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Surge in Latino business owners is good news but masks underlying problems

By March 2, 2020No Comments

(This post originally appeared on The Guardian)

The economy over the past few years has been good for many business owners. But few groups have succeeded as much as Latino entrepreneurs. In fact, the number of Latino business owners has surged over the past decade, outpacing any other ethnic group. That’s according to a new study from the Stanford Latino Entrepreneurship Initiative, a research and education collaboration between Stanford University and the Latino Business Action Network housed at the Stanford Graduate School of Business.

The fifth annual study, which evaluated responses from more than 5,000 Latino business owners across the country as well as a range of other sources including the US Census Bureau, found that, over the past 10 years, the number of Latino business owners has grown 34%, compared with 1% for all other business owners in the United States. The study’s data shows that if the current number of Latino-owned businesses – who contribute more than $500bn to the economy in annual sales – were to keep growing to match the size of their non-Latino counterparts, it would add 5.3m new jobs and $1.5tn to the US economy.

Why the significant growth? Some, including the study’s authors, believe that a big reason is simply cultural.

“Latinos as a culture gravitate toward starting businesses and being their own boss, creating something for their families,” says Jerry I Porras, a professor of organizational behavior and change at Stanford who helped oversee the study. “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 wellbeing. Being an entrepreneur is a powerful way to do that.”

But the story isn’t as inspirational as it may seem. Many have few other choices. Unfortunately for some Latinos, climbing the corporate ladder isn’t always the easiest path, which is why Porras believes that many instead turn towards entrepreneurism. “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,” he says. “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.”

Latinos have thrived, despite the many barriers in their way.

Among these barriers is discrimination. People of color continue to earn less than their white counterparts. As a result, many Latinos have lower credit scores which impairs their ability to raise capital and finance their businesses.

“Latinos have to pay more for interest,” Fausta Ibarra a hair salon owner in Salinas, California, told CalMatters. “We have to pay more for everything.” Ibarra has been turned down for loans more than once and has been forced to borrow money from family and friends to help grow her business. “Latinos have to start all over again, every day,” she said. “I do think that Latinos can contribute more to this country if they give us the same opportunity to better ourselves and our children. I think we all want to progress, but they don’t give us the same tools they give someone who was born here.”

Ibarra’s story is not an isolated one. According to various studies in the CalMatters report, the community have historically faced challenges raising capital for their businesses. The problem has been exacerbated by the continued decline of independent banks who many feel better understand the needs of their local communities. More education – particularly financial education – is also desperately required. Better awareness of government and non-profit assistance – be it from local non-profits supporting the community or how to leverage federal Opportunity Zones – would make an impact too.

All of this is important. Why?

Because Latinos, according to the report’s authors, are going to be one-third of the population in the future, and their success will have an enormous impact on the future economic success of the US. “If the Latino portion of the economy isn’t more developed economically, the whole economy will suffer, because the economy is driven primarily by consumption,” says Porras. “That’s the long-term perspective, which is rooted in a 30-year horizon.”

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