How Can Latino Entrepreneurs Boost the U.S. Economy?

In 2012, there were already 3.3 million Latino entrepreneurs in the United States and they are projected to rise in the succeeding years, according to an article by Latin Post. In fact, a recent Harvard Business School study suggests that between 1996 and 2006, there had been a 31 percent increase in immigrant entrepreneurs since immigrant-started businesses grow at a faster rate and last longer in the industry compared to businesses started by native U.S. residents.

Meanwhile, The number of Latino business owners has surged by 34 percent over the past decade, which outpaces any other ethnic group.

In what ways can Latino entrepreneurs boost the U.S. economy?

According to the latest State of Latino Entrepreneurship (SOLE) report https://www.gsb.stanford.edu/faculty-research/publications/state-latino-entrepreneurship-2019, Latinos are launching businesses at an unprecedented pace, but they are confronted by long-standing barriers that keep them from reaching their potential.

Stanford Professor Jerry I. Porras who teaches Organizational Behavior and Change in Stanford explained why the number of Latino entrepreneurs in the U.S. continue to rise.

"Latinos as a culture gravitate toward starting businesses and being their own boss, creating something for their families," said Porras. "Another important ingredient is that a lot of Latino businesses are being started by immigrants, who are hungrier and more passionate about what they're doing and want to have an impact on their own financial well-being. Being an entrepreneur is a powerful way to do that."

Another reason he cited was Latinos who aspire to be highly successful find it extremely difficult to do so in the normal corporate environment. "The reality is that the number of Latinos at top levels like CEOs at Fortune 500 companies is extremely small and hasn't grown much over the last 10 years," said Porras. "So entrepreneurship is seen as a positive alternative - if you can start your own company and grow it big, you can be the CEO of a big company, whereas you might never achieve that same level if you'd gone into the corporate world."

Despite the entrepreneurial vigor, Latino entrepreneurs are confronted with challenges, as their companies tend to remain smaller and less profitable than white-owned businesses.

The report further claims that Latino-owned businesses frequently experience difficulties in sourcing funds from traditional small business lending sources, local banks for instance, compared to other groups.
According to Porras, the answer to this problem is for business owners to consider getting multiple offers from lending sources.

"As soon as banks start competing to get loans, things start to change," the professor said. "A second approach is to press the bank on what criteria it's using to deny the loan, or what criteria isn't being met. Then the business owner can understand what they're missing and fix it, so the next time around that issue can't be used to deny the loan," he added.

Financial institutions also need to start shifting their framing of the risk involved with Latino-owned businesses and understand that it's not any more risky than a non-Latino business.

"I fact, there may well be advantages to doing business with Latinos," Porras said. "It's going to happen through the success of Latino businesses and proving that they are lower-risk, they can be successful, and they can return whatever investment is made in them."

FInally, the professor stressed,"If the Latino portion of the economy isn't more developed economically - if Latinos are basically at a subsistence level - the whole economy will suffer, because the economy is driven primarily by consumption."

The SOLE report has drawn their data from a survey involving over 5,000 Latino-owned businesses across the U.S. and Puerto Rico, and a range of other sources, including the U.S. Census Bureau.