The $700 billion Hispanic business market in the U.S. is now at the tipping point

As gridlock over another round of stimulus for small business in Washington continues, 5 million Latinos are at risk of bankruptcy, a new study reveals on Monday. Pre-pandemic they were the fastest-growing cohort on Main Street and contributed 4% to U.S. GDP. Their demise portends a troubling trend that can upend communities across America.

Statistics reveal the story. Latino companies that applied for the Paycheck Protection Program saw a 21% drop in revenue from February through September while their costs for PPE and other safety measures rose and continue to remain high. Additionally, they retrofitted their businesses to deal with the pandemic, which resulted in a huge amount of expenditure that exceeded their revenue in the summer. They spent a lot to stay open and ended with a negative 11% margin.They are now cash flow negative and are on the brink of going out of business, the annual Latino Small Business Biz2Credit survey reveals.

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 Biz2Credit research found that non-Latino businesses also have struggled, although their revenue remains slightly above break even.

For the study, Biz2Credit analyzed the financial performance of 35,000 companies, including 3,000 Hispanic-owned businesses, that submitted funding requests through the company’s online marketplace. All companies included in the survey have less than 250 employees and less than $10 million in annual revenue. The report covered small businesses across the country in a wide range on industries, from start-ups to established companies.

Construction is the largest category of businesses, representing nearly 17.18% of the Hispanic-owned companies in the Biz2Credit study. It is followed by: services  (15.74%), accommodation and food services (14.63%), retail ( 9.4%), and transportation and warehousing ( 7.6%).

Research conducted by the Stanford Latino Entrepreneurship Initiative in May 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 study also found that Latino business owners are nervous that customers might not feel confident enough to come back and that many may not have money to pay for things.

Before the pandemic, small firms owned by Latinos were already facing barriers to prosperity. Latino-owned businesses are more likely to be start-ups, have higher credit risks, and thus, have limited ability to secure affordable capital. This can translate into more vulnerability to the pandemic’s economic effects: only 11% of small businesses in majority-Latino communities had more than 14 cash-buffer days in 2019, a JPMorganChase study shows.

As a group, Latinos are expected to comprise almost 30% of the population by 2050, compared to 18% today. Revenue of Latino-owned companies jumped 61% from 2017 to 2020. They are a growing sector of the economy, and contribute to its overall strength, but in 2020 they are struggling mightily.

“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,” said Manuel Chinea, COO, Popular Bank.

“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,” Chinea added.

One is Dr. Fausto Gonzalez, 50, a doctor of internal medicine. Over the past 17 years, he has expanded to four offices throughout New York City and much of his patient base are immigrants or their descendants from the Dominican Republic, where Dr. 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.

In 2020, he borrowed money to purchase PPE and put some protective measures in his four office locations because of Covid. Dr. Gonzalez, whose practice now bills more than $1 million annually, was financially hurt when non-emergency medical visits were discouraged during the early days of the Covid lockdown. Currently he has offices in Jackson Heights, Queens, the East Tremont section of the Bronx, Washington Heights in Manhattan and Ocean Park, Queens, and he still hopes to open another office next year despite the challenges.

Although things have been going well since lockdowns have 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 patients 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,” Dr. Gonzalez said. “People have complications months afterwards. It was a trauma to see them die; they are like family.”

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

—By Rohit Arora, CEO and co-founder of Biz2Credit