Latino-owned businesses hit hard by pandemic: Biz2Credit study
Before the coronavirus pandemic hit, revenue growth of Latino-owned companies was up 10 per cent over last year, but like most other businesses in America, their fortunes have declined dramatically since March, according to the annual Biz2Credit Latino-Owned Business Study for 2020.
Using February as a baseline, the analysts found the sales of Latino-owned business dropped 42 per cent in March and April and are down 21 per cent during the 12-month period from Sept. 16, 2019 – Sept. 15, 2020. Even more troubling was the discovery that costs for Latino companies that applied for Paycheck Protection Program (PPP) funding have risen higher than their revenues in the ensuing months.
“Many Latino-owned firms are spending more money than they are generating. Their costs, which now include spending on masks and sanitizing measures, now exceed their revenues,” said Biz2Credit CEO Rohit Arora. “What also complicated matters is that PPP loans required that the small businesses borrowing money from the government to keep staff on payroll even as their cash intake plummeted.
“Latino businesses currently are spending more than they are bringing in, and their costs are higher than during the pre-COVID period. Meanwhile, sales are still down. If they remain cash flow negative, the future could be grim – especially if Washington delays passing a new stimulus package to keep the economy going.”
Declines in demand have plagued many industries that previously had many thriving Latino-owned businesses, such as the restaurant industry, travel and accommodations, retail, personal services, including hair and nail salons, and even medical practices.
“There is no doubt that the pandemic has hit Latino businesses particularly hard,” said Arora, who oversaw the study. “Many of them were running in the red all summer long. This is not sustainable long term.”
Times were particularly hard for companies in the Northeast and Midwest, but as the coronavirus spread across the country, other areas have suffered, as well. The Biz2Credit study found that non-Latino businesses also have struggled, although their revenues remain slightly above break even.
Research conducted by the Stanford Latino Entrepreneurship Initiative in May 2020 found 86 per cent of Latino business owners surveyed reported immediate negative effects of COVID-19. Nearly two-thirds of respondents said they would likely be out of business in six months if COVID restrictions remain in place. The Stanford Latino Entrepreneurship Initiative also found Latino business owners are nervous customers might not feel confident enough to come back and may not have money to pay for things.
Additionally, CNBC reported on Oct. 1 that minorities have suffered economically more than other groups because of COVID-19 and quoted Stephanie Bermudez, founder and CEO of Startup Unidos, which cultivates entrepreneurship in Arizona’s border communities.
“Black and Latinx and other people of color have been disproportionately impacted by the pandemic because of common social and economic factors that were already in place, that only increased our risk for COVID-19,” Ms. Bermudez said.
Pre-COVID, Latino-owned businesses were thriving
In its annual examination of Latino firms, Biz2Credit found that average annual revenue of Latino-owned business increased to $525,415 in 2020, with an improvement of 10 per cent from $479,413 in 2019. The study also revealed that as revenues climbed, the average credit scores Latino-owned businesses increased from 588 last year to 618 in 2020. California was the state where the most business loan applications originated (24 per cent), followed by Texas (20 per cent), Florida (11 per cent), New York ( seven per cent) and New Jersey (five per cent).
However, the study found the average annual revenue for Hispanic-owned businesses was $96,106 lower than the average revenue of non-Latino-owned companies ($621,521) in 2019-20. Additionally, the study found the number of credit applications (non-PPP loans) from Hispanic-owned businesses decreased by four per cent over the past 12 months. The analysis examined the primary financial information submitted by 3,000 Latino-owned businesses on Biz2Credit’s online platform. About 1,000 of those applications were for the federal government’s Paycheck Protection Program (PPP) lending.
“As a group, Latinos are expected to comprise almost 30 per cent of the population by 2050, compared to 18 per cent today. Latino-owned businesses are a growing sector of the economy and contribute significantly to its overall strength,” Mr. Arora said.
Construction was the largest category of business, representing 17 per cent of the Hispanic-owned companies in the study. Next came services (except public administration) at 16 per cent, accommodation and food services at 15 per cent, retail trade at 9.4 per cent, and transportation and warehousing at 7.6 per cent.
“The spirit of entrepreneurship continues to thrive among the Latino populations and, until the COVID-19 pandemic set everyone back, Latino-owned businesses blossomed during the past year. As the economy emerges from the pandemic, we expect to see them in the forefront of the economic rebound,” said Manuel Chinea, COO, Popular Bank.
“Latino-owned businesses make enormous contributions to the U.S. to their communities, including job creation, which also benefits our overall economy. Popular Bank is proud to work with them to help solve their financial needs,” Mr. Chinea added.
Biz2Credit Latino-Owned Business Study Key findings (Pre-COVID):
- Average Annual Revenue of Hispanic-owned business increased to $525,414.91 in 2020, with an improvement of 10% from $479,412.97 in 2019.
- The number of credit applications from Hispanic-owned businesses decreased by 4% over the past 12 months.
- The average credit score for Hispanics has increased from 588 of last year to 618.
- Construction remains the largest category of businesses represented nearly 17.18% of the Hispanic-owned companies in the study. Services (except Public Administration) were 15.74%, Accommodation and Food Services was 14.63%, Retail Trade was to 9.4%, Transportation and Warehousing 7.6% were the four next most common industries for Latino entrepreneurs.
- Average annual revenue for Hispanic-owned businesses ($525,415) was $96,106 lower than Non-Latino-owned companies ($621,521) in 2019-20.
- Average operating expense represents 67% ($349,445) of the revenue for Hispanic-owned businesses, while in 2019, the figure was 45% ($215,846).
- California was the state where the most loan applications originated (24%), followed by Texas (20%), Florida (11%), New York (7%), and New Jersey (5%). Arizona, Pennsylvania, Georgia, Illinois, and Virginia round out the top ten states for loan applications by Latino-owned firms.
Biz2Credit Latino-Owned Business Study Key findings (Post-COVID):
- Using February 2020 as the baseline, Latino-owned businesses saw a 42% drop in revenue in March and April. Numbers improved during the summer, but
- Costs have risen higher than revenues for Latino businesses. They are cash flow negative, which means they are spending more than they can make. This is not sustainable long-term.
- Latino-owned businesses, at least initially, performed better in the South and West, compared to the Northeast and Midwest. These results could change in the coming months, and the virus is largely in control of the results.