An Update on the Rise of Latino Entrepreneurship
According to the Stanford Latino Entrepreneurship Initiative (SLEI), there is so much to learn about the Latino-owned businesses in the United States. Since 2007, Latino-owned businesses grew in number by 46%, which outpaces the growth among all other demographic groups combined. Forty percent of Latino business owners are Millennials. Forty-four percent are female. Between 2007 and 2012, Latina-owned businesses grew in number by 87%. The gross domestic product (GDP) produced by Latinos in the United States in 2015 alone was $2.13 trillion, which is larger than the GDPs of India, Italy or Canada.
All of this data and more was the result of a study titled “State of Latino Entrepreneurship 2017,” coauthored by Stanford professor emeritus Jerry Porras, economics professor Paul Oyer, and SLEI research analyst Marlene Orozco . The data was drawn from over 5000 Latino businesses. The goal was to gain insight on the entrepreneurs, their successes and the barriers they face.
The Latino population now constitutes over 18% of the U.S. population. New Latino businesses are being created at a rate faster than the Latino population itself. Yet, these businesses remain small, with 98% reporting less than $1 million in annual revenue. What is the problem?
The Funding Gap
The study found that these businesses have limited access to capital. The lack of funding is a major hindrance in terms of expansion. Compared to other ethnic groups, national banks offer less funding to Latino businesses. Twelve percent of Latino firms employing more than one person received bank loans. Compared to 18% of Caucasian-owned firms, 15% of Asian-owned firms, and 14% of African American-owned firms, that number is discouraging. However, it mostly has to do with the size of the companies. National banks see smaller firms as a risk.
Another finding from one survey was that Latino business owners may not be submitting loan requests because they assume they are unqualified to apply at a national bank. Even fewer applications are received for loans guaranteed by the Small Business Administration. It seems Latinos are funding their businesses by reaching out to friends and family, seeking angel investors or venture capitalists or simply using their credit cards.
Hope among the Millennials
There is hope among the millennials. A surprising number of firms are owned by immigrants under age 34. This group is referred to as “DACA comparable”. This means they are likely eligible for the Deferred Action for Childhood Arrivals ("DACA") immigration program. DACA delays deportation for undocumented immigrants who came to the United States as children and grants them the right to study or work. Authors of the study theorize that the group’s strengths are its increased likelihood to speak fluent English, to have higher education degrees and access to strong social networks. Also, while no employer can knowingly hire an undocumented immigrant without work authorization, federal and state laws do not require proof of immigration status in order to start a business.
As the youngest racial or ethnic group in the United States, one in three Latinos are under age 18 and 25% are millennials. Most Latino-owned businesses currently serve their local community. However, the percentages of those serving customers statewide and nationwide are growing. The future looks bright for young Latino entrepreneurs.
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