Latino entrepreneurship continues growth throughout US

Throughout the past decade, the Latino entrepreneurial landscape has experienced both a growth in average annual revenue and an increase in the establishment of new employer businesses. However, Latino business owners remain significantly less likely than white business owners to receive loan approvals from major banks, resorting instead to financing options that expose the business owners to more personal financial risk including personal and business lines of credit and personal home equity loans. The strengths and weaknesses of the Latino entrepreneurial environment are explored in the recently released 2020 State of Latino Entrepreneurship Research by the Stanford Latino Entrepreneurship Initiative. The initiative gathered information from over 3,500 surveyed Latino owned employer businesses, alongside 3,500 white owned businesses, to examine the similarities and differences between the white and Latino entrepreneurial experience.

When examined over the course of the past five years, from the start of 2015 to the beginning of 2020, Latino-owned businesses had an average compound annual revenue growth rate of 15 percent, similar to the white owned business average of 16 percent. Between 2018 and 2020, however, the average compound annual revenue growth rate for Latino owned businesses grew to 25 percent, while the average for white owned businesses experienced a more modest increase to 19 percent. Likewise, between 2012 and 2017 there were 45 states throughout the country that experienced an increase in the number of Latino owned employer businesses operating within their state, with 41 states experiencing a higher growth rate of Latino-owned businesses than the U.S. national average growth rate for all demographics of employer businesses.

In addition to the growth both in total number of companies and in average annual revenue, the report notes that Latino-owned businesses are no more likely to have high credit risk than white business owners and three quarters of Latino owned businesses either recorded a profit or broke even over the past year. Despite these similarities, Latino business owners continue to face significant challenges in securing funding from major banks. The authors found that the odds of receiving loan approvals from national banks are 60 percent lower for Latino business owners when compared to white business owners who have recorded similar business performance.

Because of the lack of support from the large banks, Latino business owners are taking on more personal financial risk; the report found that scaled Latino owned businesses sourced funding of over $100,000 through personal or business lines of credit (51 percent of businesses), family savings (43 percent), business credit cards (40 percent), and personal home equity loans (37 percent).

The full 2020 State of Latino Entrepreneurship Research report may be accessed here.