Thursday, September 21, 2023

Are black companies ready for another recession?

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Shreya Christina
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Black businesses were hit by the pandemic-induced recession of 2020.

Although they bounced back quite strongly in 2021,according to research by Robert Fairlie, 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 difficulties accessing credit compared to other groups.

These vulnerabilities will likely still exist in the event of another downturn, the likelihood of which will increase.

“If we do end up in a recession, I predict it will be bad for black businesses,” said Fairlie .† He added that many such companies have already struggled through the pandemic “and lack large cash reserves, owner equity or access to bank credit to weather another recession.”

The Wall Street Journal reported earlier this week that the economists it surveys have dramatically increased the odds of a recession, bringing it to 44% over the next 12 months, up from 28% in April and 18% in January. A reading at that level is rarely seen outside actual recessions, the report said.

During the latest recession, the number of black businesses fell 31% to about 770,000 in April 2020, from pre-pandemic levels, according to research by Fairlie. His latest research indicates that the ranks of Black Business Ownership are 9% above pre-pandemic levels, lagging only that of Latino Business Ownership.

Kevin Cohee, CEO of OneUnited Bank, thinks Black America is now better positioned to weather a recession than it has been in the past. The economic strength of this demographic will help shape the fate of many black businesses, especially those like OneUnited that serve primarily black customers.

“As humans, we become much stronger,” says Cohee. “We’re moving further and further away from the old model of … the last to be hired and the first to be fired.”

Cohee added that he does not believe the Federal Reserve Board will be too aggressive in raising interest rates and triggering a recession. Either way, he said, the bank is diversifying its revenue streams, with products such as business loans and mortgages.

Some black entrepreneurs are bracing for a potential downturn. Imani Watts and Alexandria Hadley are co-founders of clothing company Bazaar Los Angeles. The two started their business in September 2020 during the pandemic. Hadley said she hadn’t heard advice on how to prepare for an impending recession, but the two said they believe the pandemic has strengthened their business. For example, instead of just selling clothing, the company also rents out retail space for other small, local clothing companies.

“We planned a lot about how a new pandemic would affect us, so we made sure our business model was set up in such a way that it had flexibility and leverage to grow,” Watts said.

A growing number of historically black colleges and universities have programs designed to nurture black entrepreneurship, and their leaders believe such offerings will be vital for young entrepreneurs in the event of a recession. One example is Bowie State University and its Entrepreneurship Academy, which provides more than 500 students with physical space and other resources to build businesses.

“HBCUs are in a unique position because we are in areas where the needs of black consumers are not being met,” said Johnetta Hardy, executive director of Entrepreneurship Academy. “When that recession comes, programs like ours will be needed even more to not only help nurture ideas, but create ideas that are sustainable.”

Jair Hilburn contributed to this report.

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