The five-year average growth rate of Latino-owned companies has greatly outpaced the national, non-Latino-owned business average for the past 15 years, according to the Stanford Latino Entrepreneurship Initiative (SLIE). Between 1990 and 2010, the percentage of Americans self-identifying as Hispanic or Latino increased from 8.8 percent to 16.4 percent. Meanwhile, the number of Latino-owned businesses was 0.9 million in 1997, and an estimated 4.1 million in 2015, according to the SLIE.
Further, the self-employment rates of immigrant Latinos continuously increased over the 2000s, and data indicated that companies owned by have helped fuel job creation. Latino businesses increased in total by 44 percent between 2002 and 2007, and another 47 percent between 2007 and 2012. This pace is exponentially higher than that of non-Latinos, which actually decreased 2 percent from 2007 to 2012.
While growth has been substantial, securing capital remains a hurdle for many Latino-owned businesses. Roughly 1.2 million of the 12.2 million business owners in the U.S. are immigrant Latinos, according to a recent study of Latino business ownership by the Small Business Administration’s Office of Advocacy. The report also found that business income is substantially lower among U.S.-born Latinos, who have relatively low levels of education and wealth, and are relatively young. These factors contribute to the challenges that Latino business owners have in getting small business loans.
The SLIE’s 2017 State of Latino Entrepreneurship report released in February 2018 found that national banks are underserving Latino-owned businesses relative to other external funding sources and demographic groups. Yet, even with these constraints, immigrant Latino entrepreneurs make important contributions to the economy, generating $36.5 billion in business income. Overall, Latin Americans are starting businesses at three times the rate of the rest of the U.S. population.
Hispanic women entrepreneurs are leading the way in growth. Latina-owned firms grew by 87% from 2007 to 2012, and they now represent nearly half of all Latino firms, according to ProsperityNow.org. Ironically, limited access to capital has detrimental effects for them.
This fall, Biz2Credit’s annual study of 2,000 Latino-owned businesses found that their average earnings grew 26% from $258,702 in 2016 to $327,189 in 2018. Average net income for Hispanic businesses grew substantially, jumping from an average of $132,693 in 2016 to an average of $186,383 in 2017-18. In comparison, non-Hispanic business owners’ average annual net incomes were approximately 8 percent lower in 2016.
Many Latino-owned companies are looking to expand their operations. However, the report also found that the average credit score for Latino-owned companies is still stuck in the 500s, with average scores rising to 594 from 592 a year ago. Thus, despite the revenue increases, factors including timeliness of payments and credit utilization rates may be hurting their financial performance. Having a score below 600 concerning because 600 is a benchmark that many banks use in considering whether or not to approve a funding request.
According to Biz2Credit figures, the total number of loan applications by Latino entrepreneurs made through its online lending platform increased by 22% from 2016 to 2018. Small business funding – whether it is startup funding, working capital, or financing to expand — has to be available or else Latino-owned companies will not prosper.
“The Latino business community now represents billions of dollars in income despite constraints and barriers,” said Victor Canales, president of VCMG Live and station owner of 96.9 FM in Palm Beach, FL. “It is these constraints, whether political, financial or cultural that still holds back Latino entrepreneurs from enhancing their businesses.”
Improving credit scores will help improve the chances of getting small business funding. Here are some tips:
No. 1: Separate Business and Personal Bank Accounts. It is possible to build a positive history of business transactions and establish a track record of creditworthiness, even if your personal credit score is less than stellar. Separate your business and personal bank accounts. Then be sure that your company pays its debts promptly – in full each month, if possible.
No. 2: Check Your Credit Reports. Mistakes happen. Keep tabs on your business credit reports to make sure that past issues, including tax liens, that have been settled are no longer considered current. You can find this information on FreeCreditReport.com or by requesting a report from a credit bureaus, such as Experian and Equifax.
No. 3: Open a Company Credit Card and Establish a Record of Prompt Payment. Credit card offers come in the mail almost every day. Establishing a business credit card is a relatively easy and very effective way to build a track record of payments. Capital One aggressively markets credit cards to small businesses. The QuickSilver Card is a good starter card. There is no annual fee, and business owners receive 1.5% cash back on every purchase. New card holders earn a one-time $150 cash bonus once they spend $500 on purchases during the first three months of opening the account. For those who might spend more on their cards, the Chase Ink Business Preferred Credit Card offers 80,000 bonus points after you spend $5,000 in the first three months. No matter which card you open, just be sure to pay the bills on time. Late payments are counterproductive when you are trying to improve your credit rating.
Ultimately, the best way for Latino business owners – and anyone else – to build a strong credit history is to run a lean, efficient business. Keep inventory as low as possible, manage staff schedules, and reduce workers’ hours during slow periods. Improving credit scores and the overall financial performance are important factors for companies looking to secure small business financing.
A good source for Latino-owned businesses is the SBA 7(a) Loan program, which grants loans in amounts ranging from just $30,000 to as high as $5 million at annual interest rates (APR) typically between of 8.53% to 9.83%. The 7(a) loans are especially popular because the funding can be used for a wide range of business uses, including working capital, equipment purchases, and the refinancing of existing debt. SBA Express loans, part of the 7(a) program, are designed for companies that need amounts lower than $350,000.
While the agency does not directly make loans to small businesses, the SBA’s approved lending partners are required to set parameters on maximum amount of interest charged. In return, however, SBA loans come with a government backing of 75 percent or more. This means that if the borrower should default, the SBA will cover three-quarters of the loss. In this way, the SBA mitigates risk to borrowers, thereby making it easier for Latinos and other minority groups to secure funding.