Giving Compass' Take:

• The COVID-19 pandemic disproportionately impacts the health and employment of Latino and Black families and entrepreneurs. However, the solutions might lie in local and state relief funds. 

• Local relief funds have better relationships with community-led organizations and banking institutions. How can local donors also play a role in helping smaller businesses and bolster Latino entrepreneurship? 

• Read more about the future of small businesses in the wake of COVID-19. 

An earlier version of this blog post reported that the US Census Bureau’s Small Business Pulse Survey showed that nearly 38 percent of all small businesses in the US reported a negative impact from COVID-19 in June. However, this rate referred only to firms that experienced a large negative impact. The rate of small businesses that experienced a large or moderate negative impact is 82.7 percent, about the same as the rate for Latino-owned businesses, as reported by the Stanford Latino Entrepreneurship Initiative. This post has been updated to reflect this number (corrected 9/22/2020). 

COVID-19 has disproportionately affected the health and employment of Latino and Black families. But the pandemic is also affecting Latino-owned small businesses and the families who depend on them. The Stanford Latino Entrepreneurship Initiative’s (PDF) survey finds that in June, 83 percent of Latino-owned businesses experienced a negative impact from COVID-19.

Before the pandemic, small firms owned by Latinos were already facing barriers to prosperity. Latino-owned businesses are more likely to be startups, have higher credit risks (PDF), and thus, have limited ability to secure affordable capital. This can translate into more vulnerability to the pandemic’s economic effects: only 11 percent of small businesses in majority-Latino communities had more than 14 cash-buffer days in 2019.

Small businesses are a key path for building wealth and closing the racial wealth gap (PDF), but the pandemic is threatening Latino entrepreneurs when they are already underrepresented among US firms. Federal business relief hasn’t focused on sectors hardest hit by the pandemic, including sectors with large shares of Latino-owned businesses. But local leaders can take more targeted and tailored steps to support the hardest-hit sectors and most vulnerable firms to ensure Latino entrepreneurs can survive and thrive.

A better solution for Latino entrepreneurs and other entrepreneurs of color may lie at the local level. Local and state relief funds for small businesses are better positioned to target the most distressed businesses and tailor financing products (grants and low-cost loans) to their specific needs. Localities have better connections with community development financial institutions, credit unions, and minority depositary institutions, which often have more and closer ties to minority-owned businesses and businesses in low-income communities.

Read the full article about Latino entrepreneurship byJorge González at Urban Institute.