Latino Small Business Opportunity
Unleashing Power through Education
5 de June de 2023
Hispanic Small Businesses, the Ace Up the Sleeve That Could Positively Impact the U.S. Economic Growth.
By: Jorge Tuddón
Ask anyone in Mexico where they go searching for an item in their pantry or a quick snack, and they’ll all reply that they all go to the closest, and beloved, tiendita at the corner. In the U.S. these corner stores have become the bodegas all have grown to love.
While bodegas are the most visible of Latino-owned Businesses (LOBs), they are not the most common. As per the 2020 census, the highest number of LOBs are in the Construction sector, followed by Transportation and Warehousing; Administrative and Support; and fourth, Waste Management and Remediation Services.
Latinos in U.S. Business
The U.S. Census Bureau indicates that Hispanic-owned businesses numbered 375,256 in 2020, making up about 6.5% of all businesses in the United States in that same year; yielding about $472.3 billion in annual receipts and employing about 2.9 million employees (1). However, it is important to explain that the LOBs the Bureau talks about are employer businesses, while the real number of LOBs (which includes self-employed) are actually closer to 5 million, and their contribution to the U.S. is more than $800 billion annually (2).
Currently, Latino-owned businesses continue to outpace the growth rates of White-owned businesses (WOBs)–and U.S. businesses in general–in terms of number of businesses and revenue. At the national level, from 2007 to 2019, the number of LOBs grew by 34% while the number of WOBs dropped by 7%. This means that without LOBs, the American economy would have actually lost businesses. Post-pandemic, LOBs outpaced WOBs in revenue growth (25% and 9%) and their annual payroll grew over twice as fast (3).
This means that Latinos are important job creators, and they also grow their number of employees at a faster rate than White-owned employer businesses. While the overall industry distributions of LOBs and WOBs are similar, LOBs over-index in food services and WOBs in professional services. However, contrary to stereotypes about the industries in which Latino-owned businesses operate, among employer businesses, Latinos are equally likely as their White counterparts to own tech companies (4).
With this in mind, it would not be surprising to know that Latino businessowners are optimistic: 81% expect revenues to rise; 74% think their local economies will improve; 64% believe the U.S. economy will improve; and 43% plan to hire more employees (5). And they have reason to believe so. After all, Latino entrepreneurs could make up 29% percent by 2050, up from 17% today, which could add $1.4 trillion (8%) to the prospected U.S. economy that year.(6)
The Challenges Latinos Face as Business Owners
A main issue many LOBs face in the U.S. is the lack of proper advertisement of the product or services they provide. In many cases, Latino business owners cite the lack of time to spend away from their work and rendering their services to their clients, and the ability to publish flyers, create a webpage, or even list a phone number that can be answered during business hours. There’s a high probability that your favorite taco shop, bodega or tortilla shop does not have a webpage, or a number listed on Google Maps.
Additionally, there are other important relevant issues to consider for business owners, basically related to obtaining loans and funding. Although fewer businesses in 2022 were seeking funding relative to 2021, LOBs are 50% more likely to request financing than WOBs. Latino-owned employer businesses are significantly less likely than White-owned employer businesses to have loan applications approved by national banks, despite reporting strong metrics on a variety of key lending criteria.
Also, Latinos are more likely to be required to provide collateral to secure funding despite Latino-owned employer firms having credit characteristics similar to White-owned employer firms. While Latino-owned businesses seeking loans from national banks have stronger business metrics than White-owned businesses, they have lower approval rates for loans over $50,000. If approved though, LOBs receive substantially smaller contracts that take longer to secure from corporations and governments than WOBs.
Due to the difficulty finding loans and funding, Latino-owned employer businesses are more likely to seek and receive them from sources that expose them to more personal financial risk compared to White-owned employer businesses. Thus, it comes to no surprise that nearly 65% of Hispanic businesses say they need access to capital and nearly 40% say debt/loan forgiveness would help them succeed in the coming year (8).
In regard to the pandemic, Latinos were more likely to tap into their personal savings and max out on credit cards and their home equity in order to weather it; of both Latino and White-owned businesses, those led by women were the most negatively impacted by the pandemic; PPP funding provided a greater lifeline for Latino-owned businesses during the pandemic despite some challenges in accessing it; and coming out of it, The Great Resignation has hit Latino-owned businesses harder.
The Silver Lining
While it may seem stark, Stanford Graduate School of Business found that Latino-owned employer businesses that participate in formal business organizations (e.g., chambers of commerce and trade associations) are more likely to experience funding success. Similarly, the creative, entrepreneurial spirit seen back home (as people selling coffee, breakfast breads, sunglasses on stop signs) has a reflection in the U.S.: Latinos are more likely to report making proactive strategic business changes in response to the business challenges created by the pandemic and, in general, LOBs are recovering from the pandemic, albeit slowly (9), and have expanded their customer base.
Supporting small businesses contributes to a more diverse and resilient business ecosystem. Small businesses can bring diversity in terms of ownership, workforce, and industry representation. A diverse business landscape fosters competition, fosters creativity, and reduces the concentration of economic power in a few large corporations. Government investment in small businesses can help promote inclusivity, economic equity, and opportunities for underrepresented groups.
LOBs play a significant role in the U.S. economy, contributing to job creation, innovation, and overall economic growth. As seen above, LOBs are one of the reasons the U.S. economy is expanding, aiding in not making it decline as fast as it should’ve after the pandemic. This comes with a growth not only in the economy, but also in the creation of jobs. Interestingly, Latino participation in the food delivery industry kept food circulating in the economy during a dire time of need.
LOBs also help to generate tax revenue. The growth of small businesses can increase tax receipts from corporate income taxes, payroll taxes, and other forms of taxation. Moreover, a healthy small business sector can provide stability to the economy, reducing dependence on a few large corporations and diversifying revenue streams.
Furthermore, Latino communities have a strong entrepreneurial spirit and a rich history of starting and operating small businesses. Latino business owners often leverage their cultural values, work ethic, and community ties to establish and grow their enterprises. And LOBs often showcase and promote their cultural heritage through their products, services, and customer experiences. They contribute to the diversity and vibrancy of local communities and play a role in preserving and celebrating Latino culture.
In conclusion, LOBs have significant growth potential. Recognizing and supporting their growth can yield substantial economic benefits, promote economic equity, and foster inclusive economic development. With targeted support, access to resources, and opportunities to connect with larger markets, these businesses can expand, add even more jobs to the U.S. economy, and contribute even more revenue growth and to the U.S.
Government programs, nonprofit organizations, and private sector initiatives that focus on empowering and assisting Latino entrepreneurs can help address the unique challenges they face and unlock their full potential for economic success. If this is recognized, the U.S. economic future could change so much, and for the better.
References
1.- United States Census Bureau (online), Who Owns America’s Businesses? Minority Business Ownership Differs by Sector, available at: https://bit.ly/3MNAqvs, accessed: June 1, 2023, published: January 04, 2023.
2.- U.S. Small Business Administration (online), Hispanic Heritage Month, available: https://www.sba.gov/about-sba/organization/observances/hispanic-heritage-month, accessed: June 1, 2023, published: May 30, 2023.
3.- All facts in this paragraph taken from The Stanford Graduate School of Business in collaboration with the Latino Business Action Network (online), 2022 Research Report: State of Latino Entrepreneurship, available at: https://stanford.io/3oGhtmq, accessed: June 1, 2023, published: February 2023.
4.- This paragraph, from The Stanford Graduate School of Business in collaboration with the Latino Business Action Network (online), 2021 Research Report: State of Latino Entrepreneurship, available at: https://stanford.io/3qjw3k, accessed: June 1, 2023, published: February 2022.
5.- SCORE (online), State of Hispanic-Owned Businesses, available: https://www.score.org/resource/blog-post/state-hispanic-owned-businesses, accessed: June 1, 2023, published: May 6, 2022.
6.- JPMorgan Chase (online), Latino-Owned Businesses May Be the U.S. Economy’s Best Bet, available: https://www.jpmorganchase.com/news-stories/latino-owned-businesses, accessed: June 1, 2023, published: 2016.
7.- This section, except first paragraph, taken from the 2020, 2021 and 2022 Research Reports State of Latino Entrepreneurship by the Stanford Graduate School of Business Op Cit.
8.- SCORE (online), Hispanic-Owned Small Businesses are Starting at Record Rates, but Access to Funding Remains a Stark Challenge, available: https://bit.ly/3oHPTFv, accessed: June 1, 2023, published: September 15, 2022.
9.- 30% of LOBs share that their business are weaker today than at the height of COVID. SCORE (online), Op. Cit.
