Latino-Owned Businesses Resilient, Face Greater Challenges

Latino-owned businesses have shown signs of strength in the current economy, but they have also suffered, findings from the annual Biz2Credit Latino-Owned Business Study show.

At $258,251, the average annual revenue for Latino-owned businesses in 2020-21 was $82,535 lower than their revenues the previous year ($340,787), a 24.2 per cent decline. Yet the average annual revenue for Latino-owned businesses was $45,435 greater than for non-Latino-owned companies ($212,816).

Average earnings for Latino-owned companies dropped by a similar amount, falling from $218,802 in 2019-20 to $162,725 in 2020-21. The $56,077 earnings loss equates to a 25.6 per cent plunge. Again, the Latino firms outpaced those of non-Latino-owned firms ($132,753) in 2020-21.

The report found average operating expenses for Latino-owned firms were lower in 2020-21, as they fell from $121,985 to $95,526. Biz2Credit said this $26,458 drop-in expenses can be attributed to COVID-19 since many companies’ expenses were dramatically reduced due to pandemic-related shutdowns.

Other good news showed credit scores of Latino-owners rose from 590 to 614 during the previous 12 months and were also higher than for non-Latino business owners (610) in 2020-21.

Despite these superior performance measures, the funding rate for Latino-owned companies was 34.5 per cent, lower than the funding rate for non-Latino-owned firms (36.6 per cent) in 2020-21. The average loan size for Latino-owned companies was drastically lower at $47,031, as compared to $81,156 for non-Latino-owned firms.

“Our primary data shows relative success of Latino business owners compared to others,” said Biz2Credit CEO Rohit Arora “One reason is that business owners of all ethnicities struggled the pandemic, and many loan applications came from non-Latino business owners in urban areas that were hit hard by the pandemic and government-mandated restrictions on their operations.”

Biz2Credit said its findings are consistent with the Stanford Latino Entrepreneurship Initiative’s State of Latino Entrepreneurship 2020 Report, which also found Latino-owned businesses are significantly less likely than non-Latino, white-owned companies to have loan applications approved by national banks — despite reporting strong metrics on many key lending criteria. The Stanford report also said Latinos business owners are no more likely to be high credit risk than their non-Latino white counterparts and that among the most credit vulnerable business owners (undocumented and microbusiness owners), default rates are no higher than those of non-Latinos.

California was the state where the most business loan applications originated (20.7 per cent), followed by Texas (18.0), Florida (14.9), New York (8.4), Illinois (4.0), Arizona (3.8), New Jersey (3.4), Georgia (2.3), Colorado (2.1), and Pennsylvania (1.8% in 2020-21.

Services (except Public Administration) represented close to 23.6 per cent of the Latino-owned companies in the Biz2Credit study. Next in frequency were construction (16.2 per cent), transportation and warehousing (11.8), retail trade (9.8), accommodation and food services (8.9).

“This report showcases the resiliency and dynamism of Latino entrepreneurs. COVID introduced unthinkable obstacles, but Latino small businesses still outperformed other groups,” said Rep. Nydia M. Velázquez (D, NJ-07), chair of the House Committee on Small Business. “Despite the success of these businesses, they consistently have a harder time obtaining funding compared to non-Latino firms. 

“During my tenure as committee chairwoman, I’ve worked to advance policies that help create a business environment where Latino entrepreneurs have access to affordable capital. This report makes it clear that Congress has more work to do to increase equity in the lending space.”

Other statistics

  • According to the Census Bureau, 12 states have a Latino population of at least one million – Arizona, California, Colorado, Florida, Georgia, Illinois, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, and Texas
  • The Latino population, which includes people of any race, was 62.1 million in 2020, an increase of 23 per cent, while the rest of the population has grown 4.3 per cent since 2010.
  • There are an estimated 4.65 million Latino-owned companies in the U.S., making them the fastest-growing segment of U.S. small businesses, up 34 per cent in the last 10 years, according to the SBA.
  • The Stanford Latino Entrepreneurship Initiative’s report found that during pre-pandemic times, Latino-owned businesses generated nearly $500 billion in annual revenue and employed 3.4 million people. 
  • The same study showed Latina-owned companies were more negatively impacted by the pandemic than firms owned by men and twice as many women-led companies experienced closure, compared to male-led businesses (30 per cent vs. 16 per cent). 
  • Layoffs were also higher for Latina-led companies. 
  • Only 20 per cent of Latina-owned businesses reported the majority of their employees could work remotely, compared to 34 per cent of Latino-led firms and 48 per cent of white-male-led firms.

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