Biz2Credit Annual Study Identifies Higher Earnings, But Lower Credit Scores for Latino-Owned Businesses

October 25, 2017

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Analysis finds that California accounts for more than a quarter of Latino loan requests

NEW YORK, October 12, 2017 -- A new study of 2,000 Latino-owned businesses by Biz2Credit found that their average earnings grew 28% from $202,327 in 2015 to $258,702 in 2016. The study also found that the most common industries for Latino entrepreneurs were Services (except Public Administration) 19.8%, Retail Trade 17.2%, Construction 13.6%, Accommodation and Food Services 12.1%, and Transportation and Warehousing 8.96%.

The Top 5 states for Latino-owned small business loan applications were: California (25.2% of all credit applications from Latino-owned firms), Texas (20.4%), New York (6.2%), Florida (4.9%), and Arizona (3.4%), according to Biz2Credit's research. These states combined represented 60 percent of the applications for loans for Latinos on Biz2Credit's platform in 2016.

The average credit score for Latino-owned companies dipped from 595 in 2015 to 592 in 2016, which indicates that despite the revenue increases, factors including timeliness of payments and credit utilization rates may be hurting their performance. Further, the total number of loan applications by Latino entrepreneurs made through Biz2Credit's online lending platform decreased by 5% in the past 12 months.

"Latino-owned companies had strong revenue figures in 2016. Usually this correlates to an uptick in requests for small business loans. However,it was not the case," said Rohit Arora, CEO of Biz2Credit, who oversaw the research. "Part of this could be related to uncertainty regarding immigration, President Trump's insistence on building a wall along the border with Mexico, and an overall unease amongst the Hispanic community about Trump's policies."

Key findings:

  • Average Annual Revenue of Latino-owned business rose to $258,702 in 2016, an improvement of 28% from $202,327 in 2015, while the same increased for Non-Latino businesses by 35%.

  • The number of credit applications from Latino-owned businesses dropped by 5% over the past 12 months.

  • The average credit score for Latinos dipped to 592, compared to 595 last year. Payment history and credit utilization rates seem to be the primary causes of the drop, since revenue increased for Latino-owned companies in 2016.

  • Services (except public administration) the largest category of businesses and represented nearly 20% of the Latino-owned companies in the study. Retail businesses followed at 17%.

  • Average Net Income: Average Net Income for Latino-owned businesses rose to $171,460 in 2016-17 from to $132,693 in 2016.

"There are over 57 million American citizens of Hispanic heritage, about 18% of the U.S. population. The number is expected to more than double to 128.8 million in 2060, according to projections from the U.S. Census Bureau," said Arora, one of the nation's leading experts in small business finance. "Latinos own more than 4 million businesses and are an important part of the overall economy. Small business funding - whether it is startup funding, working capital, or financing to expand - has to be available or else companies will not thrive."

Comparing Latino-Owned vs. Other Companies

  • Latinos accounted for about 7% of the completed credit applications on Biz2Credit.com in 2016. All others comprised 93%.

  • Average Annual Revenue for Latino-owned businesses ($258,702) was $21,232 lower than Non-Latino-owned companies ($279,934) in 2016-17.

  • Average Operating Expense represented 33.7% ($87,242) of the revenue of Latino-owned businesses, which was 6.19% lower than their Non-Latino counterparts, which had Average Operating Expenses of 39.9% ($111,728) in 2016.

"Latino-owned businesses oftentimes have lower cost structures because they are run by family members and hire workers who command lower wages. They often operate companies that do not have a high amount of overhead," Arora said.

  • Average Credit Score: On an average, the credit score for Latino-owned businesses (592) were 7 points lower than those of Non-Latino-owned businesses (599) in 2016.

"Having a score below 600 is still a cause for concern since 600 is a benchmark that many banks use to consider processing a loan request," Arora explained. "Companies that fall below this level must examine whether they can become better paying their debts on time or whether they can lower their credit utilization."

  • Average Age of Business (in months) increased to 42 months for Latino loan applicants, an indicator their companies are viable in the long term. In fact, the Average Age of Business was higher for Latino-owned businesses than for others (38 months) in 2016.

Latino-owned companies in the U.S. - currently estimated at 4.2 million, according to the U.S. Latino Chamber of Commerce - contribute over $668 billion to the American economy every year. In fact, the five-year average growth rate in the number of Latino firms has been at double or triple that of the national average for the past 15 years, according to the Stanford Latino Entrepreneurship Initiative (SLEI), which surveyed nearly 5,000 Latino business owners in 2016. SLEI also found that 75 percent of Latino-owned firms are located in non-Latino neighborhoods and serve mostly non-Hispanic customers.

About the Biz2Credit Latino Small Business Credit Study

Biz2Credit, a leading online marketplace lender, analyzed the financial performance of nearly 2,000 Latino-owned businesses and 25,000 other companies with less than 250 employees and less than $10 million in annual revenues from across the country from start-ups to established businesses.