Newsletter: Black-owned businesses face huge hurdles. It doesn’t have to be that way

Good morning. I’m Rachel Schnalzer, the L.A. Times Business section’s audience engagement editor, with our weekly newsletter about how you and your bank account can weather this tumultuous time and prepare for whatever the economy might look like on the other side.

It’s hard to get a small business off the ground. You need money to get started, to expand and to weather tough times. For Black business owners, the challenge of getting financing is even greater.

My colleague Samantha Masunaga covered this topic in her latest article, and she’s taking over the rest of this newsletter’s introduction section to explain how Black-owned businesses face a system set up against them:

The wealth gap between typical Black and white households is a major factor in the inequity. But research is showing that even in households with similar financial resources, home equity does not translate equally into start-up capital for Black and white homeowners. Also, Black-owned businesses’ relationships with banks can be impeded by the businesses’ typically smaller size and by racial discrimination on the part of some bank workers.

“Most small African American, or even any business of color, basically has to leverage everything they have in order to believe in themselves to be able to say I am going into business,” said Delores Brown, director of loans at Vermont Slauson Economic Development Corp.

What can be done to change things?

Collecting better data on major bank lending practices so they can be held accountable when they are not lending equitably is an option, said Rachel Atkins, a postdoctoral faculty fellow in the management and organizations department at the NYU Stern School of Business. If penalties were assessed for inequitable lending, that money could be put into a fund for business owners who were unable to get financing due to those practices.

Others have suggested creating more Black-owned banks, smaller community-owned banks or even state-owned banks. Compared with major banks, state-owned banks might be more accountable to the public and more incentivized to provide access to capital for state residents, Atkins said.

Economists and advocates have also suggested variations of slavery reparations, which could be used for capital investment in businesses.

What if you’re a Black business owner looking to get financing today?

The following steps don’t get rid of the systemic problems, but they might help make the playing field a bit less uneven.

Brown suggests making sure you have all the documentation you’ll need to include in your loan application. Also, she said, learn all of the bank’s underwriting criteria so you can walk in with confidence. For help with these items, business owners can work with a community development financial institution such as Vermont Slauson EDC.

“Knowledge is power,” Brown said. “You’re telling a story with your financials and understanding how to tell the story of success with your paperwork.”

Other stories you may find helpful

— ICYMI: Californians must wear face masks in public under an order issued by Gov. Gavin Newsom. Phil Willon, Hannah Fry and Luke Money explain the ins and outs of this order. Another place you’ll be required to wear a mask? AMC Theatres, which has reversed its policy after a massive outcry.

— As workplaces reopen, be aware that your employer cannot require you to undergo COVID-19 antibody testing, Jessica Mulholland of the California Chamber of Commerce writes.

— Despite the economy’s gradual reopening, California’s unemployment rate remains stagnant, reports Margot Roosevelt. One staggering statistic: In Los Angeles County, more than 1 in 5 workers were out of work in May.

— The government says you can now invest your 401(k) in private equity. “Be very afraid,” columnist Michael Hiltzik cautions. His column outlines how private equity funds “are among the riskiest and most opaque investment vehicles devised by Wall Street.”

— Some landlords are trying to evict tenants in Black and Latino areas of South L.A., despite the anti-eviction rules passed in response to the pandemic. Liam Dillon and Ben Poston explain how landlords have been using illegal methods to oust residents.

— You’re being left in the dark about coronavirus hot spots in your area. Russ Mitchell reports on why public health agencies are holding on to information that could be used to educate the public.

— The federal $600-a-week unemployment benefit ends July 31, and lawmakers are debating what might come next. Faith E. Pinho outlines proposals from lawmakers that are on the table.

— The rush to disinfect offices has some environmental health experts worried, writes Arianne Cohen for Bloomberg. Cohen shows how some COVID-19 disinfection regimens are exposing employees and consumers to chemicals that haven’t been tested for human health.

Reader question

A reader asked us: I operate a small business out of a leased industrial building. We are four months in arrears on rent. What protection, if any, do we have from possible eviction?

My colleague Taylor Avery looked into that and found that if the building is in the city of Los Angeles, you’re probably safe for now.

Los Angeles has a city ordinance — enacted in March and strengthened in May — that temporarily bans landlords from using nonpayment of rent as a reason to evict residential and certain commercial tenants if the reason the tenant can’t pay rent is related to COVID-19.

“Industrial tenants are protected under the order,” Mayor Eric Garcetti’s spokesman Alex Comisar told us Monday.

The city ordinance does not protect multinational companies, publicly traded companies or companies with more than 500 employees.

That moratorium on evictions of businesses lasts until three months after the end of the city’s “local emergency period,” which currently does not have a set expiration date. (Residential tenants have 12 months after the emergency period ends.)

Here’s the hard part for tenants: The order doesn’t forgive any rent; it just allows a delay in payment. By the time the moratorium lifts, the tenants need to catch up on those payments or negotiate a deal with their landlords to avoid being subject to eviction.

Other jurisdictions, including swaths of L.A. County, have their own eviction moratoriums. If the rules don’t mention industrial zones, contact the applicable government agency to ask — and try to get a written answer that you can show to your landlord.

One more thing

Is your family waiting on an inheritance? Get ready to wait a while longer, as coronavirus-related court closures are adding many months to the process of executing wills. If you’re in the process of setting up a will, certified financial planner Liz Weston explains how probate can be avoided by using a revocable living trust or other measures.

See you next week!

Have a question about work, business or finances during the COVID-19 pandemic, or tips for coping that you’d like to share? Send us an email at [email protected], and we may include it in a future newsletter.