NEW JERSEY — Before the coronavirus pandemic hit, revenue growth of Latino-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, 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.
“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, one of the nation’s leading experts in small business finance.
“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,” Arora added. “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,” warned Arora, who releases the study in conjunction with Hispanic Heritage Month (Sept. 15 – Oct. 15).
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 study found that non-Latino businesses also have struggled, although their revenues remain slightly above break even.
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% 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. 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% 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 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%.
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.
Biz2Credit, a leading online marketplace lender, analyzed the financial performance of 35,000 companies, including 3,000 Hispanic-owned businesses, that submitted funding requests through the company’s online platform. All companies included in the survey have less than 250 employees and less than $10 million in annual revenues. The report covered start-ups, as well as established companies. Founded in 2007, Biz2Credit has arranged more than $3 billion in small business financing.