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Small businesses have taken a hit over the last few years—from the pandemic to supply chain complications to inflation—and Latino-owned businesses were no exception. Still, up to 4 million Latino workers in the U.S. are considering starting new businesses, according to a June 2022 survey by QuickBooks.
If you fall into this camp, read the personal experience and practical advice of business owners in this guide to starting a business as a Latino entrepreneur.
Starting a business from scratch
Claudia Ramos, a graphic designer and illustrator from Los Angeles, dreams of turning her side business, Claudia Ramos Designs, into a full-time gig. Her dreams are specific: She’d like to see her work and that of other Latina artists sold in her very own shop. Ramos, who was born in El Salvador, currently works for Hasbro as a fashion graphic designer by day and (after her seven-year-old daughter goes to bed) on her side business by night.
In 2013, the company where Ramos worked, American Greetings, closed its L.A. office. It was a turning point for her as she considered her next steps.
“I thought, ‘Oh, my gosh. What am I going to do?’” she said. Ramos quickly realized that she could rely on her creativity, something she’d capitalized on since she was a young girl.
Ramos began challenging herself. “A friend asked me to illustrate a save-the-date postcard for her wedding, and I said, ‘OK…’”
Soon after, Ramos’ designs were featured in a wedding magazine, and she opened her Etsy shop.
“It all started using my own money,” she says. “It’s all been out of my own pocket. I’ve never reached out for anyone to sponsor me or reached out to a bank for a loan.”
Ramos’ entrepreneurial spirit is common among the Latino population in the U.S. Latinos, who comprise 19 percent of the U.S. population according to the U.S. Census Bureau, are starting businesses at a faster rate than all other demographic groups, a 2021 survey by Stanford University found. Over the last decade, the number of Latino-owned businesses grew 44 percent compared to 4 percent for all other business owners.
The importance of Latino entrepreneurs
Though they face constraints, Latino entrepreneurs make important contributions to the economy, generating $463 billion in revenue in 2019 alone. Their companies also account for 6 percent of all U.S. businesses. In total, the number of Latino business owners has grown 34 percent since 2000, while revenues have grown 14 percent.
On a larger scale, Latino people are significantly more likely to start a business than other ethnic groups. In 2018, about 0.51 percent of Hispanics started a business. Just 0.33 percent of Asian people, 0.29 percent of white people and 0.24 percent of Black people did over the same period.
Younger Latinos are also making an impact. According to the House Democrats Small Business Committee, 5 percent of DACA recipients under 25 have started a small business, and 8 percent of Dreamers over 25 are entrepreneurs and employers.
Financial challenges as a Latino entrepreneur
“I feel like I’m not making a lot, but I feel like I have to learn more marketing strategies,” Ramos said, noting that social media—Instagram in particular—has changed since she first started her business in 2013. “A lot of people don’t see you on Instagram unless you have 5,000 followers. It’s all about numbers. I’ve been giving out giveaways, and I haven’t been selling that much.”
There are a few concrete reasons why most Latino-owned businesses remain small, and Mary Vazquez, community advocate for Point West Credit Union in Portland, Oregon, has seen them all:
- Collateral required: Requiring borrowers to provide collateral, such as a home or a car, is a common lending practice. However, the Stanford Business Survey found that Latinos are required to offer more collateral than white business owners, despite both groups having good credit scores on average.
- Lack of awareness of funding sources: Many Latinos tend to resist seeking outside funding, including venture capital or angel investors. The Small Business Administration offers loans and grants, but statistics show that Latino entrepreneurs apply for these at lower rates than they do national bank loans.
- Lack of traditional identification: Banks do not often offer products or services to people with Individual Taxpayer Identification Numbers (ITINs), which are tax-processing numbers issued by the Internal Revenue Service for those who do not have a Social Security number.
- Language barriers: Low literacy and English proficiency can be a root cause of Latinos not accessing banks or other financial institutions.
- Lack of bank services: Often, banks or other financial institutions lack services to help Latino entrepreneurs, including linguistically appropriate services. Foreign-born entrepreneurs are also more likely to be denied bank loans.
- Fear and mistrust of the government and established institutions: Culturally, community and family are important to this demographic, and it’s an easier leap for many Latinos to borrow from family or friends before approaching financial institutions for funding.
The solutions to many of these financial barriers start with accessible financial education.
“They need to find a personal coach that can assist them with any of their questions without them feeling like they’ll be rejected or a bother to those institutions,” Vazquez said of the Latinos in her Portland community. “We see those stories every day.”
In 2007, Vazquez was the only Spanish-speaking teller at Point West, but today, almost half the staff at Point West is bilingual and bicultural. She recalls a client, Sara Rodriguez, who felt comfortable with Vazquez because of her Spanish-speaking ability.
Vazquez suggested Rodriguez open a business using the credit union’s help. A stay-at-home mom of four, Rodriguez had no credit and no Social Security number. She did have an ITIN, so Point West issued Rodriguez a $500 loan to pay for permits and ingredients to start her tamale cart, Sara’s Tamales. Over time, Rodriguez received two additional microloans from Point West.
Vazquez points to Rodriguez’s story as a victory and says other credit unions should follow suit. “We actually renovated our website and it’s bilingual, in Spanish and English. Thirty percent of our staff members speak Spanish. Our call center is Spanish-speaking, and we’re one of the few, if not the only one in Oregon, who does ITINs,” she said.
Funding your business as a Latino entrepreneur
Next year, Claudia Ramos plans to attend the #WeAllGrow Latina summit to help her answer questions about what’s been elusive in the success of her business. “[The business owners at the conference] have the same goals: To grow and help each other. With what’s going on politically, it’s what we have to do to help each other,” Ramos said. “It’s part of our culture, too. To start my own little shop, I would feel more comfortable going to my family. Family is always there for you.”
She recalls a time when her cousin needed help funding a surgery, and she and her family members all chipped in to help. It’s the same with starting a business,” Ramos explained. “You lean on family and friends before the bank.”
Vazquez, whose own family is from Mexico, agrees.
“Many times, I’ve seen personally and professionally how the Latino community is always asking friends and family questions about finances. If they have an idea for a business, they always ask a family member or a friend; they never really ask professionals,” she said. “They’re scared of being rejected, or they feel they don’t have the right to explore other options.”
She says that it can be a frightening prospect, particularly for those from another country, to dive into the complex process of obtaining funding.
Considering your funding options
While asking family and friends is often a more appealing option for Latino entrepreneurs, taking the risk of getting funding from a financial institution can help set up your business for success.
A list of pros and cons for various funding options is listed below. Note that regardless of legal status, Latinos can use the business name and number (EIN) to access business credit without having to disclose immigration status.
This type of loan is specifically intended for a business purpose. Banks, credit unions, SBA loans and microloan programs can all be business loan options.
Pros: Business loans usually have lower interest rates, and using a business loan rather than a personal loan separates personal and business finances.
Cons: You must qualify for any type of business loan, and requirements vary. Most business loans require a high credit score.
You can set up an online campaign through a site like GoFundMe to raise money from a variety of people.
Pros: Crowdfunding is low risk, and you can tap into a larger audience via social media.
Cons: Marketing is imperative; you have to deliver what you’ve promised to backers and there is often a crowdfunding platform fee.
Individual financial backers who provide private capital for small or large businesses are known as angel investors.
Pros: The money provided isn’t a loan; angel investors typically have lots of experience in your business of choice (they’re often established entrepreneurs themselves).
Cons: Any equity you build will partially go to your angel investors, who expect to make money and help make business decisions.
Venture capitalists (VCs)
Venture capitalism refers to a person or firm that invests in small companies using money pooled from investment companies, large corporations and pension funds.
Pros: Venture capital can help your business grow quickly, offer business expertise and provide support with legal and tax matters, among other areas.
Cons: VCs expect to make money and often intend to make decisions about your business.
Small-business grants can be money given to a person, business or corporation from federal, state, county or local governments or private businesses or corporations.
Pros: Grants do not need to be repaid and are easy to find online.
Cons: Paperwork is time-consuming, there is tough competition, eligibility is strict and there are also specific rules you have to follow.
Friends and family are some examples of specialty lenders.
Pros: Friends and family trust you and care about your success.
Cons: You could lose money and jeopardize a valuable relationship. Always be sure to document the family member or friend’s role in the business.
A small-business credit card could be a great way to boost the buying power of a business. A credit card gives business owners access to a revolving line of credit to withdraw cash and make purchases—as long as it’s used wisely. Plus, you can earn rewards like points, airline miles or cash back just for using the card.
Some tips for using business credit cards include setting spending limits, watching for any strange transactions and being careful with large expenditures. Also, keep in mind that interest rates are often higher for credit cards than many other sources of funding, including business loans.
Pros: It’s easier and more convenient to qualify for a credit card, you can earn rewards and you can build credit. Credit cards also give you a financial cushion when accounts receivables are behind.
Cons: Credit cards have higher (and fluctuating) interest rates, and business cards offer less protection compared to consumer credit cards.
Credit unions and business loans
One demographic-specific option is to access a Latino credit union such as Point West in Portland. Latino credit unions allow applicants to provide foreign identification, offer English and Spanish materials, financial education services and are able to focus on serving local Latino communities.
“You don’t have to have a Social Security number to bank or get a loan with us. That’s the promise we’ve made to our community,” said Vasquez. “Everyone who comes to our door receives the same service or rates. It’s based on your credit.”
Many Latino credit unions offer the same promise. Here’s a complete guide to Latino credit unions across the U.S.:
|State||Latino credit unions|
Latino and minority business grants
Latino and minority business grants are another way to fund a business, and a local Hispanic Chamber of Commerce is one place to start. For example, the Hispanic Chamber of Commerce of Metropolitan St. Louis showcases a list of grants on its website. Business owners can also research grants online using the following links:
Dreams for the future
Ramos never stops thinking about her someday shop. “That’s my dream and I’m going to keep working hard to get to that point. In my situation, I’m the breadwinner. I’m the only one who’s making money right now. I don’t have the luxury to concentrate on doing this full-time.”
According to Vazquez, Latinos have more opportunities in business than ever before. Vazquez will tell anyone that the door to Point West is always open, and Vazquez herself can often be found greeting anyone who comes through the credit union’s entrance. “Even if you aren’t a citizen, you’re all welcome to come here,” she said.