Latin American companies have less cash, fewer PPP loans in recession
The Spanish version of this article is available here.
David Garcia and Cuahutemoc Vargas opened the doors to Culture, a retail store, in 2015 with the vision to bring something “new and unique” to downtown Sacramento.
They succeeded beyond their expectations, generating enough buzz and revenue to relocate to a larger K Street location. Garcia and his wife also opened a second store in Woodland.
Their growth incorporated them with the boom in entrepreneurship of Latinos, who started new businesses at a faster rate than any other demographic in America over the past decade. Latino-owned businesses now account for about $ 700 billion in economic activity, according to the Hispanic American Chamber of Commerce.
But now Garcia and Vargas are part of another more difficult tide. They are part of a class of Latino small business owners struggling to hold on to an economy stalled by the coronavirus outbreak.
“It’s exciting that we were able to reach that 5-year mark, but it’s a little scary that we don’t know what lies ahead in the future,” Garcia said.
Before the pandemic, Latino small business owners already had a harder time getting loans to jumpstart their efforts than other demographic groups, according to the Stanford Latino Entrepreneurship Initiative.
Now they face more hurdles in getting help keeping their doors open, according to a new study from the Stanford Group.
Its researchers have conducted a pair of investigations since the pandemic began to spread rapidly in March, first with a targeted group of 224 Latino business owners and later with a larger group of 7,000 companies.
The study found that white-owned and Latino-owned businesses are reporting similar levels of economic distress due to the pandemic.
But white-owned businesses were more likely to have cash on hand to push them back until the economy returned to something closer to normal.
White-owned businesses were also more likely to receive loans from the paycheck protection program that Congress created in a coronavirus relief law. About 10% of Latino-owned businesses had their loans approved through the program, compared to 17% of white-owned businesses.
Marlene Orozco, senior researcher at the Stanford Latino Entrepreneurship Initiative, said the trends could lead to a wave of Latino-owned business closures before the end of the year, potentially resulting in the loss of more than 2 million dollars. jobs.
“The next few months are going to be crucial in terms of the types of additional aid that will come into play,” she said.
Barriers to relief
About 56% of the 3,500 Latin American companies surveyed saw their revenues drop due to the coronavirus pandemic, according to the brief. Twenty-three percent reported business closures and 14% reported layoffs.
Maria Palacio, owner and co-founder of Coffee of descent, has so far avoided layoffs despite a sharp drop in business at its Palo Alto company.
Before the pandemic, his company sold sustainable Colombian coffee beans to the campuses of tech giants, including Google and Facebook. Their employees mainly work from home, leaving them few clients.
“If you are not on campus, there is no coffee consumption,” she said.
His company got a PPP loan that supported workers until June. Now they are working on an e-commerce platform to stay in business.
Garcia de Kulture said the Sacramento-based company hasn’t been so lucky to get a PPP loan, although he and his partners have spent months trying. They were recently approved by another small business administration program that will help them get through the year.
He is frustrated that minority owned businesses seem to be at a disadvantage in PPP loans.
“Why are we not supported? Garcia said.
Stanford’s research has highlighted a number of factors that have prevented Latin American businesses from obtaining loans, such as a lack of clarity regarding eligibility requirements.
Other obstacles identified by the researchers included a lack of guidance on how to apply, the lack of an established banking provider, and technical difficulties when submitting application documents.
“It’s disappointing,” said Julian Canete, president and CEO of the California Hispanic Chambers of Commerce. “This pandemic is hurting our businesses. “
Calls to the organization from Latino business owners for help and advice have nearly quadrupled amid the pandemic, he said.
Do not abandon
Garcia and Vargas closed their store for two months, between March and May, after Governor Gavin Newsom ordered 40 million Californians to stay at home to stem the spread of COVID-19. During the closures, Garcia estimates that revenues have declined by as much as 60%.
Since the reopening, Garcia said sales are starting to match what the store did before the pandemic, but is still working to make up for what the company has lost. Outdoor events and markets where they sold their merchandise, which includes art, Mexican imports and their own brand of clothing, were also canceled.
In addition to dealing with a decrease in foot traffic, Garcia and Vargas say they experienced delays in obtaining imports from Mexico and saw delivery costs rise.
Owners are stepping up their social media marketing, offering curbside pickup for customers, and ensuring delivery of their products. They also have COVID-19 precautions in place for customers who venture into the store.
“It’s scary. We don’t know what’s going to happen,” he said. “We can’t just sit back and wait and see what happens.”
Even with an understanding owner, they used all of their savings to pay for business and overhead costs, as well as living expenses.
Garcia and Vargas say they will do whatever they can to keep the brick and mortar alive.
“We come from a background where we work hard and strive,” Garcia said. “I’m going to work to do what I want to do, so as long as I’m doing it, I think I’ll be fine.”
This story was originally published August 7, 2020 5:00 a.m.