Once Thriving, Latino-Owned Businesses Struggle Mightily During The COVID-19 Pandemic

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Before the coronavirus pandemic hit, revenue growth of Latino-owned companies was up 10% over the previous 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 that the sales of Latino-owned business dropped 42% in March and April and are down 21% 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.

There is no doubt that the pandemic has hit Latino businesses particularly hard. What complicated matters is that PPP loans required that the small businesses borrow money from the government to keep staff on payroll even as their cash intake plummeted. Their costs, which now include spending on masks and sanitizing measures, now exceed their revenues. If these companies remain cash flow negative, the future could be bleak. Washington must pass a new stimulus package to help small businesses survive.

Declines in demand have plagued many industries that previously had many thriving Latino-owned businesses, such as restaurants, travel and accommodation companies, retailers, personal services, including hair and nail salons, and even medical practices.

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Pre-COVID, Latino-owned businesses were thriving

In its annual examination, Biz2Credit found that average annual revenue of Latino-owned businesses increased to $525,415 in 2020, an improvement of 10% 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%), followed by Texas (20%), Florida (11%), New York (7%), and New Jersey (5%).

However, the study found that 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 that the number of credit applications (non-PPP loans) from Hispanic-owned businesses decreased by 4% over the past 12 months.

Construction was the largest category of business, representing 17% of the Hispanic-owned companies in the study. Next came Services (except Public Administration) at 16%, Accommodation and Food Services at 15%, Retail Trade at 9.4%, and Transportation and Warehousing at 7.6%.

“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,” said Manuel Chinea, COO, Popular Bank. “As the economy emerges from the pandemic, we expect to see them in the forefront of the economic rebound.”

Latino-Owned Businesses (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% of the Latino-owned companies in the study. Services (except Public Administration) were 15.8%, Accommodation and Food Services was 14.6%, 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.

Latino-Owned Businesses (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.

Research conducted by the Stanford Latino Entrepreneurship Initiative in May 2020 found that 86% 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 study also found that Latino business owners are nervous that customers might not feel confident enough to come back again soon.

As a group, Latinos are expected to comprise almost 30% of the population by 2050, compared to 18% today. Latino-owned businesses are a growing sector of the economy and contribute significantly to its overall strength. If they continue to struggle, it will surely have a negative impact on the overall U.S. economy.

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