Latino Owned Small Businesses are Struggling to Grow
According to the report “Fueling California’s Economic Growth: A Study on Latino Small Business and Capital Access” by the Small Business Finance Fund, more than 40 percent of the nearly 400,000 Latino-owned small businesses in the greater Los Angeles area have been denied capital because of low credit scores and other perceived risks. Access to capital is vital for all entrepreneurs, whether the funding is needed for a startup venture or to grow an existing business. According to the report, evidence shows that Latino small business owners are denied credit more often, charged higher interest rates and discouraged from applying for loans more often than their white counterparts. That’s primarily because they tend to have lower credit scores, limited collateral and less startup capital. Hector Gomez, owner and CEO of a Pasadena-based business called Building Safety Solutions that designs and provides online emergency preparedness safety training programs for big commercial buildings, states:
Very few of us have two or three generations of family who have been in this country, so we don’t have deep-seated roots and are more vulnerable when bad things happen in the economy. It’s not like we have grandparents who left us homes. You have to create your own success from scratch. I don’t believe that the banks and credit-rating agencies care about us — they just look at you as a number.
Common sources of capital include bank lines of credit, term loans, merchant cash advances, personal credit cards and personal/family wealth. According to the report, the lack of access to mainstream financial services and bank financing creates a financial disconnect and it can be exacerbated by a lack of familiarity with the legal system, tax laws, local codes and standard accounting practices. Surprisingly, according to the U.S. Census Bureau’s 2015 Survey of Business Owners, coming out of the Great Recession of 2008 to 2010, they were the fastest growing segment of small business owners. One of the recommendations that the report makes is to strengthen community development financial institutions and other mission-driven lenders that provide culturally-relevant products and services targeted to the Latino market. Hopefully, more can be done to help Latino entrepreneurs succeed in business.