Less cash, fewer loans: How Latino businesses are fighting for customers in the pandemic

The Spanish version of this article is available here.

David Garcia and Cuahutemoc Vargas opened the doors to Kulture, a retail shop, in 2015 with a vision to bring something “new and unique” to midtown Sacramento.

They succeeded beyond their expectations, generating enough buzz and revenue to move to a bigger K Street location. Garcia and his wife opened a second shop in Woodland, too.

Their growth made them part of a surge in entrepreneurship by Latinos, who have been starting new businesses at a faster rate than any other demographic group in America over the past decade. Firms owned by Latinos now account for about $700 billion in economic activity, according to the U.S. Hispanic Chamber of Commerce.

But now Garcia and Vargas are part of another more challenging tide. They’re among a class of Latino small business owners struggling to hang on in an economy ground to a standstill 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’s coming up in the future,” Garcia said.

Prior to the pandemic, Latino small business owners already had more challenges obtaining loans to launch their endeavors than other demographic groups, according to the Stanford Latino Entrepreneurship Initiative.

Now, they’re facing more barriers in getting help to keep their doors open, according to a new study from the Stanford group.

Its researchers carried out a pair of surveys since the pandemic began spreading rapidly in March, first with a targeted group of 224 Latino business owners and later with a wider group of 7,000 companies.

The study found that white-owned and Latino-owned businesses are reporting similar levels of economic distress because of the pandemic.

But, white-owned businesses were more likely to have cash on hand to tide them over until the economy returns to something closer to normal.

White-owned companies also were 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.

Stanford Latino Entrepreneurship Initiative lead researcher Marlene Orozco said the trends could lead to a wave of closures among Latino-owned businesses before the end of the year, potentially resulting in a loss of more than 2 million jobs.

“These next coming months are going to be crucial in terms of what kinds of additional aid come into play,” she said.

Barriers to relief

About 56% of the 3,500 Latino-owned businesses surveyed have seen revenue decline due to the coronavirus pandemic, according to the brief. Twenty-three percent reported business closures and 14% have reported layoffs.

Maria Palacio, owner and co-founder of Progeny Coffee, so far has avoided layoffs despite a steep decline in business at her Palo Alto company.

Before the pandemic, her company sold sustainable, Colombian coffee beans to the campuses of tech giants, including Google and Facebook. Their employees are mostly working at home, leaving her few customers.

“If you are not at the campus then there’s no consumption of coffee,” she said.

Her company secured a PPP loan that supported workers through June. Now, they’re working on e-commerce platform to stay in business.

Garcia of Kulture said the Sacramento company didn’t have as much luck securing a PPP loan, though he and his partners spent months trying. They recently were approved from a different Small Business Administration program that will help them get through the year.

He’s frustrated that minority-owned businesses seemed to face a disadvantage in the PPP loans.

“Why is it that we’re not being supported?” Garcia said.

The Stanford research pointed to a number of factors that held back Latino-owned businesses in obtaining loans, such as a lack of clarity surrounding eligibility requirements.

Other barriers identified by researchers included a lack of guidance on how to apply, not having an established banking provider and technical difficulties when submitting application materials.

“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 to ask for help and guidance has nearly quadrupled amid the pandemic, he said.

Not giving up

Garcia and Vargas shut down their shop for two months, between March and May, after Gov. Gavin Newsom ordered 40 million Californians to stay home to stem the spread of COVID-19. During the closures, Garcia estimates revenue declined by up to 60%.

Since re-opening, Garcia said sales are starting to match what the shop made pre-pandemic, but is still working to compensate what the company lost. Outdoor events and markets where they sold their merchandise, which includes art, Mexican imports and their own clothing brand, have been also been canceled.

Along with facing decreased foot traffic, Garcia and Vargas say they have faced delays when obtaining imports from Mexico and seen delivery costs increase.

The owners are increasing their marketing on social media, offering curbside pick-up for customers and providing delivery of their products. They’ve also set up COVID-19 precautions for customers who venture to the store.

“It’s scary. We don’t know what’s gonna happen,” he said. “We can’t just sit and wait to see what happens.”

Even with an understanding landlord, they’ve resorted to using all their savings to pay business and overhead costs, as well as living expenses.

Garcia and Vargas say they will do everything they can to keep the brick-and-mortar alive.

“We come from a background where we’re hardworking and hustle,” Garcia said. “I’m going to put in the work to do what I want to do, so as long as I do that, I think I’ll be fine.”

This story was originally published August 7, 2020 at 5:00 AM.