- Hispanic Americans were hit hard financially by the COVID-19 pandemic, and frequently denied aid.
- But Hispanic American banks gave out more loans to Latino-owned businesses than national banks.
- Another $9 billion in federal funding will soon be made available to these mission-driven banks.
Marlene Orozco spent the last year as the lead research analyst with the Stanford Latino Entrepreneurship Initiative, a research program conducted jointly by Stanford University and the Latino Business Action Network.
In that role, she studied the impact of COVID-19 on Latino-owned small businesses. But in her personal life, Orozco, who is of Mexican descent, experienced the toll of the pandemic through her family’s trucking company, Crown Valley Inc.
When her family’s business needed funding, they applied for a Paycheck Protection Program loan from their primary banker — a national bank. The bank provided only a small amount of funding, barely enough to cover a week’s worth of payroll.
“We have family history. My mother-in-law formerly worked at this national bank for several years. Even then, with having these kinds of banking relationships and a long-standing history with this large national bank, it was inequitable, in terms of financing, what we were going to be provided,” said Orozco.
To fill the gap in funding, Orozco reached out to the Hispanic American-led nonprofit Capital Plus Financial, a group she’d heard about from working with the Latino Business Action Network.
—Child Trends (@ChildTrends) June 20, 2020
Capital Plus is an example of what’s known as a community development financial institution (CDFI), which can be a nonprofit, bank, or credit union that serves disadvantaged communities and communities of color. As a Latina, Orozco thought the CDFI might be able to offer guidance on how to provide more support to her family.
She was right: Through the CDFI, Orozco’s family business received enough funding to keep employees on payroll. The company managed to overcome one of its major hurdles and is still up and running today.
Supporting Hispanic-owned small businesses is nothing new for Hispanic American financial institutions. They have provided services to underserved communities in the US since the 1960s. And during COVID-19, they’ve continued to step up.
Research from NYU Stern shows that minority depository institutions (MDIs) and CDFIs allotted a substantially larger share of their PPP loans to Hispanic-owned businesses than national lenders during COVID-19. The State of Latino Entrepreneurship Report also found that Latinos experienced far greater success in obtaining PPP loans during the second wave of distribution that included CDFIs and MDIs.
Later this year, the Treasury Department will release another $9 billion in funding for businesses affected by COVID-19 through the Emergency Capital Investment Program. That funding will go to CDFIs and MDIs, which can then distribute more business and personal loans to Latinos (and other underserved populations) affected by COVID-19.
The pandemic significantly impacted Hispanic Americans
During the COVID-19
, Hispanic American workers — and at even higher rates, Hispanic American women — had a higher unemployment rate than US workers overall, according to Pew Research data. Many Hispanic American households saw their incomes drop due to job losses or pay cuts, which further propelled both worry and need.
A survey from the Pew Research Center found that 70% of Hispanic Americans said they didn’t have emergency funds to cover at least three months of expenses during the pandemic, and more than half said they worried daily or frequently about keeping up with expenses.
Among Hispanic American small businesses, a few industries were fortunate to be unaffected financially by the pandemic.
Maggie Rivera, a grocery store owner in Chicago, told Insider her business wasn’t affected significantly beyond mask mandates and added safety measures. Her sales went up as people spent more time at home.
Other small businesses weren’t able to escape the turmoil, though. Owners of small shops and construction companies told Insider they struggled with mandated business closures, which affected sales, shipping, rent, and other costs. Seeking relief, many had to turn to financial institutions for funding. Not all were successful.
Hispanic Americans have long dealt with racial discrimination and unfair lending practices, contributing to a racial wealth gap between Hispanic and white families. Those already-grueling financial circumstances have only grown worse over the past 18 months.
Earlier in the pandemic, the Paycheck Protection Program provided over $521 billion in funding and over 5 million PPP loans to small businesses. However, Latino business owners didn’t reap the benefits of the first round of funding.
The Stanford Latino Entrepreneurship Initiative highlighted some challenges: When comparing businesses with similar profitability and owners with solid credit scores, the odds of being approved for a PPP loan from a national bank were 60% lower for Latinos than white business owners, according to lead researcher Orozco.
“The five C’s of credit are pretty established banking criteria. One of those C’s is character — it’s a really ambiguous and subjective measure. This is one area that we hypothesize that implicit bias might be able to creep in,” said Orozco. “If you perceive a Latino to be synonymous with immigrant and immigrant to be synonymous with undocumented and criminal and all of these other kinds of pejorative ideas, then I think that seeps into your decision-making process.”
Hispanic institutions stepped up when other banks denied relief
Hispanic banks stepped up where pandemic relief fell short.
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Data shows that Hispanic Americans are less likely to receive business and home loans from mainstream banks than white Americans, and pay more for the loans they do receive. But results from a 2019 FDIC study found that Hispanic Americans make up a greater percentage of home loans or small business loans at Hispanic American banks compared to non-minority banks.
Some Hispanic Americans say they started their CDFIs and other financial institutions specifically because of the discrimination faced by Latinos at traditional banks.
That was the case for Juan Hernandez, founder of Creser Capital Fund in Sonoma, California (he is currently wrapping up the CDFI certification process). Shaken by the death of George Floyd, Hernandez wanted to make a difference in his own local community.
“I started thinking about it, and I was like, you know what, you can’t have social justice without economic justice,” he told Insider. “We’re mission-oriented. Our bottom line is not the number of loans that we make. Our bottom line is making sure that we create a pathway for that business to be able to make the first loan, so then they’re able to get that second or third loan.”
The Federal Deposit Insurance Corporation, which insures US banks, recognizes Hispanic American financial institutions as mission-driven banks and has set up several programs and initiatives to support them. These programs allow them to offer loans to small businesses and entrepreneurs who might not otherwise be served by mainstream banks.
“Imagine the taco guy, the paletero man, the lady who sells churros, or the man who sells the atole, those people that have been there in the community making and selling. Are they at that level to apply [for a bank loan]? That’s where we come in,” said Hernandez.
Latinos are still experiencing a financial toll from the pandemic
While Hispanic American-owned financial institutions have uplifted many small businesses and families, there are challenges that limit their reach and impact. Indeed, several Latino business owners told Insider they weren’t aware that Hispanic American-owned financial institutions even existed.
In the US, there are only 30 banks and 201
led or owned by Hispanic Americans. (CDFIs are not categorized by ownership, so there isn’t enough data to provide an exact number.) The majority of Hispanic American institutions are also located in only a few states, namely Texas, California, and Florida.
Another significant obstacle facing Hispanic American-owned financial institutions is a lack of access to capital. Access to capital depends on the services and products provided, which depend on consumers. Since mission-driven banks are primarily located in underserved communities, they often don’t have as much money available in the form of deposits to offer as many loans as national banks like Chase or Wells Fargo might.
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Latino families and small businesses that weren’t approved for emergency relief loans, or haven’t received adequate funding, are still experiencing a financial toll from the pandemic. Small businesses in the recovery phase are seeking opportunities to grow.
Leny Fralicker is among those small business owners. She started her business, Elderberry Elixir, in 2019, selling at local farmers markets near Fort Meyers, Florida, and through Instagram. Fralicker had one of her major events canceled during the pandemic and experienced issues shipping her products.
Fralicker wasn’t approved for an emergency relief loan she applied for, and ultimately acquired debt for the first time during the pandemic. While Fralicker’s seen success in the last year through online sales, it’s just not enough.
“We’re at that fork where we really are going to need help, like outside help financially, to get to that next level,” Fralicker told Insider.
Fralicker hasn’t received a loan yet. However, she said she is applying at different institutions and learning more about mission-driven banks. Reflecting on her parents’ journeys, Fralicker says that her perseverance will continue to fuel her motivations.
“Both of my parents have just been people that worked extremely hard and didn’t really make it to that level — they had to go through a lot,” said Fralicker. “Growing up seeing that, I know I have all these opportunities. If I can work hard, I can make all that sacrifice worth it.
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