Small-business revenue took a hit over the last year because of the coronavirus pandemic, and Latino-owned businesses were no exception. In June 2020, 74 percent of Latino-owned businesses surveyed by the Stanford Latino Entrepreneurship Initiative reported revenue decline, and 18 percent reported an increase in costs.
This guide shares personal experiences from Latino entrepreneurs and explains how to get started if you’re interested in starting your own business.
Starting a business from scratch
Claudia Ramos, a graphic designer and illustrator from North Hollywood, California, 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 United States. Her Latino counterparts, who make up a full 18.5 percent of the U.S. population, reached a population of over 60 million in 2019, according to the U.S. Census Bureau.
A recent survey by Stanford University found that Latinos are starting businesses at a faster rate than all other demographic groups. In fact, over the last decade, the number of Latino business owners grew 34 percent compared to the one percent for all other business owners. There are more than 330,000 Hispanic-owned employer firms in the U.S., according to the U.S. Census Bureau’s 2019 Annual Business Survey.
The importance of Latino entrepreneurs
Though they face constraints, Latino entrepreneurs make important contributions to the economy, generating $455.6 billion in revenue in 2018 alone. Their companies also account for 5.8% 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:
- Funding gaps: Only 20 percent of profitable Latino firms that requested large funding (over $100,000) had their needs met, compared to 60 percent of profitable white-owned firms.
- In addition, many Latino business owners report that they feel unqualified to apply for a bank loan at a national bank. They often defer to their own capital, friends, family and credit cards.
- According to the same survey, personal or family savings make up the largest portion of funding for Latino-owned businesses, used by 39 percent of those surveyed. Only 32 percent of white-owned businesses used personal or family savings for business funding.
- Lower credit scores: According to the 2020 Latino Small Business Study, the average credit score for Latino entrepreneurs is 618, a lower credit score than what is required by many banks.
- Lack of awareness of different funding sources available: Many Latinos tend to resist seeking outside funding, including venture capital or angel investors. The Small Business Administration offers loans, 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.
- Low collateral value: Banks and other financial institutions are hesitant to grant anyone money without real property, business inventory, cash savings or deposit, or other types of collateral. Immigrants new to America may not have enough collateral to qualify for loans.
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 that 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.
Loans 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 by entrepreneurs themselves).
Cons: Any equity you build will partially go to your angel investors; angel investors 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 they’re 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 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 to be careful with large expenditures—and to remember 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, rewards are offered 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, personal legal and offer less protection compared to consumer credit cards.
Credit unions and business loans
One demographic-specific possibility is to access a Latino credit union like Point West Credit Union in Portland. A Latino credit union allows applicants to provide foreign identification, offers English and Spanish materials, financial education services and is 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, and here’s a complete guide to Latino credit unions across the United States:
|State||Latino credit unions|
|Arizona||MariSol Federal Credit Union
Vantage West Credit Union
|California||Community First Credit Union
Kern Federal Credit Union
Kinecta Federal Credit Union
Santa Cruz Community Credit Union
SCE Federal Credit Union
Self-Help Federal Credit Union
Travis Credit Union
|Colorado||Fitzsimons Credit Union
Partner Colorado Credit Union
|Connecticut||Members Credit Union
Nutmeg State Financial Credit Union
|Florida||Jet stream Federal Credit Union
Manatee Community Federal Credit Union
Self-Help Federal Credit Union
Suncoast Credit Union
|Idaho||Idaho Central Credit Union|
|Illinois||Illiana Financial Credit Union
Self-Help Federal Credit Union
|Indiana||Financial Center First Credit Union
Notre Dame Federal Credit Union
|Iowa||Ascentra Credit Union
Community 1st Credit Union
Des Moines Metro Credit Union
|Kansas||Azura Credit Union|
|Massachusetts||Metro Credit Union|
|Michigan||Community Promise Federal Credit Union|
|Missouri||Holy Rosary Credit Union|
|New Jersey||1st Bergen Federal Credit Union|
|New Mexico||Guadalupe Credit Union
Rio Grande Credit Union
|New York||Brooklyn Cooperative
Genesee Co-op Federal Credit Union
Lower East Side People’s Federal Credit Union
Neighborhood Trust Federal Credit Union
|North Carolina||Latino Community Credit Union|
|Ohio||Nueva Esperanza Community Credit Union|
|Oklahoma||Weokie Credit Union
True Sky Credit Union
|Oregon||Point West Credit Union|
|Texas||TexasAlliance Credit Union
Amarillo Credit Union
Beacon Federal Credit Union
Border Federal Credit Union
Caprock Federal Credit Union
Coastal Community Federal Credit Union
Community Resource Credit Union
DATCU Credit Union
First Central Credit Union
FirstLight Federal Credit Union
Generations Federal Credit Union
La Joya Area Federal Credit Union
Neighborhood Credit Union
North East Texas Credit Union
One Source Federal Credit Union
People’s Trust Federal Credit Union
Randolph-Brooks Federal Credit Union
Resource One Credit Union
River City Federal Credit Union
Security First Credit Union
Security Service Federal Credit Union
Shared Resources Credit Union
Shell Federal Credit Union
Southwest 66 Credit Union
Space City Credit Union
Unity One Federal Credit Union
Velocity Credit Union
|Utah||City Center Credit Union|
|Washington||Lower Valley Credit Union
Seattle Metropolitan Credit Union
|Wisconsin||Marine Credit Union|
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. Latinos continue to push past financial or other restrictions: According to a 2019 study, the number of credit applications from Latino-owned businesses rose 23 percent over the past 12 months.
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.
Resources for Latinas:
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