They may not have the most expensive streets or the tallest buildings in town, but they are crucial to job creation and the American economy. Alongside multinational corporations, S&P 500 companies, and major chains, they are home to a critical network of small businesses and startups that keep the wheels of the economy turning. Many of these businesses were founded by Latinos, and they are now founding businesses at a higher rate than any other community. Yet inequalities remain: Latinos make up 20% of the U.S. population but own only 6.9% of businesses.
According to figures from Stanford University’s Latino Entrepreneurship Initiative, there are 4.7 million Latino businesses of all sizes in the United States, contributing $800 billion annually to the economy. Of these businesses, 463,000 employ more than 3.5 million people. This is a significant number, but with approximately 160 million workers in the country, the story of Latino entrepreneurship in the United States is just beginning.
Today, the economic contribution of these companies could and should be much larger if it weren’t for limited funding, weak liquidity practices, and fewer available investment opportunities.
Mari Borrero has experienced this inequality firsthand. She is CEO of American Abatement & Demo (AAD), a company she founded with her husband in 2017. The Washington state-based demolition company employs former inmates and has $3 million in sales and 14 employees. But things haven’t been easy. Before becoming an entrepreneur, Borrero ran a hospice and was a teacher. So starting a new business meant learning how to navigate unfamiliar systems and build relationships with banks and credit unions. “It’s a giant puzzle that you have to solve while also managing your business,” she sighs, donning a pink construction helmet.
Borrero says she feels like she’s stuck in a hamster wheel, going around and around as she searches for financing. “First they tell me my credit score isn’t good enough. Then finally… [have a good score] When we apply for financing, we are told that we haven’t been in business for long enough. Our goal just keeps getting further away.”
A few months ago, her company was recognized as a Star Client by the Washington Small Business Development Center. Valero recalls one memorable moment: “At the celebration, [bankers who] I was denied a loan. They congratulated me on my certification but said they were sorry they couldn’t help me. But how is that going to help me?”
Despite the challenges, these companies highlight the important role Latinos play in shaping a more inclusive American business environment. Barbara Gomez Aguinaga, associate director of the Stanford Latino Entrepreneurship Initiative (SLEI), explains that 52% of job creators within the Hispanic business community are immigrants. For white businesses, just 7% of employers immigrated to the U.S. from other countries. This evidence adds to a growing body of research showing that immigration has a positive impact on the U.S. economy overall, including a study commissioned by the Congressional Budget Office (CBO).
Starting a business requires the same drive as deciding to start from scratch across a border in a foreign land. And once in the U.S. business world, the obstacles multiply and many ventures fail, despite evidence that equalization would benefit the country as a whole. Achieving equalization is “critical not only to empowering Latino businesses, but also to strengthening the U.S. economy and the nation’s workforce,” the Stanford report noted.
Elian Savodivker, Engagement Director at the Latino Business Action Network (LBAN), explains that without these challenges, the opportunities for growth would be much greater. “Without these issues, businesses can realize their potential. This is a $3 trillion opportunity.” Her experience shows that this business community has high employment rates and offers excellent benefits to employees. “What we’ve seen is that Latinos tend to come from difficult situations and have a very strong sense of family, which is very similar to what they build with their employees.”
What was observed at Stanford University is that Hispanic entrepreneurs have a higher approval rate than other groups when applying for loans of less than $50,000. But when it comes to larger amounts, the situation is reversed. The reason is that for small loans, the decision is made through a structured process. But when it comes to larger amounts, the human factor comes into play. This time, you have to have a discussion with the bank, which reduces the chances of success.
This is no small matter: Access to financing is not only critical to weathering extraordinary times like the pandemic, but also to spur growth — for payroll systems to function, for businesses to expand, for jobs to be created — and it also enables entrepreneurs to take advantage of new opportunities like those presented to Borrero’s company, AAD, in 2023.
In May of that year, the Visitor Center at Olympic National Park in Washington state caught fire while undergoing renovations. To be able to rebuild and open in time for ski season, it first had to be demolished. The budget was $815,000 and the deadline was 30 days. The National Park Service contacted Borrero, and she accepted. The problem was that her company needed to prove it had enough liquidity to win the contract and take on the work, while also considering that payment for the job would take several months to process.
Unable to secure a bridge loan from financial institutions, Borrero had no choice but to go to her parents. At this point in her conversation with EL PAÍS, the businesswoman becomes emotional and fights back tears. She says she knows her parents are proud of her and her family, but she understands they have their own circumstances. “I knew they would help, but it shouldn’t have had to happen. It shouldn’t have had to happen. There is a lot of money out there, people who make a lot of money. It really pisses me off that it’s so hard for small businesses and they keep complicating our situation over and over again.”
The LBAN director emphasizes that financial institutions still need to learn that investing in Latino entrepreneurs is never a risky opportunity. Rather, investing in them is a sign of “risk aversion.” “Latinos know that the problem is not the business,” she says. “The problem is prejudice. And that has to change, because when you look at the numbers, you can’t defend that prejudice.”
On the bright side, there are some trends that could help address current disparities: More Latinos in financial institutions — more people who know the struggles personally — could help expand opportunity in the long run.
Savodivker adds that today, Latino entrepreneurs are doing more with less. In the end, it’s all about the numbers. “Change is going to happen, because there’s a lot of money that’s not being spent. There’s no financial solutions being offered to this community.”
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