Minnesota is home to more than 85,000 East Africans, about 3,000 of whom are self-employed or have established their own businesses.1 These small businesses benefit Minnesota communities, providing products, foods, and services that enrich the state’s culture and contribute to economic prosperity. However, like many other small business owners, East African entrepreneurs are now struggling with pandemic-induced challenges.2 And on top of that, many are recovering from damage to their premises sustained during civil unrest in the Twin Cities following the killing of George Floyd last May.
To learn how the East African small business community in Minnesota is faring in these unprecedented circumstances, the Community Development and Engagement team at the Federal Reserve Bank of Minneapolis conducted a listening session and one-on-one interviews with East African entrepreneurs and their support network. We heard about the adversity this community is experiencing and the information gaps that compound it. We also heard ideas for how to help East African small businesses buffer the effects of the economic downturn and emerge stronger than before.
Pandemic and civil unrest strain businesses
The East African businesses we heard from included restaurant owners, small retailers, cosmetologists, and providers of home health care and other services. Like many small businesses across the country, they’ve experienced significant losses due to COVID-19 stay-at-home orders and social-distancing measures. Businesses like coffee shops and restaurants have had to cease or reduce services. Not every food-related business we spoke to was struggling—for example, one African restaurant pivoted to producing 1,200 meals a day for a local Meals on Wheels program and had to double its staff to fulfill the contract—but most noted the difficulty of paying rent and other fixed costs as their customer numbers dwindled. Some reported that people were not ordering takeout or delivery, which further reduced business incomes.
Business owners from another industry, non-emergency medical transportation, reported that the scaling back of medical appointments to reduce the spread of COVID-19 significantly reduced their customer volume. Their businesses have survived by transporting patients who need dialysis and other critical care, but the overall loss of clients has led to layoffs.
As businesses rebuild, there is a need to make sure that small business owners have insurance, improved financial record-keeping, and mitigation of damage that insurance companies will not cover.
—Allison Sharkey, Lake Street Council
Adding to the challenges posed by the pandemic, several days of civil unrest took place in Minneapolis and St. Paul in May 2020 following the police killing of George Floyd on Memorial Day. The State of Minnesota estimates property damage resulting from the unrest at $500 million.3 According to Allison Sharkey, executive director of the Lake Street Council, a nonprofit organization serving the commercial corridor where the bulk of the unrest in Minneapolis took place, the damage from last summer affected East African entrepreneurs more than any other group of business owners.
Businesses generally carry insurance to cover costs associated with damage to their premises, loss of income, or loss of inventory. However, due to the high cost of premiums for full-scale coverage, very few East African business owners carried enough insurance to cover catastrophic losses in all three areas, and many had no insurance at all. Organizations representing immigrant businesses reported that their clients who did have insurance had trouble getting their claims filed, in part because they could not provide appropriate documentation showing the income their business generated both before and after the damage occurred. Many East African business owners did not have full information about their responsibilities to their insurance companies in the event of a loss.
Sharkey noted, “as businesses rebuild, there is a need to make sure that small business owners have insurance, improved financial record-keeping, and mitigation of damage that insurance companies will not cover.”
Information gaps affect access to relief
East African small businesses reported a number of challenges learning about, participating in, and qualifying for government pandemic-relief programs. Only a few owners had succeeded in accessing the first round of the U.S. Small Business Administration’s Paycheck Protection Program (PPP), the signature business-relief program included in the federal Coronavirus Aid, Relief, and Economic Security Act. As East African business owners navigate the recovery process, their experiences suggest that more targeted communications and outreach could have helped this hard-hit community of entrepreneurs more effectively connect to funding and assistance. Most of their commonly cited challenges, described below, result from gaps in communication.
Lack of knowledge about government programs. Many East African business owners missed out on opportunities to receive COVID-19 relief because they were not familiar with how government small business assistance works and didn’t know what aid was available or what the requirements were for accessing it. East African business owners in central Minnesota felt that very little outreach about COVID-19 business relief was done in their community.
Inadequate documentation. East African small business owners often track their income and expenses informally rather than with the formal profit-and-loss statements necessary to access government assistance. Similarly, many sole proprietorships had not filed the paperwork necessary to conduct business in Minnesota under a name other than a full personal name, and needed this documentation to receive aid.
Technology literacy. Some East African business owners did not have the familiarity or comfort level with information technology needed to access aid, such as knowing how to use smart phones to apply for assistance, how to digitize documentation for a successful application, and how to access informational sessions through video conferencing tools like Zoom or WebEx. One nonprofit worker reported stopping by the homes of people his organization serves to help them log on to video sessions.
Without existing relationships with financial institutions, East African business owners we talked to did not receive timely communications or guidance about those institutions’ participation in pandemic-relief loan programs and were then often the last to get in line for small business assistance.
Weak relationships with financial institutions. Few East African business owners benefited from existing relationships with community development financial institutions,4 credit unions, banks, business associations, or state agencies like the Minnesota Department of Employment and Economic Development. Without existing relationships with financial institutions, East African business owners we talked to did not receive timely communications or guidance about those institutions’ participation in pandemic-relief loan programs and were then often the last to get in line for small business assistance. Most of these businesses did not receive any money; sometimes they missed the deadline due to a lack of awareness of the application process or timeline. Moreover, these small businesses felt like bankers and other lenders had generally tightened their lending guidelines. As a result, most East African businesses didn’t apply for the first round of the PPP. The experience of East African small businesses was consistent with that of other businesses with weak relationships with lenders; the Federal Reserve’s 2021 Small Business Credit Survey found that respondents who applied for PPP loans were more likely to receive all the funds they sought from lenders if they had an existing relationship with the institution.
The experiences business owners shared with us point to some actions the public and private sectors could take to help ensure that East African small businesses come back stronger after the pandemic and economic downturn subsides. By addressing the barriers identified in our outreach, the small business development ecosystem could more effectively support this important community of entrepreneurs.
Support nonprofits, which play a critical role. Local nonprofit organizations that provide business-development services are a vital resource for East African entrepreneurs. Representatives of these nonprofits reported that business owners have flocked to their offices to get assistance. Nonprofit staff have worked overtime to respond to questions and make in-person visits to the homes of the people they serve. Without these nonprofit service providers, small business owners would have had few avenues for accessing linguistically and culturally competent assistance.
Without these nonprofit service providers, small business owners would have had few avenues for accessing linguistically and culturally competent assistance.
Ahmed Mohidin, a career counselor at Career Solutions in St. Cloud, noted that many East African business owners, especially seniors, have limited English proficiency. He told us, “Understanding the computer itself requires basic knowledge for business owners in our community. We couldn’t use Zoom technology with many of them, so they had to bring everything to us and we met face-to-face, taking all COVID health precautions, and we helped them understand what steps they needed to take. Our office stayed open until ten o’clock at night so that people who were working a second shift were still able to get help from us.” His organization helped more than 100 small businesses receive grants from the county.
Educate business owners about government aid. East African business owners need a better understanding about how government aid works and the opportunities that exist. Sharing information regularly in different languages (e.g., Somali or Oromo) is critical to reaching this community. With relatively low computer literacy in the East African community, tactics like handing out fliers and advertising on the radio may be more effective to inform community members about where they can go for help and what they need to do to access it. One service provider stated his confidence that if community members know about training opportunities, they will show up. Additionally, Sharkey of the Lake Street Council recommended improving coordination among government entities that provide aid—for example, by creating a universal application—to mitigate barriers to accessing relief.
Improve financial literacy and expand technical assistance. East African small business owners could benefit from training in topics like formal bookkeeping, using computers to track their finances, and maintaining a separate business account. For example, one service provider told us the story of a business owner who filed her taxes last year but did not mention her business expenses and only reported her income. With improved financial literacy, small businesses will have in place the financial documents they need to access assistance.
In addition, expanding technical assistance in the form of legal advice, access to accountants, guidance around appropriate amounts of insurance, and other supports will help businesses stay afloat through the pandemic and accelerate their recovery beyond. The service providers we spoke with intend to continue providing financial counseling and one-on-one assistance on a wide range of issues; expanded capacity in this area would help providers reach more entrepreneurs.
Establish relationships with financial institutions. Finally, partnerships with financial institutions would help small business owners access the right resources at the right time. Few East African business owners had existing connections to lenders. In normal times, such relationships are an important support for entrepreneurs as they start and grow businesses. In times of crisis, such as the COVID-19 pandemic and the aftermath of the May 2020 civil unrest, relationships with financial institutions can also be a crucial pathway to financial relief.
The authors thank consultant Amira Adawe, who planned all aspects of the listening session and facilitated other connections to members of the East African small business community we spoke to for this article.