Latino-Owned Small Businesses Face Hurdles in Accessing Capital to Grow their Businesses

Access to capital is holding Latin-owned business back, according to a recent survey released by the United States Federal Reserve. Latinos are three times as likely as the general population to start a business, but cultural and economic factors have hampered the growth of Latino-owned businesses at a cost of trillions of dollars.

The path to access capital has many potholes for Latino entrepreneurs who historically lack the right resources, relationships or technical support to prepare for a small business loan. According to the survey by the U.S. Federal Reserve, “the pandemic has deeply impacted communities of color and small businesses of color, often to a greater extent than their white counterparts. Before the pandemic, small businesses owned by people of color, in aggregate, faced greater challenges than white-owned firms.”

The report provides evidence that the pandemic exacerbated those challenges, an important finding as those businesses continue to weather the impact of the COVID-19 pandemic. Here are seven key findings about the challenges faced by Latino-owned business owners.

1. About 1 in 10 firms owned by people of color do not use financial services.
2. Approximately 57% of Latino-owned firms more often turned to large banks for small business financing.
   1. For Latino-owned firms, 49% seek financial services at large banks.
   2. For Latino-owned firms, 31% seek financial services at small banks.
   3. For Latino-owned firms, 12% seek financial services at credit unions.
   4. For Latino-owned firms, 9% seek financial services at online lenders.
3. About 65% of Latino-owned small-businesses were most likely to have used personal funds in response to their firms’ financial challenges.
4. Seventy-five percent of firms applied for financing greater than $25,000 to meet operating expenses and expand business, pursue new opportunities or acquire business assets.
5. One-quarter of Latino-owned firms that applied for financing sought $25,000 or less to meet operating expenses and expand business, pursue new opportunities, or acquire business assets.
6. Approximately 38% of Latino-owned firms have unmet funding needs.
7. Only 32% of Latino-owned firms are fully approved for loans, lines of credit and cash advances.

There are many opportunities to help Latino-owned business owners, and the responsibility does not solely land on financial institutions, although they can create the biggest impact. Like any small business owner, Latino business owners need support with business plan development, understanding SBA-backed programs, creating financial statements, and more. As the famous African proverb says, “if you want to go fast, go alone. If you want to go far, go together.”

To help Spanish-speaking business owners access capital, the Compass CBS Foundation launched the A2C Program, a financial accelerator that helps Arizona small business owners understand the steps to qualify for SBA loans and investments, as well as be more financially prepared for future opportunities and any economic situation. This free financial accelerator lasts for 10 weeks and is offered only in Spanish. During the training, selected Spanish-speaking entrepreneurs will have the opportunity to meet in person with experts for guidance and will be able to participate in live online webinars. To learn more, please visit MyBizAZ.com.

EDGAR RAFAEL OLIVO is a bilingual business educator, economic advisor, and contributor for several media outlets. He’s a nonprofit executive who is passionate about education. He is certified in finance and data analytics and holds a business degree from Arizona State University.

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