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Latinos: A powerful force fueling small-business growth and driving $700 billion into the US economy

Rohit Arora, special to
Latinos are driving small-business growth and contributing $700 billion to the US economy every year. Despite challenges including access to capital their revenues jumped 26.5 percent over the last 12 months.

There's a powerful force turbocharging small-business growth in the United States that often goes overlooked. It's the Latino contingent that has outstripped all other demographic groups in the sector. The nearly 4.4 million Latino-owned businesses in the United States contribute more than $700 billion to the American economy every year, according to a study by the U.S. Hispanic Chamber of Commerce. In fact, Latino-owned companies have grown 31.6 percent since 2012, more than double the growth rate of all businesses across America (13.8 percent), the USHCC reports.

The achievements of Latino small businesses are impressive when you consider it is often hard for them to gain access to capital. Yet they are making progress.

An estimated 55 million Latinos live in the United States, according to the U.S. Census Bureau, and the numbers continue to climb. In fact, Latinos represent 17 percent of the country's population, making them the country's largest ethnic or racial minority. Census Bureau projections reveal that 120 million Latinos will compose 28.6 percent of the U.S. population by 2060. Almost two-thirds of the Latino population (64 percent) are of Mexican heritage, followed by Puerto Ricans, who comprise almost 10 percent, according to the Census Bureau.

A new study of small-business loan applications from more than 28,000 businesses, including requests from over 2,000 Latino entrepreneurs on Biz2Credit's online credit marketplace, found that average annual revenue of Latino-owned business jumped an impressive 26.5 percent during the past 12 months. Revenue for Latino businesses grew from $258,702 in 2017 to $327,189 in 2018.

The analysis also revealed that the number of credit applications from Latino-owned businesses rose 22 percent over the same time period and that their average credit scores increased from 592 in 2017 to 594.

"Biz2Credit's study confirms what we have known for some time: the growing contribution and importance of the Latino-owned businesses in our marketplace. For years we have been strong supporters of their entrepreneurial needs and believe it is critical to enable their business growth with comprehensive product offerings, tools, education and services," said Manuel Chinea, COO of Popular Bank.

"Providing access to better and faster financing options will allow Latino-owned businesses to build upon this momentum," Chinea added.

Meanwhile, optimism has grown in the community.

"As a Latino business owner, I have seen such an increase in the Hispanic population over the past 20 years. This growth has afforded Latino business owners with a great deal of confidence and has made the general market take our community serious," said radio station owner Victor Canales, president of VCMG Live.

"The Latino business community now represents billions of dollars in income despite constraints and barriers. It is these constraints, whether political, financial or cultural that still holds back Latino entrepreneurs from enhancing their businesses."

"In the last year, specifically in Florida, we have seen a tremendous influx of displaced Puerto Ricans due to natural disasters," added Canales, well known in the New York radio market as Vic Latino. "I believe once these families arrive and see companies owned and operated by fellow Latinos, it gives them a sense of pride and inspires them to become business owners."

Demographic trends

In which states are Latino businesses thriving?

Business loan applications requests on Biz2Credit's online lending platform in 2017-18 by Latinos came predominantly from California, Texas, New Jersey, Florida, and New York. These five states comprised 60 percent of the applications for loans for Latinos over the past 12 months. California (22 percent) and Texas (20 percent) combined for more than 40 percent of the Latino small business loan requests.

Industry diversity

Accommodation and Food Services 19.6 percent, Services (except Public Administration) 16.3 percent, Construction 14.4 percent, Retail Trade 13.3 percent, Transportation and Warehousing 6.9 percent were the most common industries for Latino entrepreneurs, according to Biz2Credit's records.

A major takeaway from this study is that small businesses have been performing well in the past year, and many of them are looking to expand their operations. Our analysis also revealed that the gap between non-Latino and Latino businesses continues to shrink.

However, not everything is rosy.

Credit squeeze

"To this day, I still have my own challenges with financing. The national banks have strict guidelines and usually will not go near a business with less than 10 employees or a start-up with less than two years of tax filings," Canales said. "Other options are available. Although some have higher interest rates, there is always an option. You just need to do your research, and treat the first few years of the business as an investment."

The average credit score for Latino entrepreneurs is still below 600. This is problematic because 600 is a benchmark that many banks use when considering whether or not to approve a loan request.

As the Latino community continues to grow, it is critical for the businesses that they start are able to obtain the capital they need for growth.

While revenues for Latino firms are up, business owners need to monitor their expenses, pay their debts on a timely basis, and lower their credit utilization in order to improve their credit scores and secure lower cost capital.