New State of Latino Entrepreneurship Report Shows Strong Growth in Tech Sector
New State of Latino Entrepreneurship Report Shows Strong Growth in Tech Sector

By Neil Hare and Arturo Cazares

American small businesses in general are still in recovery mode from the effects of Covid-19; However, new research from the Latino Business Action Network (LBAN) shows that Latin American businesses play an important role in the US economy through business ownership and job creation. The 2021 State of Latino Entrepreneurship (SOLE) Report, by LBAN and the Stanford Latino Entrepreneurship Initiative (SLEI), highlights the significant and positive economic impact of Latino-owned businesses.

The main positive findings of the report include:

  • Over the past 10 years, Latino-owned businesses have started at a faster rate than other groups—a 44% growth rate—compared to just 4% for non-Latino-owned businesses.
  • The number of employees at Latino-owned businesses has increased 55% since 2007, compared to 8% for white-owned businesses.
  • In 2018, there were approximately 350,000 Latino-owned businesses that generated more than $460 billion in annual revenue and employed 2.9 million people. The 2021 report also projects that there are now approximately 400,000 to 450,000 Latino-owned employers’ businesses.
  • Latino-owned businesses are spread across all sectors of the economy and in similar proportions to white-owned businesses, except that Latino-owned businesses are more food service oriented whereas there are more white-owned professional services. Among Latino-owned businesses, 19% own technology companies, while among white-owned businesses, that number is only 14%.

The good news, however, is tempered by a disparity in how Latino-owned businesses have been able to raise capital during the pandemic. For example, the report found that while Latino-owned businesses generally pose similar credit risk to white-owned businesses, they are more likely to be asked by financial institutions to provide collateral and guarantees. personal.

And, it has been well documented that in the early cycles of the Paycheck Protection Program (PPP), Latino-owned businesses received loans at half the rate of white-owned businesses. This disparity faded during the later stages of the PPP when adjustments were made to prioritize businesses with fewer than 10 employees and minority-owned businesses.

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The good work of the Small Business Administration (SBA), Community Development Financial Institutions (CDFIs) and national banks in responding is to be commended; nevertheless, many Latino-owned businesses that struggled were left out when the program ended. Difficulty accessing PPP loans has led many Latino business owners to dip into personal savings and leverage credit card debt to stay afloat during the pandemic at a higher rate than business owners. white businesses.

Key Changes Needed to Help Latin American Businesses Grow

So, what are the main lessons of this research and what needs to change to ensure the growth and development of Latin American companies?

1. More venture capital for Latino-owned businesses

The SOLE report showed that the share of Latino-owned employers in technology is at least comparable, if not slightly higher, than the share of technology among white-owned employers. Despite this reality, white-owned businesses received venture capital funding at a much higher rate than Latino-owned businesses. This presents a new opportunity for venture capitalists to fund the tech segment while supporting Latino-owned businesses.

According to a recent SLEI report, Latino-owned companies received less than 1% of the $487 billion invested in a sample of the 500 largest venture capital and private equity deals in 2020. Therefore, closing this huge gap in capital funding- risk to the growing number of Latino-owned businesses in the technology sector is essential.

2. Banks can make additional gains by evaluating lending processes and expanding their reach to ensure broad access and equal treatment

Although tremendous progress has been made in the banking sector in terms of lending to minority-owned businesses, more can be done. In addition to assessing internal practices, programs are needed to provide training on how to qualify for loans and lines of credit. Many Latino-owned businesses have the financial history, credit ratings, collateral, and financial capacity to reduce their risk on a loan, but they may not have the necessary documentation to prove their low-risk classification. Marketing campaigns should also be developed to encourage Latinos to nurture meaningful relationships with bankers and take advantage of education programs on how best to prepare to qualify for financing.

3. The SBA having a positive impact, must continue to improve awareness and support

During the pandemic, the SBA quickly ramped up its operations and created helpful programs, such as PPPs, to provide support to small businesses across the country. PPP data showed that at the start of the program, companies with pre-existing banking relationships, bookkeepers, bookkeepers and lawyers were able to apply for and receive funding faster than those without these resources. Thus, there was an initial disparity between Latin American and white businesses in access to funds. Ultimately, Latino-owned businesses have largely benefited from PPP funds; it just took them longer to qualify, in some cases due to understaffing at the SBA, and in other cases due to lack of financial documentation.

Annual statistics, pre-pandemic data collected by the SBA from lending institutions suggests that Latino borrowers received between 4% and 9% of all types of SBA loans issued from 2014 to 2019. As we return to traditional SBA loans, the SBA must provide dedicated outreach, education and follow-up to ensure that business owners have the support needed to access these funds. All businesses, including those owned by Latinos, minorities, and women, will benefit if the SBA continues to be proactive.

4. Alternative sources of funding

Although credit cards can play an important role in running a business, financing a business with a credit card carries higher interest rates, late penalties, and fees. Latino-owned businesses need to know how to access new sources of capital such as crowdfunding and reduce interest debt from sources such as CDFIs. They should also understand what record keeping is required to apply for these alternative sources of capital.

New private lenders can, and should, offer technical assistance to businesses so that they are sufficiently prepared to access funds. The major national banks have begun to improve their internal processes and their relations with minority populations. These efforts must continue to ensure that fair lending practices are possible when assessing lending risk. At the same time, many banks are building relationships with CDFIs to engage with small businesses earlier and begin to develop financial relationships. This creates another opportunity for outreach and education to ensure small businesses are prepared with financial information when trying to access the next level of funding.

Latin American companies and the future

The most positive finding from the SOLE report is that Latino and white-owned businesses reported equal optimism for the future: 79% and 77%, respectively.

The banking industry, venture capital funds and the federal government can still play an important role in promoting growth that will benefit all businesses, but especially the large and rapidly growing number of Latino-owned businesses. , creating a positive impact on the global economy.

about the authors

Neil Hare is President and CEO of GVC Strategies. See more articles from Neil and his full biography at AllBusiness.com.

Arturo Cazares is the President and CEO of the Latin American Business Action Networkan independent nonprofit organization that partners with Stanford University to strengthen Latino entrepreneurship across the United States.

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