Biz2Credit Annual Study Identifies Higher Net Incomes for Hispanic Business Owners

October 19, 2016

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Biz2Credit Annual Study Identifies Higher Net Incomes for Hispanic Business Owners

A new study of Hispanic-owned businesses found that the number of loan applications by Hispanic entrepreneurs made through online lending marketplace Biz2Credit.com grew by 68.7% in the past 12 months and that Hispanic-owned companies had average annual revenues of $202,327, up from $68,540 the previous year.

Meanwhile, non-Hispanic-owned companies had average annual revenues of $206,855, an increase from $70,645 in 2015, according to Biz2Credit's study of more than 25,000 small businesses, including over 2,000 Hispanic entrepreneurs who applied for business financing on the online platform in the last year.

"A major take-away from this study is that small businesses have been performing well in the past year and many of them are looking to expand their operations. Our analysis also revealed that the gap between non-Hispanic and Hispanic businesses is shrinking considerably," said Biz2Credit CEO Rohit Arora, one of the nation's leading experts in small business finance.

Average net income for Hispanic businesses grew substantially in a year-to-year comparison, jumping from an average of $50,205 in 2015 to $132,693 in 2016. In comparison, non-Hispanic business owners' average annual net incomes were approximately 8 percent lower in 2016.

Average operating expenses represented 34 percent ($69,633) of the revenue of Hispanic-owned companies, while non-Hispanic companies had average operating expenses of 41 percent ($84,700) of their revenues.

Hispanic entrepreneurs had a lower average credit score (595) than non-Hispanic business owners (608), and their companies were younger in terms of months in operation (28 months), vs. 30 months in operation on average for all other companies.

"The fact that average credit score for Hispanic entrepreneurs falls below 600 is still a cause for concern because that is a benchmark that many banks use before they even consider processing a loan request," explained Arora, who oversaw the research.

Hispanic-owned businesses in the U.S. have been growing at a pace 15 times the national growth rate and has sustained this trend over the last decade. In the last eight-year period (2007-15), Hispanic-owned businesses' revenues skyrocketed approximately 88 percent to approximately $661 billion.

"Hispanics are the fastest growing demographic in the U.S. and it is critical to make sure that they are receiving the funding and assistance to help grow their businesses. While we are seeing a greater percentage of Hispanics enter small business ownership, there is still room for improvement," Arora added. "This is an important topic that neither Republican Presidential Donald Trump nor Democratic nominee Hillary Clinton are talking about."

According to the U.S. Hispanic Chamber of Commerce, there are more than four million Hispanic-owned businesses throughout the nation. The chamber reported that the Pacific Census division (California, Oregon, Washington and Alaska) embodies more than one-quarter of Hispanic-owned businesses represented in the country. The region had an estimated 1,057,301 Hispanic-owned businesses in 2015, a 22% increase over' 2012. Next came the South Atlantic division (Maryland, Virginia, West Virginia, North and South Carolina, Georgia and Florida), with a projected 964,000 Hispanic-owned businesses.

Interestingly, the Midwest division was the region that had the highest percentages of growth (+30%) in Hispanic business ownership. The U.S. Hispanic Chamber of Commerce attributes the increase to the migration of Hispanics into the region for jobs, local and socioeconomic conditions, including customer base, industrial composition and the low cost of living, relative to other regions.

Victor Alacazar owns two Ohio-based Mexican restaurants: El Jalapeno in Niles, Ohio, and El Jalapeno 2 in Youngstown. Although he had a hard time securing credit a few years ago, he recently was able to secure funding for renovations for his Youngstown eatery.

"It was hard to keep up with the bills and taxes and then be able to invest in remodeling. I couldn't get a loan. The bank couldn't help me, and I thought about closing. A friend in merchant services saw potential in my business and encouraged me to keep pursuing funding," said Alacazar, 34.

"My credit wasn't good; I made mistakes when I was younger, and at the time I had too little history. I was scared to go back to the bank," added Alacazar, who borrowed $20,000 from a cash advance company though Biz2Credit and paid it back in less than 8 months as a portion of his credit card receipts.

"It was definitely worth it. Now, I've built some credit. I'm very happy," said Alacazar, who was born in Mexico, grew up in California, and is now looking to buy the building where his Niles, Ohio, restaurant is located.

The current Hispanic population of 53.3 million in America is expected to increase by more than double to 128.8 million in 2060, according to projections by the U.S. Census Bureau.

The Small Business Administration, led by Administrator Maria Contreras-Sweet, a Mexican-born immigrant, has been a driving force for a number of initiatives for Hispanic-owned companies since assuming her position. In May 2015, the agency launched a Spanish language version of its website, SBA.gov to accommodate Spanish speakers. This has enabled countless entrepreneurs who do not speak English as their primary language to enjoy the benefits that the SBA offers to entrepreneurs across the nation.

According to Biz2Credit's research, the Top 5 states for Hispanic-owned small business loan applications were: California (23%), Texas (19.7%), New York (9%), Florida (8.1%), and Arizona (3.8%). All five states combined represented nearly two-thirds loan requests by Hispanic entrepreneurs on Biz2Credit's platform.

Retail trade (15.3%), accommodations/food services (13.2%), and construction (10.2%) were the three most common industries for Hispanic entrepreneurs.

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