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- By Chez Oxendine
- Economic Development
Tahlequah, Okla. business owner Melvin Hendrix sits behind the counter in the otherwise empty lobby of Out West Cafe during what would have been the Cherokee National Holiday.
In the back of the small diner filled with decorations built on themes of Old Westerns, his crew can be heard chatting and laughing as they close down for the day.
“The pandemic hasn’t hit us as hard as we thought it might,” said Hendrix, a Cherokee citizen. “You still had people coming to the Illinois River. But we definitely didn’t have as many people this year.”
Tax issues forced Out West to close for a short period earlier in the year, but the diner had reopened just before COVID-19 first began to spread in the United States in March. As the public health crisis grew, Hendrix quickly cut back the restaurant’s Western-themed menu and shifted to curbside service.
In the time since, customers slowly shuffled back, bit by bit, even leading to a lunch rush on the day Hendrix spoke with Tribal Business News. But local event cancellations that typically bring in visitors to Tahlequah have slowed business overall, he said.
“We’re still doing OK though,” Hendrix said. “We’re still hanging in there.”
A new study from the Center for Indian Country Development at the Federal Reserve Bank of Minneapolis suggests many Native-owned small businesses are struggling in the economic fallout from the COVID-19 pandemic.
Nearly 70 percent of the 400 private-sector respondents reported a drop in revenue of at least 20 percent, according to the study. Roughly 16 percent of respondents said their revenue had been cut off entirely.
“We saw probably the biggest employer — tribal gaming enterprises — shut down completely during the pandemic,” said Casey Lozar, vice president and director of the Center for Indian Country Development. He cited National Indian Gaming Association estimates that the tribal gaming industry supports 800,000 jobs.
“I think we’re still seeing that ongoing impact on tribal economies and on Native employment,” Lozar said.
As the pandemic took hold, companies in the service industry saw their revenue slashed as traffic stifled traffic across the country. That loss could be felt particularly acutely in Indian Country, which has nearly double the concentration of workers in service industry occupations (30 percent) as the nation in general (18 percent), according to prior research from the Center for Indian Country Development.
The service industry was one of many sectors that experienced lost revenues because of the pandemic. Study co-author Chris James, president and CEO for the National Center for American Indian Enterprise Development, said the effects hit nearly two dozen business sectors “from retail to construction to professional and technical services.”
“They really ranged from all over the place — it wasn’t just one particular sector,” James said. “We could see it affected all of them.”
CONCERNS OVER ECONOMIC LEAKAGE
While the pandemic shocked many sectors in Indian Country, Native small business owners seemed to attempt to shield their employees from the brunt of the blow. To that end, 60 percent of respondents to the study said they didn’t lay off any workers.
James cited the data as somewhat positive, but said many companies could not avoid layoffs and furloughs.
“Twenty percent of our surveyed businesses had to lay off 100 percent of their workforce, so that means they pretty much had to close their doors,” James said.
Those closures of mostly traditional Main Street businesses could have an “outsized” effect on tribal communities, according to Lozar, who noted Native unemployment “skyrocketed” to 26 percent in the first months of the pandemic and now hovers around 13 percent.
“A lot of these jobs are in the private sector,” Lozar added. “Employment in the private sector is absolutely key for a sustainable economy, a diverse economy, so those businesses shutting down could have a long-term impact on tribal economies.”
For example, business closures could limit access to goods and services across Indian Country.
“Given the nature of some of our tribal communities being rural and remote areas, accessing goods and services provided by those private sector businesses can definitely be impacted,” Lozar said. “Say you have a tire shop and the nearest tire shop is a couple of hours away. If that tire shop closes down, now productivity is affected because people have to drive further away and spend more time to access that service.
“In many ways, the value of the tribal dollar is diminished when these goods and services aren’t accessible locally.”
A lack of locally available services can, in turn, begin bleeding a community of its own dollars.
“It’s economic leakage: A dollar in the tribal community will not stay in the community,” Lozar said. “That’s those dollars being spent in border communities. This is particularly challenging for creating those really healthy, sustainable economies.”
Moreover, having less available access to goods and services can leave a given area in a tenuous economic position, Lozar added.
“Native businesses really assist in diversifying tribal economies,” he said. “Just like outside of Indian Country, diverse economies can protect communities from the exact type of economic shock we’re experiencing in the pandemic.”
QUESTIONS OVER EQUITABLE ACCESS
The study’s authors also point to a likely difficult economic recovery process for Native-owned small businesses. Among respondents, many business owners “expressed pessimism” that their businesses will return to pre-pandemic activity levels.
According to the study: “Only 16 percent say that their business never left its normal level, has already returned to its normal level, or will return to the norm within three months. Nearly half, 48 percent, expect that it will take more than six months to return to normal operations, and more than a quarter expect that their business will effectively never return to its pre-pandemic baseline. Similarly worrisome was the finding … that only 20 percent say they have enough cash on hand, which includes financial assistance and loans, for more than three months of operations.”
In fact, many Native-owned small businesses have struggled with a lack of access to financial assistance and loans during the pandemic, Lozar said.
Earlier this year, the Center for Indian Country Development examined barriers many Native-owned small businesses had in accessing the CARES Act’s Paycheck Protection Program. While over-represented economic sectors for Native Americans such as the arts, entertainment and recreation receive a tiny percentage of PPP loans, other challenges were structural: Most small businesses accessed PPP loans via traditional U.S. Small Business Administration 7(a) program lenders.
“With the exception of lenders in Oklahoma, few 7(a) lenders made 7(a) loans geographically contiguous to or in Indian Country. To the extent that having an established relationship with a financial institution that makes SBA 7(a) loans is predictive of being able to access funding through the PPP, our analysis indicates that Native American employers may be at a significant disadvantage,” according to the authors of the analysis.
Lozar, who also contributed to the report, said businesses in Indian Country also received less money per capita via the PPP program.
“In essence, equitable access or take up of PPP was certainly less in Indian Country than out,” he said.
Some lenders also limited PPP lending activity to existing customers, further inhibiting equitable access for Native-owned businesses.
Additionally, while the CARES Act set aside $10 billion in PPP loans for Community Development Financial Institutions (CDFIs), it required the organizations to have issued $10 million in loans for the past three consecutive years.
“That was something that most of our folks weren’t big enough to do, and therefore we couldn’t make these loans, even though I think we could have really done a great job at it,” said Jackson Brossy, executive director of the Washington, D.C.-based Native CDFI Network, a trade group for the more than 70 Native CDFIs across the country.
Despite not being able to participate in the program, many Native CDFI organizations helped clients and Native-owned small businesses with technical assistance for PPP loans “even though they didn’t receive any monetary benefit from that,” Brossy added.
According to Lozar, the PPP program highlighted the difficulties Native-owned businesses have in accessing financing in general.
“Access to capital in Indian Country is chronically a challenge,” Lozar said. “In some communities, there’s a lack of access to banking and lending services. Often for a startup, tribal entrepreneurs have to turn to grants or loans from family members or friends. If you look at personal income in Indian Country, that lack of access to resources is very challenging. There’s going to be a long-term impact just for the challenges and barriers that exist to getting businesses started in Indian Country or relaunching those that have closed.”
‘THE GREAT UNKNOWN’
As the pandemic continues to affect Indian Country with some reservations experiencing spikes in cases in recent weeks, many Native small businesses worry what a major surge in COVID-19 cases could mean for their operations, particularly if it leads to another round of shutdowns.
“I think everybody’s sort of asking that same question because of the great unknown,” NCAI’s James said. “I think a big fear factor is that businesses are starting to get back into some type of normalcy and there could be another wave or another change in that normalcy.”
To that end, he says many businesses are attempting to prepare for further economic shocks.
“We’re looking at some type of diversification from the business and working with that business also on having conversations with their lenders and with folks that they owe money to — just to have that conversation to keep them in operational status,” James said. “There’s also changing their business to another business model. We have several of our businesses that have changed their total business plan on how they do business, especially in the retail and hospitality industry.
“Businesses have to be resilient and they have to look for ways they can continue to operate and follow the pandemic trend. You have to shift your business to follow how the pandemic is affecting all business sectors.”
He listed gaming as an example of an industry that dealt with massive changes following the pandemic surge.
“They definitely have to employ not only safety checks for their employees but also for their guests. You’re talking temperature checks, social distancing, making sure folks are wearing masks. They’ve had to shift in response to the pandemic — mainly to keep people safe,” James said. “What we’ve seen is that it’s working; their employees are practicing safe practices and their guests are practicing safe practices.”
Additionally, many tribes are deploying funding they received from the CARES Act to offer assistance to tribal member businesses as “a form of safeguard,” Lozar said, adding that a flood of philanthropic support pouring into Indian Country will “help these struggling tribal businesses to have a lifeline to continue their operations and keep their employees on the payroll.”
At Old West Cafe, Hendrix is trying to hold on and manage through the challenges of operating in the COVID-19 era.
He says he looks forward to a day when lunch rushes again become common and patrons return en masse to fill his dining room.
“We’re just taking it one day at a time,” he said.
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Tribal Business News managing editor Joe Boomgaard contributed to this report.
