Latinx is an essential part of the United States, both socially and economically. The growing impact of Latino entrepreneurship motivated Stanford to publish a yearly report on the State of Latino Entrepreneurship and this year is brighter than usual showing growth even through the pandemic. Let’s look at this in more detail.
Since 2015, Stanford University produces a report «The State of Latino Entrepreneurship in the United States.» In February 2021, the sixth report, corresponding to 2020, was virtually presented. This study highlights the growth experienced by Latino-owned employer businesses in the United States. For the first time, they made a comparison between Latino companies and white-owned companies.
About the study: State of Latino Entrepreneurship 2020
The Stanford Latino Entrepreneurship Initiative conducted the study. They generated 3,500 surveys of Latino entrepreneurs across the United States.
This time, the study also included surveys of white-owned businesses. Therefore, they identified similarities and differences between their experiences and obtained a better context.
The study went through the COVID-19 effects reflected in the results. More than ever, this sector will play an essential role in the US’s economic recovery. However, today they face many challenges.
This initiative seeks to provide relevant information for organizations focused on business support and experts, legislators, and corporations. It also provides Latino business owners with valuable data to make financial and operational decisions. Stanford is trying to foster a culture of diversity, inclusion, equity, and access, promoting these values throughout the University.
Latino entrepreneurship overview
According to the Stanford study, without Latino entrepreneurship, the US economy would have declined between 2007 and 2012. So it was Latino-owned businesses that rescued the country during the last economic recession.
This economic sector has grown mainly in construction, finance and insurance, transportation and warehousing, and real estate. They also have seen their income rise faster than white-owned businesses, with 25% growth over 19%.
In 2018, the total Latin economic output was 2.6 trillion USD, that number will increase in the coming years.
State of Latino Entrepreneurship 2020
The Latin population is the fastest-growing minority in the country. The predictions say that in 2050 Latins will represent 29% of the total US population. This situation will impact many aspects, such as education, business, health care, government, and others. There will be significant opportunities for Latino business and civic leaders.
Opportunities and challenges Latino employers are facing
Stanford believes that Latino entrepreneurship’s success will significantly represent the US economy in the coming decades. By promoting the growth and development of the sector, Latino entrepreneurship can achieve success. Latino entrepreneurship has a positive outlook but fundamental challenges to overcome.
1. Latino businesses are 60% less likely to obtain business loans from national banks.
Even reporting vital metrics on critical loan criteria, only 20% of Latino entrepreneurship get financing, while white-owned businesses 50%.
Of companies with revenues above USD 1 million, only 29% of Latino entrepreneurship applied for financing was approved, while 76% of white-owned businesses were approved.
This financial situation of Latino entrepreneurship is mainly due to ignorance of their financial instruments. The research showed that three out of four Latino-owned businesses are unaware of their business credit scores. Understanding how to use credit points is more likely to be approved for business loans. Only a third of Latino employers and scaled businesses use a business score to access capital.
As an entrepreneur, I have had a lot of difficulties over the years while growing my business. Even with a strong balance sheet and stellar credit, I had trouble accessing the capital to continue growing my business. Fortunately, my regional bank helped me, and I continue to prosper.
Rosa Santana, founder and CEO of Santana Group
2. Latino businesses usually obtain funds from personal sources.
- The main sources of financing in Latino entrepreneurship come from:
- Personal or commercial lines of credit: 51%.
- Among others, personal or family savings: 43%
- Business credit cards: 40%
- Personal or family home equity loans: 37%
The financing shortage is also due to the lack of long credit history. The situation is more complex when entrepreneurs are undocumented immigrants; 35% of Latino business owners are immigrants.
During the virtual forum, Mercedes Enrique spoke about her experience of how she grew her business. She mentioned that she has to request personal loans to obtain the project that would escalate to her company.
My business is construction; with this industry, to do any federal building, I need something called bonding, based on the amount of cash or capital that the business has. So our growth needs to have credit lines and adequate financing when necessary.
Mercedes Enrique, president of CMS corporation.
3. Latino businesses affiliated to commercial organizations are more likely to be funded.
According to the results obtained, those companies that use organizational networks are twice as likely to receive financing. Either with regional or national banking entities, suppliers, or other companies interested in their business proposal.
A Latino entrepreneurship that attends organizational networks has more significant growth than those that do not participate. Generally, small businesses approach corporate networks with these main motivations: establishing relationships with experienced entrepreneurs, acquiring talent, and increasing sales.
Knowing that capital is not available in traditional sources for our community, we must look for other financing sources, like crowdfunding.
David Favela founder and CEO border x brewing
4. Latino entrepreneurship led by women has been most affected by the pandemic.
During 2020 all economic sectors had significant challenges; however, not many made it to 2021. The Latino entrepreneurship most affected by the pandemic were those run by Latina.
With 30% of businesses run by Latina closed and 16% by Latin men owners. The distribution by industry and gender does not fully explain the closing of companies by industry.
Regarding layoffs, Latino businesses were also the most brutal hit compared to white-owned businesses. According to the study, it is due to the cash available that businesses have. Only one in 10 companies with Latina leaders have a 6-month flow reserve; likewise, 2 out of 10 businesses with Latin men owners have this reserve. Besides the low capacity of Latino entrepreneurs to run their businesses from home.
With this information, we can visualize the panorama that Latino entrepreneurs face. Just as they have many opportunities to develop, they also have a long list to overcome. Institutions like Stanford University are doing a titanic job in boosting this economic sector. By helping collective and inclusive success, the entire US economy will benefit.
