If you’re a Latina with a small business take note that investors tend to take interest in LOBs with a Latina behind the project. What are LOBs and why is it better if a Latina is behind it? A LOB is short for “Latino Owned Business” and a 2017 study done by the Stanford Latino Entrepreneurship Fund, found that Latino-owned businesses not only composed a significant percentage of U.S. businesses compared to other minority groups, but not surprisingly Latinas owned 40% of these firms.
If you are looking to raise money for your dream business, here are some tips on how to raise capital. Entrepreneurs usually find funding from banks, friends, family, and nowadays crowdfunding sites. They also go to non-bank lending sources, such as private funding sources which are essentially family members, angel investors, venture capitalists or other private lending institutions. Investopedia defines an angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) as an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.
According to the Stanford Report, when Latino entrepreneurs start a business, 70 percent of their funding comes from personal savings, while just six percent comes from commercial loans.Take the success story of Ana Bermudez, the founder and CEO of TAGit the mobile app that TV viewers use to buy items from their favorite TV shows. If you have ever found yourself watching your favorite TV show and wanting to buy what they’re wearing TAGit was created for you by Bermudez. TAGit identifies the show that you are watching, and it presents you with a list of merchandise related to the TV show. If you watch it on TV, and you want it, all you have to do is TAGit.
It was a brilliant idea, but finding the money to start her business was a hustle. Like most Latinos, Bermudez used all of her savings and retirement accounts to start TAGit, but at the point when most people turn to either finding another job or getting financial help from family and friends, Bermudez opted for another option. When asked by Ufront Media how she raised money to create TAGit she said she also had to thank angel investors for getting her dream business off the ground.
What Bermudez was referring to as her angel investor was her mentor-like collaboration with Accion, one of the largest microfinance organizations, funded in part by U.S. government grants and by JPMorgan Chase & Co. Since banks and the U.S. Department of Treasury are not charities, they support nonprofits like Accion in hopes that startups will build a foundation for a stronger national economy. Accion was founded in Venezuela, operates in more than 30 countries, and offers guidance to entrepreneurs on how to navigate the small-business environment begins with advice on micro-finance and how to get a loan. In Bermudez’s case, Accion managed to get her funding from the Eva Longoria Foundation. In an interview with JP Morgan’s news channel Bermudez said, “Had it not been for Accion, I probably would have had to go back to work, which is a big no-no for entrepreneurs. It paints a negative picture with investors.”
While there are advantages to working with private lenders in having access to quicker capital, the disadvantage is that the interest rate may be higher, and you may have a demanding payment plan. Regardless, private funding sources serve to help small businesses that may not qualify for a bank loan get up and running. “Obtaining sufficient capital could literally be the factor that makes or breaks a business’s ability to grow,” said Simon Goldenberg, an attorney who specializes in financing law for small businesses and individuals, in a Business News Daily interview. “Without private funding, many of those businesses could struggle to get off the ground or keep their doors open.”
Different Routes to Take: Small Banks, Business Loans, and Grants
What tends to hold back Latino business owners’ economic growth? Having poor credit scores, limited funding sources and inadequate business knowledge according to a report titled, Latino-Owned Businesses: Shining a Light on National Trends. And when it comes to whether you’ll have a better chance of a big or small bank giving you a loan, it seems small business owners have greater success with small banks for getting approved for a loan, a line of credit or a cash advance. In fact, 60% of Latino firms had their loans or lines of credit approved by small banks, compared to only 34% by large banks, according to the same report.
They list grants such as the Amber Grant for Women, which provides $2,000 in funding to 12 lucky recipients each year as well as the National Association of the Self-Employed, where small business owners can receive a grant of up to $4,000.
As for loan options, Fundera recommends:
SBA Microloans, a government-backed business loans come with low interest rates and six-year terms.
SBA Community Advantage Loans, they can provide up to $250,000 in capital, by showing good credit and a strong business plan.
Accion, a microfinance organization that can provide loans of up to $50,000 and offers low-income business owners access to financial education and capital.
Opportunity Fund, another nonprofit organization similar to Accion that can offer loans in as few as five days, and there’s an easy online application.
Camino Financial, aims to specifically help Hispanic entrepreneurs and if you meet those requirements you can get funding in as little as two business days.
Kiva, their unique business model offers as much as $10,000 with zero-interest loans where applicants must market their business to the community of 1.6 million individual lenders with three years to repay them.
Remember, securing financing is the toughest part about starting a business, but fortunately, there are plenty of options for Latina small business owners. Keep in mind that loans are easier to get when you’re first starting out and that grants are highly competitive. Don’t give up and follow your dream of becoming an entrepreneur with a great idea.