Latinos have long been a part of the US business community, with a rich and varied history. Today, they are making significant strides in business and are leading the way in innovation and entrepreneurship. However, Latinos in Business face unique challenges.
While the funding gap may result from cultural differences, language barriers, and loan approval processes, it may also result from the difficulties Latino business owners face in navigating the current financing structure. For instance, some may find it difficult to package their business data and loan applications effectively.
Latino entrepreneurs need access to low-cost capital:
Latino entrepreneurs face an acute funding gap, and access to low-cost capital is critical to their success. While access to traditional bank loans is often limited, several low-cost financing sources are available to Latinos. These sources range from microloans to SBA loans. These loans typically have lower interest rates and separate the business finances from the individual’s personal finances.
Many private sector companies support Latino entrepreneurs. For example, the nonprofit organization Accion supports small businesses throughout the U.S. by providing low-cost loans and consulting services to businesses of all types. Its experts assess the needs of a business and determine the best ways to meet them. The organization works with a network of financial partners to ensure that the right loan matches the right business.
LOBs are more likely to apply for financing than white-owned businesses:
According to SLEI’s State of Latino Entrepreneurship report, Latino-owned businesses (LOBs) face unique challenges when accessing capital. They often face longer loan documentation and lengthy credit requirements. Despite these challenges, they receive significantly less financing than their white counterparts.
The undercapitalized Latino-owned business market presents great opportunities for investors, entrepreneurs, and the U.S. economy. Moreover, the growing market has the potential to fuel the U.S. economy in the next decade and revitalize communities.
LOBs have lower credit scores:
One of the challenges for Latinos in business is securing financing. Unfortunately, many do not have credit scores of the necessary quality to secure loans. Fortunately, there are many ways to overcome the credit score gap and grow your business. Over 75% of employer-owned businesses (LOBs) in the United States are looking for funding. The most common sources of capital are personal savings, credit cards, bank loans, and loans from family members.
One of the biggest challenges for LOBs is obtaining capital from traditional sources. They do not have easy access to early-stage equity investments and face lower funding rates from banks. This creates a vicious cycle, preventing many LOBs from acquiring the capital they need to grow. This leads to them having to use costly debt, which creates challenges with cash flow and profitability. It also makes it harder for them to get later equity investments.