Press Release

Latino-Owned Business Growth Lags, Despite Comparable Profitability Trends to White-Owned Businesses

Report Assesses Barriers to Growth by Examining Latino-Owned Businesses’ Financing Needs and Challenges, and Regional Differences Nationwide
November 13, 2018

The Federal Reserve Bank of New York, Interise, and the Stanford Latino Entrepreneurship Initiative (SLEI) today issued the report Latino-Owned Businesses: Shining a Light on National Trends. This report uses unique data assets—including the Federal Reserve Banks’ Small Business Credit Survey, SLEI’s Survey of U.S. Latino Business Owners, and interviews with Latino business owners conducted by SLEI and Interise—to examine why Latino business growth lags and how it varies across regions. The findings are also featured in today’s related forum Demographics are not Destiny: Fostering Conditions to Advance Latino Business Growth, held at the New York Fed.

The 2018 SBCS is currently being fielded, and small business owners can help further address information gaps on small business financing by taking this survey.

“Latino-owned small businesses are a growing share of U.S. firms, yet they’re apt to stay small,” said Claire Kramer Mills, New York Fed assistant vice president. “Today’s report looks into factors limiting their growth and describes specific financing, mentoring, and revenue growth opportunities—insights policy makers can use to support a more successful business climate.”

“The Latino business owners highlighted in the report are successful entrepreneurs who provide value to their customers, employees, and communities. What they need to continue their growth trajectories, is greater access to peer, procurement, and financial networks. These critical relationships power businesses and business ecosystems forward,” said Nancy Lee, Interise Research & Evaluation senior manager.

“One of the striking findings in this collaborative research is that scaled Latino-owned businesses (those generating a least $1 million in annual revenue) are more likely to report credit availability issues than unscaled white-owned businesses. This means that even for the top 3 percent of Latino-owned businesses that are generating at least $1 million in annual revenue, credit and financing issues continue to be barriers for growth. Understanding this provides a deeper understanding of the financing and credit needs of Latino business owners which are critical to scale,” said Marlene Orozco, SLEI Lead Research Analyst and co-author of the report.

This report found that Latino business owners often start their businesses with personal savings/loans and they are frequently debt averse. Compared to white-owned firms, they rely more on products that tend to have higher interest rates, they typically have lower credit scores, and they are more likely to experience funding shortfalls. They tend to have the most success with credit applications with smaller local banks. Metro areas with the highest concentrations of Latinos do not necessarily have the densest shares of Latino entrepreneurs. Also, certain metro areas are more conducive to Latino business growth due to the availability of mentorship opportunities and executive education programs.

Key findings can be found in the report’s executive summary. The Spanish-language version of the executive summary is available here. These include:

Reliance on Personal Finances and Efforts to Secure Debt
  • Latino business owners often start their businesses with personal savings and loans from family and friends, and are frequently averse to taking on debt.
  • Latino-owned firms are much more likely than white-owned firms to use personal guarantees than business assets to secure financing (47% compared to 34%, respectively).
    • This tendency to take on greater personal financial risk is in part related to lower credit scores. Latino-owned businesses report being of medium or high credit risk at higher rates than white-owned firms (49% compared to 29%, respectively).
    • They are also more likely to use credit cards, factoring, and merchant cash advances—products that require less collateral and are associated with higher average interest rates.
Financial and Operational Challenges
  • Despite comparable revenue growth and profitability trends as white-owned firms, Latino-owned businesses had acute operating expense and credit availability issues.
    • These challenges were equally common across unscaled (firms with $1,000,000 or less in annual revenues) and scaled (firms with greater than $1,000,000 in annual revenues) firms.
  • Latino-owned business applicants were also more likely to experience funding shortfalls in the prior 12 months: 28% received full funding, compared to 49% of white-owned business applicants.
    • These funding gaps were especially acute for unscaled firms: 40% of loan and line of credit applicants received none of the financing applied for, compared to only 23% of unscaled white-owned business applicants.
  • Operational challenges differed for scaled and unscaled Latino-owned businesses. Scaled firms reported talent shortages, while unscaled firms cited credit access issues.
Financing Sources, Approvals, and Opportunities to Diversify
  • Like many small businesses, the most common forms of capital that Latino-owned small businesses need are lines of credit, loans, and cash advances.
    • Latino business owners have more success working with small, local banks—where there is opportunity for developing personal relationships with bankers—than large or national banks.
  • Latino firms have opportunities to diversify and expand their revenue sources, including business-to-business and government sales.
    • 42% of Latino-owned businesses sell to other businesses, compared to 47% of white-owned businesses.
    • Also, despite incentives in procurement, only 16% of Latino-owned firms sell to state/local government and only 11% sell to the federal government—similar rates to white-owned businesses who often do not have these procurement incentives.
Location-Specific Findings
  • Metro areas with the highest concentrations of Latinos do not necessarily have the densest shares of Latino entrepreneurs.
    • Among the top ten areas with the densest Latino populations, only Miami and Chicago have commensurate entrepreneurship rates.
    • Other factors—such as local economic development that favors certain industries, property values, and state minimum wage laws—play critical roles in incentivizing Latino entrepreneurs.
  • Density of existing business networks and mentorship/capacity building programs make certain areas more conducive to Latino business growth. For example:
    • Latino business owners in the San Diego area participate in trade associations at nearly twice the rate of trade association participation among Latinos nationally (23% compared to 12%).
    • Latino business owners in the Phoenix area participate in Hispanic chambers of commerce at nearly three times the rate of the national participation among Latinos (28% compared to 10%).
  • Experienced mentors help Latino business owners overcome business and environmental hurdles. Multiple business owners cited engaging mentors and participating in business organizations/executive education programs as ways to obtain information on growth opportunities and support.

About the Federal Reserve Banks’ Small Business Credit Survey (SBCS)
The SBCS collects information about business performance, financing needs and choices and borrowing experiences of firms with fewer than 500 employees. Responses to the SBCS provide insight into the dynamics behind aggregate lending trends and about noteworthy segments of small businesses. The results are weighted to reflect the full population of small businesses in the United States. The SBCS is not a random sample; therefore, results should be analyzed with awareness of potential methodological biases.

The SBCS includes experiences from firms across all 50 states and the District of Columbia through the joint efforts of the Federal Reserve Banks of New York, Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, Philadelphia, Richmond, San Francisco and St. Louis. The 2017 SBCS collected 14,465 responses in total, 8,169 of which were from employer firms.

In this report, survey data are confined to small employer firms and compare Latino-owned small employer firms (“Latino-owned businesses”) to white-owned small employer firms (“white-owned businesses”). The SBCS classifies a firm as “Latino-owned” if more than half of the business is owned by a person/persons who is/are Hispanic, regardless of race. It classifies a firm as “white-owned” if at least half of the business is owned by a person/persons who is/are non-Hispanic white. In the 2017 SBCS, 530 respondents were from Latino-owned employer firms, while 6,600 respondents were from white-owned employer firms.

About Interise
Interise works for inclusive economic development with a partnership model for accelerating economic and small business growth in low-income communities. With programs in more than 75 cities nationwide, Interise’s StreetWise ‘MBA’™ provides small business owners with the business knowledge, management know-how and relationships they need to scale using a peer-based learning method. Alumni historically create new jobs at five times the rate of the private sector as a whole and are responsible for the creation of over 30,000 new jobs. Alumni have secured over $3 billion in government and institutional contracts. As alumni grow, they contribute to economic development, job creation and social resilience within their local community. More information can be found at

About the Stanford Latino Entrepreneurship Initiative
Stanford Latino Entrepreneurship Initiative (SLEI) is a research and education collaboration between Stanford University and the Latino Business Action Network. SLEI explores and expands our knowledge of the Latino entrepreneurship segment in the U.S. economy through research, knowledge dissemination, and facilitated collaboration. Learn more at

About the SLEI Survey of U.S. Latino Business Owners
Since 2015, SLEI has collected national survey data on Latino-owned businesses across the country and Puerto Rico annually. To be considered for the survey, respondents must answer affirmative to 1) are you a business owner and 2) are you of Latino or Hispanic origin (if yes, they simultaneously specify country/ancestry); otherwise, they are screened out from survey completion. The 2017 SLEI Survey of U.S. Latino Business Owners was administered online through a Qualtrics proprietary business panel. An additional 5% of responses were collected through internal outreach efforts, such as Hispanic chambers of commerce, social media, or previous survey respondents, yielding a total sample of 5,026 respondents. Data were weighted using population target estimates as designated by the Census Survey of Business Owners, weighting by revenues, industry, employees, and geography. Because geography was used for weighting and we consider the 10 largest metro areas of the Latino population, the data reported for the metro areas has been determined to be fairly representative of those regions.

Betsy Bourassa
(212) 720-6885

Heather Hansen, Stanford Graduate School of Business
(650) 723-0887

Craig Panzer, Interise
(617) 350-6313

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