Financing Latino-Owned Business
Latino-owned businesses (LOB) play an important role in the U.S. economy. Hispanics are the nation’s second-fastest-growing racial or ethnic group after Asian Americans. Twelve states—Arizona, California, Colorado, Florida, Georgia, Illinois, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, and Texas—had a population of 1 million or more Hispanic residents in 2019.
According to the Stanford Graduate School of Business in collaboration with the Latino Business Action Network, the number of Latino-owned businesses has grown 34% over the last 10 years compared to just 1% for all other small businesses. Were it not for the growth in the number of Latino-owned firms, the total number of small businesses in the U.S. would actually have declined between 2007 and 2012. (Read the State Of Latino Entrepreneurship 2020 Research Report)
Latinos are starting businesses at a faster rate than the national average across almost all industries.
The number of employer LOBs has grown by 14% between 2012 to 2017, over twice the U.S. average of 6%. Additionally, the number of employer LOBs grew across 44 out of 50 U.S. states, and grew at a faster rate than the national industry average across 13 of the 15 industry sectors that include a substantial number (over 1,000) of employer LOBs. Among these industries, the growth rate is highest in the following industries:
- Finance and Insurance
- Real Estate
Latino-owned employer businesses are growing revenues at a faster rate than White-owned employer businesses.
Over the past two years, Latino-owned firms grew revenues an average of 25% per year while WOB revenue grew at 19%.
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.
Only 20% of LOBs that applied for national bank loans over $100,000 obtained funding, compared to 50% of White Owned Businesses (WOB). Considering only scaled firms (annual revenues greater than $1 million) requesting a similar size loan, only 29% of Latino-owned businesses were approved, compared to 76% for WOBs. If loans of all sizes are considered, 51% of LOBs were approved for all or most of their loans requested from national banks, compared to 77% of WOBs. Importantly, after controlling for business performance measures, the odds of loan approval from national banks are 60% lower for Latinos.
Latinos who own employer businesses are no more likely to have high credit risk than their White counterparts. Additionally, when considering credit performance, among the most credit vulnerable business owners (e.g., undocumented and microbusiness owners) the default rates are no higher than those among non-Latinos.
LOBs and WOBs report comparable liquidity with 52% of LOBs and 55% of WOBs reporting they have ample liquidity to operate without the need for credit.
Given the recent booming growth in the number of Latino-owned businesses, it follows that LOBs are younger than WOBs. On average, LOBs are 10 years old while WOBs are 14 years old. The median age for both is 12 years.
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.
LOBs that leverage formal business organizational networks are more than twice as likely to experience funding success as those that did not engage in any networking activities (63% versus 28%). Data shows that businesses that leverage organizational and personal networks are more likely to come in contact with capital providers, which may provide opportunities to build the relationships needed to facilitate funding requests.
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Commercial Capital Company provides equipment financing for the small business community. We’re committed to helping our communities grow and prosper by offering flexible short and long term equipment lease financing options for many different industries including:
- Material Handling
- And so much more
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