Costs Exceed Revenue for Many Latinx-Owned Businesses Since COVID-19 Began

Before the coronavirus pandemic hit, revenue growth of Latinx-owned companies was up 10% 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, Biz2Credit analysts found that the sales of Latinx-owned businesses dropped 42% in March and April and are down 21% during the 12-month period from Sept. 16, 2019 to Sept. 15, 2020. Even more troubling was the discovery that costs for Latinx 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,” Rohit Arora, CEO of Biz2Credit, said. “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 Latinx-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,” Arora said. “Many of them were running in the red all summer long. This is not sustainable long term.”

Times have been 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-Latinx businesses also have struggled, although their revenues remain slightly above break even.

Research conducted by the Stanford Latino Entrepreneurship Initiative in May 2020 found that 86% of Latinx 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 remained in place. The Stanford Latino Entrepreneurship Initiative also found that Latinx business owners were nervous that 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,” Bermudez told CNBC.

Pre-COVID-19, Latinx-Owned Businesses Were Thriving

In its annual examination of Latinx firms, Biz2Credit found that average annual revenue of Latinx-owned businesses increased to $525,415 in 2020, with an improvement of 10% from $479,413 in 2019. The study also revealed that as revenues climbed, the average credit scores of Latinx-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 Latinx-owned businesses was $96,106 lower than the average revenue of non-Latinx-owned companies ($621,521) in 2019 to 2020. Additionally, the study found that the number of credit applications (non-PPP loans) from Latinx-owned businesses decreased by 4% over the past 12 months. The analysis examined the primary financial information submitted by 3,000 Latinx-owned businesses on Biz2Credit’s online platform. About 1,000 of those applications were for the federal government’s Paycheck Protection Program.

“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,” Arora said.

Construction was the largest category of business, representing 17% of the Latinx-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. As the economy emerges from the pandemic, we expect to see them in the forefront of the economic rebound,” Manuel Chinea, COO of Popular Bank, said. “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.”

When Dr. Fausto Gonzalez, a doctor of internal medicine, wanted to expand his practice last year, he used the internet and found Biz2Credit. The physician said that because he runs four offices, he did not have time to go to banks and apply for loans and found it quick and effective to upload his documents and apply for funding online.

Over the past 17 years, he has expanded to four offices throughout New York City and many of his patients are immigrants or their descendants from the Dominican Republic, where Gonzalez was born. He came to the U.S. almost 30 years ago and worked at a hospital in Brooklyn before setting up his own practice.

“I don’t have the time to go to a bank and sit down. Doing the application online was simple, and I got the money in less than two weeks,” said Gonzalez, who used the $180,000 he borrowed to replace the floor, build separations between rooms, and purchase medical equipment and computers.

In 2020, he again borrowed money to purchase PPE and put some protective measures in his four office locations because of COVID-19.

“I think borrowing money is getting easier. I had no problem at all,” said Gonzalez, whose practice now bills more than $1 million annually, but was financially hurt when non-emergency medical visits were discouraged during the early days of the COVID-19 lockdown.

Gonzalez now has offices in the Jackson Heights and Ocean Park sections of Queens, the East Tremont section of the Bronx, and the Washington Heights section of Manhattan. He hopes to open another office next year. Although his offices have been doing well since New York City’s lockdown eased, during the beginning of the pandemic, his offices closed entirely. When the practice reopened, there was a backlog of patients and eight out of 10 of them had coronavirus. Today, he sees no more than 15 patients a day to be cautious.

“In all of my time doing medicine, I’ve never seen anything like it. The Black and Latino communities were hit hardest,” Gonzalez said. “People have complications months afterwards. It was a trauma to see them die; they are like family.

“When you help people to get better, you feel like you’ve done your job,” he said. “I feel that all the years of medical school paid off.”

Biz2Credit Latino-Owned Business Study Key Findings (Pre-COVID-19)

  • Average annual revenue of Latinx-owned businesses increased to $525,414.91 in 2020, with an improvement of 10% from $479,412.97 in 2019.
  • The number of credit applications from Latinx-owned businesses decreased by 4% over the past 12 months.
  • The average credit score for Latinx-owned businesses has increased from 588 last year to 618.
  • Construction remains the largest category of businesses, representing nearly 17.18% of the Lationo-owned companies in the study. Services (except public administration) at 15.74%, accommodation and food services at 14.63%, retail trade at 9.4%, and transportation and warehousing at 7.6% were the four next most common industries for Latinx entrepreneurs.
  • Average annual revenue for Latinx-owned businesses ($525,415) was $96,106 lower than non-Latinx-owned companies ($621,521) in 2019 to 2020.
  • Average operating expense represents 67% ($349,445) of the revenue for Latinx-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 rounded out the top 10 states for loan applications by Latinx-owned firms.

Biz2Credit Latino-Owned Business Study Key findings (Post-COVID-19 Pandemic Onset)

  • Using February 2020 as the baseline, Latinx-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 Latinx businesses. They are cash flow negative, which means they are spending more than they can make. This is not sustainable long term.
  • Latinx-owned businesses, at least initially, performed better in the South and West compared with the Northeast and Midwest. These results could change in the coming months, and the virus is largely in control of the results.

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