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Minority-owned small businesses, used to obstacles, face 'uncharted waters' in pandemic

Kenneth Washington got his start in the food business selling hot dogs and po’ boys as a student at Texas Southern University, dreaming of owning a restaurant. His dream came true in 2002, when he opened Just Oxtails Soulfood in Houston’s Sunnyside neighborhood.

Over the next 18 years, Washington and his wife, Carrie, built a business that became a fixture in the neighborhood and employed up to 25 people before the coronavirus pandemic forced him to close.

“We’re in uncharted waters,” Washington said. “It’s kind of hard to bear.”

Just Oxtails is among the minority-owned small businesses in Houston trying to stay afloat during a period that is providing challenges even for owners who have built their success by overcoming barriers that might have sunk other companies. Minority-owned small business owners have long struggled for access to capital, often operating in neighborhoods where few, if any, banks locate and facing discrimination.

Studies by the Small Business Administration have found that loan applications by black and Hispanic business owners are more than twice as likely to be rejected by banks. As a result, minority-owned businesses do not apply for loans for fear of rejection at rates more than twice that of white owners.

That long-standing distrust has raised concerns among business leaders that minority-owned firms might not apply for the Paycheck Protection Program, the federal government’s effort to offer low-interest, forgivable loans to small businesses that use them mostly to keep employees on the payroll. Houston’s Black Chamber of Commerce, Hispanic Chamber of Commerce and Asian Chamber of Commerce have all launched outreach and education efforts to inform minority-business owners of the program, encouraging them to apply and offering technical assistance.

Critical access

Unity National Bank, the only African American-owned banking institution in Texas is using traditional and social media to spread the word about the Paycheck Protection Program and reaching out directly to businesses in areas where it operates, including Houston’s Third Ward and Missouri City.

“Access to capital is critical and I think that that is one of the things many of our small business have been lacking. Making sure that they have it right now is even more important,” said Laurie Vignaud, Unity’s president. “Unless we are very aggressive and deliberate about making sure we do outreach, we will once again lose the people who have been the fabric of many of these communities.”

About one in five small businesses in the United States have minority owners, according to the Census Bureau, but it’s unclear how many have qualified for Paycheck Protection loans. The Small Business Administration said it doesn’t have statistics on the participation of minority-owned businesses.

In Houston, minority-owned businesses were largely shut out of the first round of the Paycheck Protection Program when millions of businesses — some small, some not so small — rushed to snap up nearly $350 billion, said business leaders in the Houston’s African-American, Hispanic and Asian communities.

Some were successful in the second round, when Congress authorized another $310 billion at the end of April. Some are still waiting for approval.

“It’s a mixed bag,” said Laura Murillo, president of the Houston Hispanic Chamber of Commerce.

Businesses that received loans are finding that they are far from a panacea. Marcus and Mel Davis, owners of the Breakfast Klub and Alley Kat Bar & Lounge in Midtown, Third Ward’s Reggae Hut, and downtown restaurant Kulture, were approved for a PPP loan (they declined to give the amount).

Marcus Davis said he would prefer greater flexibility in the conditions for loan forgiveness and fewer restrictions on the costs that the loans can cover. Three-fourths of the money must be used to pay wages and benefits to employees for eight weeks, the rest can cover operating costs such as rent.

The problem, said Davis, is business is unlikely to return to its pre-pandemic levels anytime soon, and he can’t use the money to, say. fund renovations to incorporate social distancing measures that would put customers more at ease.

Of their properties, the Reggae Hut and the Breakfast Klub’s Midtown location remain open for takeout orders. The Davises were force to furlough 75 percent of their workers across their properties.

“How do you bring back 100 percent of your team when you only have 25 to 30 percent of your business?” he said, “It's a cruel and evil joke to bring someone off of unemployment and then not know whether or not you're going to be able to keep them beyond the eighth week.”

Waiting game

Steven Lawrence, executive director of the University of Houston’s Small Business Development Center, said many minority-owned small companies are businesses such as retail stores and restaurants that rely on customers coming into a location and spending. That means their recovery will only come after consumers regain confidence that they can keep or get back their jobs and protect their health when going out in public.

“They’ve got to wait for everyone else to recover before they can recover and that’s hard,” Lawrence said. “You’re not only dependent upon the recovery system established by the government, you’re dependent upon other people being able to recover before you can.”

The Washingtons, who hope to reopen Just Oxtails in June, are anticipating a slow, difficult climb back. They were recently approved for a $77,000 Paycheck Protection loan, which they will use to bring back furloughed workers, but they worry that won’t be enough if business remains depressed for a long time.

As result, they have launched a GoFundMe campaign online to raise the capital needed to cover reopening expenses and provide a financial cushion to offset what the Washingtons expect will be diminished business.

For the Washingtons and the Davises, securing a Paycheck Protection loan was the first step toward keeping their doors open. But, after nearly two decades in business, they know its hardly enough to guarantee their long-term survival — especially when they see far larger businesses, such as the Landry’s restaurant chains owned by Houston billionaire Tilman Fertitta, take major hits.

“Because we are this brand that’s known and that’s been a symbol of success in the community for almost 20 years, there’s an assumption that everything is okay,” Davis said. “That's just not true. If Tilman can be touched, then Marcus can be touched.”

As published by the Houston Chronicle