This Q4 2020 edition of the Latino Small Business Credit Survey marks exactly one year since Camino Financial released its first Quarterly Survey. We take this opportunity to review that year and highlight the effects of 2020 and the impact of COVID on access to credit by Latino-Owned Businesses (LOBs).
Lenders drastically slowed non-government relief loans in the second and third quarters of 2020, instead focusing their efforts on PPP and other forms of government relief. A special COVID-19 Latino Impact Survey conducted after the first round of PPP in August showed:
62% of LOBs generated less revenue than before COVID
NECESSITY OF EDUCATION:
Most LOBs were discouraged from seeking additional funding or relief, with only 46% even applying
However LOBs were 6.6x more likely to obtain relief funds when provided education and support
LOBs operating in Low to Moderate-Income (LMI) areas are showing a growing revenue gap compared to LOBs operating in non-LMI areas. This is due to lenders in adverse financial periods exhibiting positive bias by preferring to lend to larger businesses with longer operational history and higher credit scores.
AVERAGE LATINO SELF-REPORTED REVENUE BY LMI
Despite an economic downturn in 2020, the average credit scores for Latino business owners applying for credit grew by 3% YoY from 635 in 2019 to 644 in 2020. Lenders are focused on targeting higher credit quality borrowers.
AVERAGE CREDIT SCORES BY QUARTER & APPLICANT TYPE
LOBs are optimistic, tenacious, and flexible, but their regrowth is hindered by structural funding challenges. Overcoming these obstacles is critical to the reinvention of the Latino-Owned Business community, thus, we recommend the following guidance:
More than 85% of LOBs earned less than $300k in annual revenue, roughly half the size relative to the national average of small businesses
Education and training raises loan approval rates by 6.6x according to our annual credit survey
87% of LOBs operate in LMI areas
This quarterly issue follows the impact of the pandemic on Latin-Owned Small Businesses: their chances to get PPP, how much operational cash they have, their resiliency, and how much they’re recovering.