Latinos are three times as likely as the general population to start their own businesses, but cultural and economic factors have hampered the growth of Latino-owned businesses at a cost of trillions of dollars. A report by the Stanford Latino Entrepreneurship Initiative (SLEI) found the lost growth amounted to a $1.38 trillion “opportunity gap” in 2012 alone.
Hispanic business leaders say the lack of access to capital was accentuated by President Obama’s regulatory measures in the wake of the 2008 financial crisis. “Hispanic businesses have it twice as bad. Under the Obama administration, the Consumer Financial Protection Bureau was so draconian that they over-regulated the financial services industry,” said Javier Palomarez, president of the U.S. Hispanic Chamber of Commerce (USHCC).
Latinos tend to open businesses with “personal motivations” rather than as a result of identifying market opportunities. Because of this, Latinos are less likely to pursue capitalization opportunities that put full ownership at risk, limiting their prospects for growth. Despite their limitations, Latino-owned businesses are still the fastest-growing segment of small businesses in the country, generating around $400 billion in annual revenue, according to the Congressional Hispanic Conference.
Aside from the structural and regulatory challenges limiting access to investment capital, Palomarez said minority business owners often don’t have the networks and know-how that other entrepreneurs take for granted. “The USHCC is invaluable compared to a chamber that’s helping a guy who’s already got networks, connections and knows lending institutions,” said Palomarez. The lack of connections, said Palomarez, can create a gap in the contracts available to Latino-owned businesses.
Latina-owned businesses have led the charge. The number of businesses owned by Hispanic women grew 206 percent between 1997 and 2014, compared to 68 percent growth of women-owned businesses in general, according to a report by American Express. Those businesses have been a major driver of economic growth, but they still lag behind other minority-owned businesses in employment and revenue. Latina businesses had average revenues of $64,479, compared to $155,477 for women-owned businesses as a whole.
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