The monetary outlook for the Hispanic small enterprise group in 2021
Latino entrepreneurs operate in sectors hit hard by Covid-19 and are less likely to receive PPP loans than white entrepreneurs. However, Hispanic business startups and revenues grew before the pandemic and can rebound with the right public policy and financial support.
The Latino community was often celebrated for above-average entrepreneurship and business start-ups and was particularly hard hit by the Covid-19 crisis.
The Stanford Latino Entrepreneurship Initiative reported in May that 86% of Latino entrepreneurs had felt the immediate negative effects of Covid, a higher rate than other races. It was also harder to get help for Latino entrepreneurs who had less cash when they requested Covid assistance in the form of PPP loans and were only half as likely as their white counterparts to get the federal loans.
Still, the pandemic only tells half the story of where Hispanic companies are today, as before the crisis, Latin American entrepreneurs made great strides – they increased their funding, improved their credit, and grew their sales. That means the Latino business community has a fundamental strength that can help it emerge from the ravages of Covid-19.
The 2019-2020 period was in some ways a record year for Latino entrepreneurs, buoyed by the strength of the general economy. The average annual revenue of Hispanic owned companies grew 10% to over $ 525,000 per year. The creditworthiness of Latino entrepreneurs rose from an average of 588 to 618. However, that expansion was also tempered by the reality of the cost of growth. Average operating costs accounted for 67% of sales in 2020 compared to 45% in 2019. Despite improving sales, the average Latino business revenue was still $ 96,000 below that of white companies, underscoring the challenges ahead .
The effects of Covid and the way forward
Construction, housing, and retail services, retail, and transportation and storage continue to represent the multitude of Latin American owned businesses. Unfortunately, these are also among the sectors hardest hit by Cpvod. Industries like finance and information, which are among the least affected by the Covid crisis, are led by Latinos or employ some of the lowest percentages. This partly explains why unemployment in Latino exceeded the national average during the crisis.
Lower access to capital – whether in the form of PPP aid loans or private capital – has also slowed the recovery of Latino entrepreneurs. This is reflected in the growth and recovery statistics. Only 6.7% of Hispanic business owners say they are profitable and growing, compared to over 14% of the general business owner population. This is in part because a significant percentage of PPP funding has been distributed through large banks and financial institutions that have less presence and less established relationships with Latino communities.
The path for Latino entrepreneurs is based on a variety of factors, some of which involve public policy, government intervention, and social forces. Social forces include higher rates of Covid infection within the Latino community (impacting the natural consumer base of many Hispanic owned businesses); less access to quality childcare during the crisis; and less established business stories.
In order for Latino companies to grow and prosper after this crisis, some think tanks like the Brookings Institution have called for PPP funds to cover more business costs than employee salaries. (Hispanic companies tend to have fewer employees but have to cover more operating costs.) Credit unions, smaller local financial institutions, and nontraditional lenders in color communities should also play a bigger role in distributing those funds, experts argue.
However, the shape of the economic recovery and its impact on Hispanic businesses after Covid will depend in large part on how businesses adapt to the new climate and demand. Companies that can easily adapt to changing demand patterns such as virtual offers or provisioning offers have a more sustainable operation with higher reliability. And those who can evolve over time as we emerge from this crisis will be better equipped to benefit as Covid is tamed and we return to a semblance of “normal”.
In a way, the community-based, close relationships of many Hispanic companies are among their greatest strengths. As demand returns across industries in 2021, those with relationships that weather the crisis will benefit. For the Latino business community, working with the U.S. Hispanic Chamber of Commerce or its local departments can pay off as networking within the community translates into valuable connections, more support with fundraising, and access to federal or local programs for Business support can lead.
The “New Normal” will be both a great test and a great opportunity. For the Latino business world, which has fully embraced the entrepreneurship despite a few drawbacks, their resilience may be the winning ticket.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.