Building a Business as a Latino Entrepreneur

Share this post

Latino business revenue has taken a hit in recent months because of COVID-19. Just two weeks into the pandemic in March 2020, 86 percent of Latino-owned businesses surveyed by the Stanford Latino Entrepreneurship Initiative said they lost revenue and clients, along with project delays and layoffs.

This guide shares personal experiences from Latino entrepreneurs and explains how to get started if you’re interested in starting your own business.

Starting a business from scratch

Claudia Ramos, a graphic designer and illustrator from North Hollywood, California, dreams of turning her side business, Claudia Ramos Designs, into a full-time gig. Her dreams are specific: She’d like to see her work and that of other Latina artists sold in her very own shop. Ramos, who was born in El Salvador, currently works for Hasbro as a fashion graphic designer by day and (after her seven-year-old daughter goes to bed) on her side business by night.

In 2013, the company where Ramos worked, American Greetings, closed its L.A. office. It was a turning point for her as she considered her next steps.

“I thought, ‘Oh, my gosh. What am I going to do?’” she said. Ramos quickly realized that she could rely on her creativity, something she’d capitalized on since she was a young girl.

Ramos began challenging herself. “A friend asked me to illustrate a save-the-date postcard for her wedding, and I said, ‘Okay…’”

Soon after, Ramos’ designs were featured in a wedding magazine, and she opened her Etsy shop.

“It all started using my own money,” she says. “It’s all been out of my own pocket. I’ve never reached out for anyone to sponsor me or reached out to a bank for a loan.”

Ramos’ entrepreneurial spirit is common among the Latino population in the United States. Her Latino counterparts, who make up a full 18 percent of the U.S. population, reached a population of nearly 60 million in 2018, according to Pew Research Center.

A recent survey by Stanford University found that Latinos are starting businesses at a faster rate than all other demographic groups. In fact, over the last decade, the number of Latino business owners grew 34 percent compared to the one percent for all other business owners. There are more than 4.6 million Hispanic-owned businesses in the U.S., according to the Hispanic Small Business Report. Despite these figures, most Latino-owned businesses remain small, with 98 percent reporting less than $1 million in revenue per year.

Despite these figures, most Latino-owned businesses remain small, with 98 percent reporting less than $1 million in revenue per year.

The importance of Latino entrepreneurs

Though they face constraints, immigrant Latino entrepreneurs make important contributions to the economy, generating $470 billion in revenue in 2016 alone. Their companies also account for 5.5% of all U.S. employment.

According to the U.S. Small Business Administration Office of Advocacy, roughly 3.3 million of the 30 million small businesses are Hispanic-owned. In total, the number of Latino business owners has grown 34 percent since 2000, while revenues have grown 14 percent.

On a larger scale, Latino immigrants are significantly more likely to start a business than other ethnic groups. In 2018, about 0.51 percent of Hispanics started a business. Just 0.33 percent of Asians, 0.29 percent of whites, and 0.24 percent of blacks did over the same period.

Younger Latinos are also making an impact. According to the House Democrats Small Business Committee, 5 percent of DACA recipients under 25 have started a small business, and 8 percent of DREAMers over 25 are entrepreneurs and employers.

Financial challenges as a Latino entrepreneur

I feel like I’m not making a lot, but I feel like I have to learn more marketing strategies,” Ramos says, noting that social media – Instagram in particular – has changed since she first started her business in 2013. “A lot of people don’t see you on Instagram unless you have 5,000 followers. It’s all about numbers. I’ve been giving out giveaways, and I haven’t been selling that much.”

There are a few concrete reasons why most Latino-owned businesses remain small, and Mary Vazquez, community advocate for Point West Credit Union in Portland, Oregon, has seen them all:

Funding gaps: Only 12 percent of Latino firms received bank loans compared to 18.4 percent of white-owned firms and 15.3 percent of Asian-owned firms. Often, national banks are not willing to take on the risk of smaller firms. In addition, many Latino business owners report they feel unqualified to apply for a bank loan at a national bank. They defer to their own capital, friends, family and credit cards. They tend to use banks or credit unions, venture capital or angel investors as a last resort.
Lower credit scores: According to the 2019 Latino Small Business Study, the average credit score for Latino entrepreneurs is 588, a lower credit score than what is required by many banks.
Lack of awareness of different funding sources available: Many Latinos tend to resist seeking outside funding, including venture capital or angel investors. The Small Business Administration offers loans, but statistics show that Latino entrepreneurs apply for these at lower rates than they do national bank loans.
Lack of traditional identification: Banks do not often offer products or services to people with Individual Taxpayer Identification Numbers (ITINs), which are tax-processing numbers issued by the Internal Revenue Service for those who do not have a Social Security number.
Language barriers: Low literacy and English proficiency among some Latino immigrants can be a root cause of Latinos not accessing banks or other financial institutions.
Lack of bank services: Often, banks or other financial institutions lack services to help Latino entrepreneurs, including linguistically-appropriate services. Foreign-born entrepreneurs are also more likely to be denied bank loans.
Fear and mistrust of the government and established institutions: Culturally, community and family are important to this demographic, and it’s an easier leap for many Latinos to borrow from family or friends before approaching financial institutions for funding.
Low collateral value: Banks and other financial institutions are hesitant to grant anyone money without real property, business inventory, cash savings or deposit or other types of collateral. Immigrants new to America may not have enough collateral to qualify for loans.

The solutions to many of these financial barriers start with accessible financial education.

“They need to find a personal coach that can assist them with any of their questions without them feeling like they’ll be rejected or a bother to those institutions,” Vazquez says of the Latinos in her Portland community. “We see those stories every day.”

In 2007, Vazquez was the only Spanish-speaking teller at Point West, but today, almost half the staff at Point West is bilingual and bicultural. She recalls a client, Sara Rodriguez, who felt comfortable with Vazquez because of her Spanish-speaking ability.

Vazquez suggested Rodriguez open a business using the credit union’s help. A stay-at-home mom of four, Rodriguez had no credit and no Social Security number. She did have an ITIN, so Point West issued Rodriguez a $500 loan to pay for permits and ingredients to start her tamale cart, Sara’s Tamales. Over time, Rodriguez received two additional micro-loans from Point West.

Vazquez points to Rodriguez’s story as a victory and says that other credit unions should follow suit. “We actually renovated our website and it’s bilingual, in Spanish and English. Thirty percent of our staff members speak Spanish. Our call center is Spanish-speaking, and we’re one of the few, if not the only one in Oregon who does ITINs,” she says.

Funding your business as a Latino immigrant

Next year, Claudia Ramos plans to attend the #WeAllGrow Latina summit to help her answer questions about what’s been elusive in the success of her business. “[The business owners at the conference] have the same goals: to grow and help each other. With what’s going on politically, it’s what we have to do to help each other,” Ramos says. “It’s part of our culture, too. To start my own little shop, I would feel more comfortable going to my family. Family is always there for you.”

She recalls a time when her cousin needed help funding a surgery, and she and her family members all chipped in to help. It’s the same with starting a business,” Ramos explains. “You lean on family and friends before the bank.”

Vazquez, whose own family is from Mexico, agrees.

“Many times, I’ve seen personally and professionally how the Latino community is always asking friends and family questions about finances. If they have an idea for a business, they always ask a family member or a friend; they never really ask professionals,” she says. “They’re scared of being rejected, or they feel they don’t have the right to explore other options.”

She says that it can be a frightening prospect, particularly for those from another country, to dive into the complex process of obtaining funding.

Considering your funding options

While asking family and friends is often a more appealing option for Latino entrepreneurs, taking the risk of getting funding from a financial institution can help set up your business for success.

A list of pros and cons for various funding options are listed below. Note that regardless of legal status, Latinos can use the business name and number (EIN) to access business credit without having to disclose immigration status.

Business loans

Loans specifically intended for a business purpose. Banks, credit unions, SBA loans and microloan programs can all be business loan options.

Pros: Business loans usually have lower interest rates, and using a business loan rather than a personal loan separates personal and business finances.

Cons: You must qualify for any type of business loan, and requirements vary. Most business loans require a high credit score.

Crowdfunding

You can set up an online campaign and raise money from a large number of people.

Pros: Crowdfunding is low risk, and you can tap into a larger audience via social media.

Cons: Marketing is imperative; you have to deliver what you’ve promised to backers and there is often a crowdfunding platform fee.

Angel investors

Individual financial backers who provide private capital for small or large businesses.

Pros: The money provided isn’t a loan; angel investors typically have lots of experience in your business of choice (they’re often established by entrepreneurs themselves).

Cons: Any equity you build will partially go to your angel investors; angel investors expect to make money and help make business decisions.

Venture Capitalists (VCs)

A person or firm that invests in small companies using money pooled from investment companies, large corporations and pension funds.

Pros: Venture capital can help your business grow quickly, offer business expertise and provide support with legal and tax matters, among other areas.

Cons: VCs expect to make money and often intend to make decisions about your business.

Small business grants

Money given to a person, business or corporation from federal, state, county or local governments, or private businesses or corporations.

Pros: Grants do not need to be repaid and they’re easy to find online.

Cons: Paperwork is time-consuming, there is tough competition, eligibility is strict and there are also specific rules you have to follow.

Specialty lenders

Friends and family are some examples of specialty lenders.

Pros: Friends and family trust you and care about your success.

Cons: You could lose money and jeopardize a valuable relationship. Always be sure to document the family member or friend’s role in the business.

Credit cards

Business credit cards can help entrepreneurs keep expenses separate while allowing them to pay off larger purchases over time.

Pros: It’s easier and more convenient to qualify for a credit card, rewards are offered and you can build credit. Credit cards also give you a financial cushion when accounts receivables are behind.

Cons: Credit cards are more expensive, have higher (and fluctuating) interest rates, personal legal liability, security issues and offer less protection compared to consumer credit cards.

Credit unions and business loans

One demographic-specific possibility is to access a Latino credit union like Point West Credit Union in Portland. A Latino credit union allows applicants to provide foreign identification, offers English and Spanish materials, financial education services and is able to focus on serving local Latino communities.

“You don’t have to have a Social Security number to bank or get a loan with us. That’s the promise we’ve made to our community,” says Vasquez. “Everyone who comes to our door receives the same service or rates. It’s based on your credit.

Many Latino credit unions offer the same promise, and here’s a complete guide to Latino credit unions across the United States:

State	Latino credit unions
Arizona	MariSol Federal Credit Union Vantage West Credit Union
California	Community First Credit Union Kern Federal Credit Union Kinecta Federal Credit Union Santa Cruz Community Credit Union SCE Federal Credit Union Self-Help Federal Credit Union Travis Credit Union
Colorado	Fitzsimons Credit Union Partner Colorado Credit Union
Connecticut	Members Credit Union Nutmeg State Financial Credit Union
Florida	Jetstream Federal Credit Union Manatee Community Federal Credit Union Self-Help Federal Credit Union Suncoast Credit Union
Idaho	Idaho Central Credit Union
Illinois	Illiana Financial Credit Union Self-Help Federal Credit Union
Indiana	Financial Center First Credit Union Notre Dame Federal Credit Union
Iowa	Ascentra Credit Union Community 1st Credit Union Des Moines Metro Credit Union
Kansas	Azura Credit Union
Massachusetts	Metro Credit Union
Michigan	Community Promise Federal Credit Union
Missouri	Holy Rosary Credit Union
New Jersey	1st Bergen Federal Credit Union
New Mexico	Guadalupe Credit Union Rio Grande Credit Union
New York	Brooklyn Cooperative Genesee Co-op Federal Credit Union Lower East Side People’s Federal Credit Union Neighborhood Trust Federal Credit Union
North Carolina	Latino Community Credit Union
Ohio	Nueva Esperanza Community Credit Union
Oklahoma	Weokie Credit Union True Sky Credit Union
Oregon	Point West Credit Union
Texas	TexasAlliance Credit Union Amarillo Credit Union Beacon Federal Credit Union Border Federal Credit Union Caprock Federal Credit Union Coastal Community Federal Credit Union Community Resource Credit Union DATCU Credit Union EECU First Central Credit Union FirstLight Federal Credit Union GECU Generations Federal Credit Union La Joya Area Federal Credit Union Neighborhood Credit Union North East Texas Credit Union One Source Federal Credit Union People’s Trust Federal Credit Union Randolph-Brooks Federal Credit Union Resource One Credit Union River City Federal Credit Union Security First Credit Union Security Service Federal Credit Union Shared Resources Credit Union Shell Federal Credit Union Southwest 66 Credit Union Space City Credit Union Unity One Federal Credit Union Velocity Credit Union
Utah	City Center Credit Union
Washington	Lower Valley Credit Union Seattle Metropolitan Credit Union
Wisconsin	Marine Credit Union

Latino and minority business grants

Latino and minority business grants are another way to fund a business, and a local Hispanic chamber of commerce is one place to start. For example, the Hispanic Chamber of Commerce of Metropolitan St. Louis showcases a list of grants on its website. Business owners can also research grants online using the following links:

A business credit card could be a great way to boost the buying power of a business. A credit card gives business owners access to a revolving line of credit to withdraw cash and make purchases – as long as it’s used wisely.

Some tips for using business credit cards include setting spending limits, watching for any strange transactions, and to be careful with large expenditures – and to remember that interest rates are often higher for credit cards than many other sources of funding, including business loans.

Dreams for the future

Ramos never stops thinking about her someday-shop. “That’s my dream and I’m going to keep working hard to get to that point. In my situation, I’m the breadwinner. I’m the only one who’s making money right now. I don’t have the luxury to concentrate on doing this full-time.”

According to Vazquez, Latinos have more opportunities in business than ever before. Latinos continue to push past financial or other restrictions: According to a 2019 study, the number of credit applications from Latino-owned businesses rose 23 percent over the past 12 months.

Vazquez will tell anyone that the door to Point West is always open, and Vazquez herself can often be found greeting anyone who comes through the credit union’s entrance. “Even if you aren’t a citizen, you’re all welcome to come here,” she says.

Other resources:

Society of Hispanic Professional Engineers: Empowers the Hispanic community to realize its fullest potential and impact the world through STEM awareness, access, support, and professional development.
United States Hispanic Chamber of Commerce (USHCC): The United States Hispanic Chamber of Commerce (USHCC) actively promotes the economic growth, development and interests of Hispanic-owned businesses. The USHCC advocates on behalf of 260 major American corporations and serves as the umbrella organization for more than 200 local chambers and business associations nationwide.
Prospanica: Prospanica offers annual career and professional development conferences, connects thousands of Hispanics to graduate programs, subject matter experts, corporations, and each other.
Association of Latino Professionals for America (ALPFA): In addition to offering networking and professional leadership development opportunities, ALPFA aspires to be the business partner of choice for companies seeking to hire and develop Latino talent.
Dreamers Ventures: Dreamers Ventures is a platform and multi-city tour that brings knowledge, capital and access to opportunities to America’s fastest growing entrepreneurial segment to turn their dreams into reality.
Latina Business Association: The LBA has more than 800,000 members and has been around for 40 years. The group offers training, certifications, funding resources and more.

Resources for Latinas:

Ellevest: An investment resource specifically for women, Ellevest offers goal-based planning and saving, plus additional female-first advising services, including one-on-one career coaching and financial strategy.
Hispanic Women in Leadership (HWIL): HWIL is a service organization committed to promoting the advancement of Hispanics and women in the areas of education, professional interaction, leadership training, mentorship and the perpetuation of the Hispanic culture.
Latinas Think Big Network: Dynamic summits, career advice and mentoring, educational programs, and access to supportive and influential networks drive the Latinas Think Big Network.
Latina Entrepreneur Academy (LULAC): LULAC is a part of the Women’s Empowerment (WE) Initiative designed to train, motivate and inspire women – especially those of Hispanic descent – to build their own businesses or enhance their existing ones.
#WeAllGrow Latina: #WeAllGrow Latina connects a community with opportunities for growth. A network of digital influencers, hyperlocal events and an annual summit propels growth through brand partnerships and community development.

This editorial content is not provided or commissioned by any of the referenced financial institutions or companies. Opinions, analysis, reviews or recommendations expressed here are the author’s alone, not those of any financial institutions or companies, and have not been reviewed, approved or otherwise endorsed by any such entity. All products or services are presented without warranty. Bankrate.com is an independent, advertising-supported publisher and comparison service. This post contains references to our partners, and Bankrate may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on certain links posted on this website.

Originally published via Bankrate