Funding Barrier, The Biggest Obstacle For Latinx-Owned Businesses

Latinx-owned businesses BeLatina Latinx
Photo courtesy of San Diego Travel Blog.

The largest minority community in the nation is growing their businesses at amazing rates. Still, despite their success, banks refuse to fund them. 

Marlene Orozco, the lead research analyst of the Stanford Latino Entrepreneurship Initiative, explained, “over the last five years, we’ve really been able to dig deep into the challenges facing the Latino segment.”

According to the 2020 Latin Entrepreneurship research study conducted by the Stanford Latino Entrepreneurship initiative, 20 percent of Latinx-owned businesses who apply to national bank loans over $100,000 are approved. This is in comparison to the 50% percent approval rating from white-owned companies. 

Similarly, and if you size down the loan, the approval rating is still not equal. While 51 percent of Latinx-owned businesses get the ok, the number is significantly high for white people, 77 percent. 

Their findings were based on more than 3,500 white and Latinx-owned businesses that they looked into. 

Over the last ten years, Latinx businesses have grown enormously — 34 percent to be exact — while other small businesses have staggered at 1 percent. 

Orozco added, “The data counters the idea that Latinos are only growing in service-related industries. We are seeing multifaceted growth across states and industries including construction, finance and insurance, transportation, and real estate.”

These numbers are not only reflective of industry business in the last two years, but Latinx firms also grew their revenue by about 25 percent. White-owned companies lagged at 19 percent. 

And as you’ve read over and over, the pandemic has not eased these struggles; instead, it’s created a more significant gap and more bank loan rejections. Despite strong openings and metrics, Latinx-owned businesses continue to fall short over the last year. 

In a different 2020 research study, The U.S. Small Business Administration Office of Advocacy said Latinx-owned businesses were more likely to have a bank loan application denied from the get-go than a white person. Though unsurprising, it is still disheartening to have these findings.  

So what does a person do when a bank loan rejects them? Be resilient, and find other sources. Crowdsourced equity capital is one option, which allows local investors to bet on a business by donating anywhere from $500-$10,000. 

If we Latinx are anything is risk-takers. The Stanford research study also noticed that Latinx-owned businesses were more willing than white-owned companies personal financial risks to see their business flourish. They are more likely to use personal lines of credit, savings, and even business credit cards. 

So yes, big banks may be trying to stop Latinx-owned businesses, but if there’s one thing for sure, it is that we cannot be stopped, and even less so solely based on finance.