Jonetta Hardy, executive director of the Entrepreneurship Academy. “If this recession occurs, programs like ours will be even more necessary to help not only nurture ideas, but also create ideas that are sustainable.

Jair Hilburn contributed to this report.

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