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How Biden’s PPP loan program changes can help Latino small business recovery

President Joe Biden speaks during an announcement related to small businesses at the South Court Auditorium of the Eisenhower Executive Office Building February 22, 2021 in Washington, DC.

Alex Wong | Getty Images

The Latino community has been struck particularly hard by the Covid-19 crisis. The Stanford Latino Entrepreneurship Initiative reported in May that 86% of Latino business owners had felt immediate negative impacts from Covid, a rate higher than other ethnic groups. Help was also harder to come by for  Latino business owners, who had less cash on hand when requesting Covid assistance in the form of PPP loans, and were only half as likely as their white counterparts to receive them.

Now, the Biden Administration’s new PPP loan initiatives, which include extending the loans to legal residents (and not just citizens), address this disparity. The new PPP loan program initiatives will reach more Latino business owners in several ways: it create a two-week exclusive application period for small businesses (those with fewer than 20 employees) beginning Wednesday, February 24. And in addition to making the loans available to non-citizen business owners, such as green card holders, the loans cannot be denied to those who are delinquent on student loans.

The Biden Administration is targeting help to small, minority-owned businesses more directly with the goal of creating a strong economic renaissance. The Covid crisis tells only half the tale of where Hispanic businesses stand, because prior to the crisis, Latino entrepreneurs were making great strides — increasing their funding, improving their credit, and revenue growth. That means that there is underlying strength in the Latino business community that can be leveraged in reemergence from Covid.

Latino business growth before the crisis

From 2019-2020, buoyed by the strength in the general economy, Latino entrepreneurs were financially healthy. The average annual revenue of Hispanic-owned businesses increased 10% to over $525,000. Credit scores among Latino entrepreneurs rose from an average of 588 to 618. But this expansion was also tempered by the reality of growth costs; average operating expense represented 67% of revenue in 2020 vs. 45% in 2019. And despite the improving revenue, average Latino business sales were still $96,000 lower than white-owned businesses, underscoring the challenges.

Construction, accommodation and retail services, retail trade, and transportation and warehousing still represent the plurality of Latino-owned business. Unfortunately, these are also among the sectors hardest-hit by Covid. Industries such as finance and information, among the least affected by the pandemic, are led by or employ some of the lowest percentages of Latinos. This partly explains why Latino unemployment has exceeded the national average during the crisis.

“The unemployment rate among Latinos was so high because so many of them work in restaurants, in retail, in hospitality. That’s starting just now to bounce back,” says Louis Barajas, COO and partner at MGO Wealth Advisors, and a member of the CNBC Advisor Council.

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The path forward for Latino entrepreneurs rests on a variety of factors, including public policy, government intervention and broad societal issues. These include persistently higher Covid infection rates within the Latino community impacting the consumer base for many Hispanic-owned businesses; less access to quality child care during the crisis; and less-established business histories.

“So many Latinos have been impacted by Covid,” says Barajas, adding that access to vaccines will make a difference.

Adapting to post-pandemic economic reality

The shape of the economic recovery and its impact on Hispanic businesses post-Covid is dependent in large part on how businesses adapt to the new climate and demand. Those businesses that can more readily accommodate shifting demand patterns – such as virtual or delivery offerings – have sustained operations with more resilience. And those that can evolve with the times as the country emerges from this crisis will be better equipped to profit in a “new normal.”

In some ways, the community-based, tight-knit relationships of many Hispanic businesses are among their greatest strength. As demand returns across the economy in 2021, Latino business community involvement with the US Hispanic Chamber of Commerce or their local chapters can pay-off, as networking within the community can lead to valuable connections, more assistance with fundraising, and accessing federal or local business assistance programs.

“Latinos have really relied on their families, communities, and connections to help each other out of the crisis,” says Barajas.

The new normal will be a test and opportunity. For the Latino business community – one that has embraced entrepreneurialism fully, despite some disadvantages – their hallmark resilience may be the winning ticket.

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