Facebook and other large businesses have an important role to play in helping small businesses not just survive the pandemic but thrive.
For mother and daughter Lisa Dunnigan and Tosha Wright, two things run in the family: an entrepreneurial streak and a passion for teaching.Five years ago, the former educators from Lithia Springs, Georgia, combined their enthusiasm to start The Wright Stuff Chics, an online apparel store selling graphic tees and gifts for teachers.
Their business soared – until the pandemic hit. In-person conferences, their main source of sales, ceased to exist, and they struggled to keep afloat during the COVID-19 downturn.
“When you’re an entrepreneur and you have a passion for what you do, but yet you don’t have the working capital to do that, it ends up causing so many levels of stress,” Lisa said.
Lisa and Tosha are part of a disturbing trend. In a survey of more than 35,000 small business leaders across 30 countries and territories, conducted in July and August for Facebook’s “Global State of Small Business Report,” we found that U.S. minority-led small businesses were at least 50% more likely to be closed, to have lower sales and to be forced to lay off workers than businesses run by white people.
Nobody should be surprised. Before COVID-19, minority-owned businesses faced greater structural challenges in accessing credit and capital. Researchers from the Brookings Institution found that the major banks approved about 60% of loans applied for by white small business owners, only 50% of loans applied for by Latinx small business owners and just 29% of loans applied for by Black small business owners.
Lisa Dunnigan and Tosha Wright own The Wright Stuff Chics, an online apparel store selling graphic tees and gifts for teachers.
In addition, a 2018 study showed that when Black, Latino and white men visited Los Angeles-area banks to apply for small business loans, the Black and Latino men were asked to give more personal information than their white counterparts – even though the Black and Latino men had better incomes, assets and credit scores.
Yet, the ability to access capital quickly is the thing that small businesses need most now to survive. According toFacebook’s small business survey, released Thursday, 60% of owners stated they had some form of difficulty in paying business-related expenses, and roughly a quarter reported struggling to pay debt (26%), bills (25%), rent (25%) and employee wages (24%).
What is the solution? Government can assist, of course, but perhaps the best sources of help for small businesses are bigger businesses. For example, we heard firsthand from our small business vendors in the early days of the pandemic that they were struggling with cash flow.
They told us this is often because their invoices are rarely paid early or even on time for that matter. It can take up to 90 days for small businesses to get paid for their work, a lag in revenue that can be too much to bear on tiny pandemic-era margins.
So last year, we piloted a program with our diverse suppliers where Facebook buys their invoices for a low fixed, one-time fee (that covers the cost of the transaction). The supplier gets paid immediately and can use that money to pay their bills, rent and employees.
When the invoice is due, the program collects the payment, and we can use that money to buy more invoices. On Oct. 1, we will open the program to diverse-owned small businesses that are not Facebook suppliers, and we will fund the program with $100 million.
The program is already helping small businesses owners like Lisa and Tosha. They applied and Facebook bought their invoices for apparel they had sold to local school districts. Facebook paid Lisa and Tosha quickly, which allowed them to keep their staff employed and their doors open throughout the pandemic.
For the recovery to fully take hold, supporting our nation’s small businesses needs to be put front and center. They not only represent the backbone of our economy, but also the heart of so many of our communities.
Facebook and other large businesses with greater resources and capital have an important role to play in helping small businesses not just survive the pandemic but thrive.