As a Latino entrepreneur living in the U.S., you probably know some of the challenges Latinos must face on their journey to become business owners. Having access to small business loans and funding is a big one. We want to encourage all the hardworking Latino business owners. You’re essential to our society and economic growth. So, keep thriving because we really believe in everything you have to offer, and we want to help you reach all of your business goals.
Let’s get some insight about how Latino-owned businesses in the U.S. are doing right now. But also, we will cover some common challenges that prevent Latino business owners from accessing funding. And some possible ways of tackling them. We hope you use this guide and share it with other Latino entrepreneurs.
How many Latino-owned businesses are in the U.S.?
Even as they fight systematic racism that has resulted in a lower funding rate, there’s an estimate of 4.65 million Latino-owned businesses in the U.S. Not only, but Latino small-business owners are also the fastest-growing category of entrepreneurs:
In the last 10 years, the number of Hispanic business owners has grown a 34%, contributing to the U.S. economy with around $500 billion.
The truth is the importance of the Latino community in the U.S. economy is underrated. Latino businesses generate employment, revenue growth, and cultural diversity. Despite being an economic power, Latino business owners continue to have difficulty accessing capital or obtaining business loans from banks and any other traditional business funding.
Challenges as a Latino Business Owner looking to access funding in the U.S:
1. Funding gaps:
The gaps in financing for Latino businesses in the United States continue to be one of the biggest challenges.
According to Stanford's research, only 20% of Latino-owned businesses that asked for national bank loans exceeding $100,000 were approved, compared to 50% of White-owned enterprises.
Similarly, other data from the Biz2credit Report showed that in 2020-21 the average loan size for Latino-owned companies was $47,031, which is $34,125 less than the non-Latino-owned firms.
As a result of this disparity, Latinos have been more likely to seek and receive money from sources that expose them to greater personal financial risk. Check on our step-to-step guide on how to Access Business Loans & Other Alternative Business Funding Options.
2. Low average credit score:
The average credit score for Latino-owned businesses is usually low- it rounds the 614. To put these data in perspective for traditional bank loans, bank business lines of credit, and SBA loans, a good credit score-750 or higher- is usually required.
Save some time from being rejected by other financial institutions, especially after going through a long and tedious process. Before rushing to sign an agreement, explore your options and choose your business's best interest. If you haven’t opened one yet or have been in business less than 6 months and your personal credit history isn’t excellent, you may have an easier time getting funding from alternative sources.
For example, you can do research on business cash advances. MCA funding is a type of funding that is an advance against a business’s expected future revenue. If you want to learn more about how business cash advances work, click here.
3. Absence of a traditional identification- ITIN number:
Banks do not often offer services or loans to people with Individual Taxpayer Identification Numbers, also known as ITINs. ITINs are tax-processing numbers issued by the IRS for those who do not have a Social Security number.
Do you require assistance on how to obtain an ITIN number? You can apply for an ITIN by filling out Form W-7 and mailing it to the IRS. Alternatively, you can seek assistance from one of the IRS-approved ITIN acceptance agencies. Agents are available in the United States. Here is a guide on the application process for IRS Individual Taxpayer Identification Number.
4. Language barriers:
Latino business owners' chances of accessing banks and other financial institutions may be due to low literacy and ability to communicate in English. Some financial institutions lack suitable language services to assist non-English speaking Latino entrepreneurs.
According to the TIAA Institute-GFLEC Personal Finance Index, Hispanics have lower financial literacy than whites. Data from 2021 revealed that Hispanics properly answered 41% of the questions, whereas whites correctly answered 55%.
This has caused fear and skepticism of established institutions and the government. Explore other funding alternatives! Your eligibility for alternative funding will depend less on your credit score and more on the details of your business—like what your business model is, who your customers are, what community you operate in, and so on.
We urge you to not be afraid of asking for help or looking for resources that can help you prepare a business and financial plan. Here are some places to start:
Learn the The Main Purpose of Writing a Business Plan.
5. Lack of awareness of alternative funding for Latino entrepreneurs:
Many Latinos are hesitant to seek outside finance, such as venture capital or angel investors. Although the Small Business Administration provides loans, statistics reveal that Latino entrepreneurs apply for them at a lesser rate than national bank loans. Here are some alternative options to explore: 5 Funding Options for Latino Entrepreneurs This 2022.
The fact is that many of these financial hurdles can be overcome by doing some research and having more access to financial education. One Park Financial believes that small and mid-size businesses should have easy access to working capital. As a result, we connect you with funders who specialize in working with small and mid-sized enterprises and are willing to work with people who don't have perfect credit. Fill out our online application and Get Pre-Qualified Today! It only takes minutes.