Seven insights and challenges of note for Hispanic businesses vs. white owned businesses.
In February, Stanford’s Graduate School of Business launched its yearly State of Latino Entrepreneurship Report, focusing on the economic impact and challenges faced by Latino-owned employer businesses (LOBs) in the United States.
It highlights the significant contribution of Latinos to the American economy, with over 62.5 million Latinos representing 19% of the population. Latino businesses have an economic output of $2.8 trillion and generate more than $800 billion in annual revenue from nearly 5 million businesses.
Here are 7 highlights, as well as some difficulties facing LOBs:
- Latino-owned businesses are growing at a faster rate than White-owned businesses (WOBs). From 2007 to 2019, the number of LOBs increased by 34%, while WOBs decreased by 7%. LOBs also outpaced WOBs in terms of revenue growth and payroll growth. During the pandemic (2019-2022), LOBs experienced a median growth rate in revenue of 25%, compared to 9% for WOBs.
- LOBs are showing signs of recovery and expanding their customer base, despite the challenges posed by COVID-19. They have recovered from the pandemic and are performing better than before. Additionally, LOBs are engaging in business with governments, corporations, and nonprofit organizations more than in previous years.
- Latino-owned businesses are more likely to seek financing compared to WOBs. Although there has been a reduction in the share of businesses seeking funding overall, LOBs are 50% more likely to request financing. They aim to use those funds to expand their businesses, acquire capital assets, and meet operating expenses.
- LOBs still face difficulties in securing contracts from corporations and governments. While only a small proportion of all businesses secure such contracts, LOBs tend to receive substantially smaller contracts that take longer to secure compared to WOBs. LOBs secure corporate contracts that are 3.3x smaller on average than WOBs, and state and federal government contracts that are more than 30x smaller than WOBs. Additionally, the procurement period for government contracts takes over a year for 37% of LOBs, whereas more than a third of WOBs secure government contracts in less than six months.
- It’s noted there are disparities in loan approval rates. Despite having similar or better qualifying indicators than WOBs, LOBs have lower approval rates for larger loans ($50,000 or more) and higher approval rates for small loans. This discrepancy is observed when LOBs apply for business loans from national banks.
- In terms of marketing strategies, LOBs use a wider array of approaches and social media platforms compared to WOBs to build awareness and expand their customer base. They also report using strategies that differentiate their products and services from competitors.
- There has been an impact from the Great Resignation, a phenomenon characterized by a significant number of employees leaving their jobs. LOBs have been affected more than WOBs, with more LOBs reporting challenges in employee retention and recruitment.
Overall, the report emphasizes the positive economic growth and resilience of Latino-owned businesses in the United States while highlighting the challenges they face in accessing funding, securing contracts, and navigating market dynamics.