Commentary

With Bank, VC Support, Hispanic-Owned Businesses Could Soar Even Higher

Hispanic-owned businesses have been the fastest-growing segment in the U.S. over the past 10 years, their numbers increasing by 34% since 2010, versus only 1% growth for all other business owners, according to a recent Stanford University study.

Hispanics also represented the largest population increase in the U.S. according to the latest U.S. Census. If not for Latinos, the U.S. population would have seen very little growth. In states like Texas, Latinos represented 95% of all population growth in the past decade. 

According to a 2019 study on the State of Latino Entrepreneurship by the Stanford Latino Entrepreneurship Initiative (SLEI), Latino-owned businesses account for 4% of all U.S. business revenues and 5.5% of U.S. employment. Hispanics overall account for over $2 trillion dollars in economic activity and employ over 3 million Americans. In terms of economic contributions, the same study reveals that Hispanic-owned businesses contribute roughly $500 billion to the U.S. economy annually.

These statistics are all remarkable.  Just imagine what these businesses could achieve with the same access to capital that other businesses have. 

Latino-owned businesses face myriad hurdles to getting affordable funding. Start with FICO scores, which often work against young Latino entrepreneurs who may not have a long-standing credit history, a familial co-signer, or maybe poor credit from amassing too much credit card debt as young adults.

Also, venture capital groups don’t have representation in their leadership reflective of this population, nor do they seem focused on Latino-owned business. They’re also not even institutionally aware of this growth segment.

Then there are the stringent lending criteria at the big banks, added to the legacy of red-lining, which hurt generations of Hispanics in terms of family wealth and being relegated to lower-valued housing areas (due to affordability) that haven’t appreciated at the rate of more desirable areas.

All these obstacles mean fewer funding choices for Latino entrepreneurs. If they are not so lucky to have family support and wealth, credit cards are often the only option. Community banks, perhaps the only real source for access to affordable capital and with a better track record of supporting the Latino community, are going away at a very fast rate. Exacerbating this are the pandemic, mergers of financial institutions, and the rush to digital banking.

Hispanics represent roughly 30% of all Americans. The future of our country and our prosperity will depend heavily on this community. Banks and VCs are missing out on a huge economic driver if they don’t reach out to Latino entrepreneurs. The reality is someone else will -- possibly Square, soon to be Block, which is already providing payment services to thousands of Latino small businesses but could easily add loans with the right awareness campaign. Perhaps it will take digital banks to make the difference and allow this new age of entrepreneurs to soar higher.

 

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