The unique COVID-19 challenges of Asian-owned small businesses

Jorge Sun

As small businesses look back on 2020 and forward into the rest of 2021, economic hope remains on the horizon — but fear and challenges still persist. Interestingly, these fears aren’t the same for everyone. According to the Federal Reserve’s 2021 Small Business Credit Survey, the most important anticipated challenges of small business owners differ by race and ethnicity.

While credit availability is the top expected challenge for Black-owned businesses, Asian-owned businesses disproportionately cite a different one: weak demand. Why is this the case — and how can community banks help keep the doors of Asian-owned small businesses open?

Weakening demand amid mounting xenophobia

Reported incidents of hate, assault, harassment, and discrimination against Asian Americans have escalated since the start of the COVID-19 pandemic, highlighting — and exacerbating — existing systems of anti-Asian xenophobia across the country.

An organization called Stop AAPI Hate chronicled 3,795 hate incidents against Asian Americans between March 19, 2020, and February 28, 2021. Sixty-eight percent of the incidents included verbal harassment, 11 percent included physical assault, and 21 percent included deliberate avoidance of Asian Americans. Chinese individuals reported these incidents in the greatest numbers, followed by Korean, Vietnamese, and Filipino individuals. The primary places where discrimination occurred? Businesses and public streets.

Between public officials repeatedly using racially charged language to describe COVID-19, a mounting anti-Asian stigma, and increased incidents of violence against Asian American communities, many Asian-owned small businesses — particularly those situated in predominantly Asian communities — have faced a steep decline in sales. All this, compounded with the everyday reality of COVID-19, stay-at-home orders, and a general fear of spreading illness, have left Asian-owned small businesses facing a significant wall of challenges. In the end, they faced greater financial repercussions.

At the time of the Federal Reserve’s 2021 Survey, 57 percent percent of small businesses  characterized their financial condition as “fair” or “poor.” For Asian-owned small businesses, this figure jumped to 79 percent. As Asian-owned businesses faced the challenges detailed above, cash flow suffered—and so did overall employment. According to McKinsey, the unemployment rate among Asian Americans shot up more than 450 percent between February and June 2020, a sum significantly higher than any other groups’ rate of increase.

Tailoring your processes to be part of the solution

Even as the pandemic subsides and the U.S. economy reopens, Asian-owned small businesses continue to face weakened demand and longer recovery periods. As awareness is spread to stop hate and support Asian-owned businesses, lenders can step in and offer much-needed funds in the interim. In helping community businesses keep their doors open, you can avoid leaving businesses to fail due to social factors unrelated to their financial viability, but you need to be equipped to lend efficiently and effectively to make an impact.

The stakes are higher than ever, and many Asian-owned small businesses are running out of time. With many of them unable to get adequate relief funds through PPP and similar programs, and still more without ties to larger banks or lending institutions, community banks are these businesses’ best options. Having the following processes and tools in place can help you support them at this critical time:

  • Digital loan origination channels. For small businesses struggling to survive, time is money — and every minute counts. Traveling to a community bank branch is time-consuming, costly, inconvenient, and a hassle that most small business owners can’t afford to risk in the event that it ends in a “no.” Offering an online loan origination channel allows small business owners to apply for loans more easily, at more times of the day, from more locations. It’s an offering that increases their opportunities to secure capital, and if you have it while a competitor doesn’t, all research points at them going with you.

  • Shorter-term loans and payment terms. In times of instability, a short-term perspective is key. Adjusting your lending timelines as well as your payment frequencies to accommodate small businesses can help keep them viable in a way that minimizes risk and secures your returns — creating smaller payment amounts for the small businesses, and a smoother, more predictable cash flow for you. This strategy enables you to aid these small businesses in their time of need without committing to a multi-year relationship. When these small businesses do get back to a place of stability, the door is open for longer-term, higher-sum lending.

  • Flexible repayment options. In survival mode, flexibility and the ability to make rapid adjustments are essential. Taking on the capability to shift loan terms quickly, enable or disable deferrals on a dime, or make other critical changes to ensure these businesses’ short-term survival is what effective management can look like. And remember: with short-term loans and even shorter-term payment cycles, none of this activity has to be risky—it’s actually smarter, and it’s the best way to support these businesses and communities in a way that helps them thrive into the future.

As the economy slowly reopens, small business success is no longer about blanket solutions and out-of-the-box fixes. The pathway to nuanced, equitable, and strategic rebuilding starts with understanding the unique challenges of each subset of the small business sector — and tailoring your approach to help solve them. If you can do that for struggling Asian-owned small businesses today, you, your borrowers, and your communities will benefit tomorrow.

Jorge Sun is CEO and co-founder of LendingFront. Sun started the company in 2015 after spending time at Capital One as head of small business credit. He previously was part of the founding team of OnDeck, where he served as chief credit officer.