Why Latino Business Owners Face Greater Financial Challenges

Business owner in front of business

Over the years, Latino business owners have confronted more challenges than other groups. Things like applying for loans is particularly difficult for them. Funding is an issue for many who want to establish their own businesses. According to a Stanford study, 50.8% of Latinos receive business loans compared to 76.7% of whites. In contrast to white-owned enterprises, two out of every ten Latinos who asked for national bank loans exceeding $100,000 were approved.

Despite applying for assistance at similar rates as white business owners, Latino-owned enterprises  are considerably less likely to receive it. According to Stanford researchers, only 28% of Latino business owners receive the entire amount of funds requested, compared to 49% of white business owners. “In other words, Latino business owners are denied more often than white business owners,” the report said.

The study also reported that Latino owners often didn’t know how to get small company loans and couldn’t locate information about them.  The result, in many instances, is that they had to close their doors.

Latino households have less financial assets than non-Latino white families, despite having similar levels of debt. The typical Hispanic or Latino family has around $25,000 in net worth, while non-Hispanic households have a little above $100,000.

In the last  Survey of Consumer Finances, Hispanics lag behind non-Hispanics in direct stock, bond, and mutual fund investments and retirement savings, with only $10,000 in direct stock, bond, and mutual fund investments and $22,000 in retirement savings compared to $60,000 and $65,000, respectively.

The COVID-19 outbreak and ensuing recession have wreaked havoc on the Latino community in the United States. They have been experiencing shutdowns of their small businesses due to lack of funding and significant job losses, particularly among Latinas in the service industry, as a result of their overrepresentation in industries that have been severely hit by the pandemic.

Though Hispanic and Latino entrepreneurs confront particular hurdles when starting a business, there are ways to overcome these:

Gaining Financial Literacy

Though there are many financial institutions Latinos can benefit from, financial illiteracy is a major obstacle. There are banks, credit unions, insurance firms, credit card companies, brokerage firms, mortgage companies, investment management firms, and other financial service companies, but owners often do not know how to access their services.

Understanding How to Bank

Many Latinos are unbanked, which means they do not use financial institutions to save and deposit money. This is a result of a lack of trust in financial institutions in their native countries, as well as a general lack of financial education. Individuals frequently spend their money on caring for family members or paying for their children’s education rather than preparing for their retirement. While many Latinos are responsible for their money, many lack financial mentors in their communities. And when each of these factors compound, many find themselves in a situation where they are unable to get reasonable loans from outside sources in order to create generational wealth.  Latinos need to gain financial literacy that will prove to the general public and financial institutions that they are good financial managers.

Seeking Outside Support and Resources

Many Latinos lack awareness of the many funding options available to them. They only stick to familiar ways of raising funds. They need to be provided with information and training on how to obtain money from traditional and nontraditional lenders. Although the Small Business Administration provides loans, statistics reveal that Latino entrepreneurs apply for them at a lesser rate than national bank loans. There are still other small business funding options available, including equity financing.

The process of equity financing includes selling stock options to individual and institutional investors. Stockholders obtain an ownership interest in the company in exchange for their investments. Equity crowdfunding is a newer form of this strategy that has become available to the general public in recent years and allows anyone with an interest in a company to invest and own shares.

Though it is true that Latinos face greater financial obstacles, a combination of more options, increased knowledge, and education will help them overcome those obstacles and succeed.

Related content:

8 Recommendations for Safeguarding Cash Flow

Why So Many Small Businesses Fail and How Not to Become a Statistic

Real Scenario- When a Growing Small Business Needs Funding

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