Hispanics make up nearly 20 percent of the overall U.S. population (higher in states like Texas, Arizona and California). Officials estimate there are more than four million Hispanic-owned small businesses in America bringing in more than $660 billion in revenues.
Expect these numbers to grow significantly over the next few years. Over the past decade, Hispanics have started new businesses at a rate 15 times the national average, outpacing every other ethnic group. A recent Bank of America survey found that Hispanic entrepreneurs are very optimistic about the future. Seventy-one percent believe their revenues will increase over the next 12 months, while only half of non-Hispanic small business owners felt the same. The survey also revealed Hispanic entrepreneurs are more likely to hire than non-Hispanic business owners.
“Hispanic small business owners expect robust economic growth, higher revenue and increased hiring in 2018,” Elizabeth Romero, a Bank of America Small Business executive said in a company press release. “As one of the fastest-growing segments of the small business sector, Hispanic entrepreneurs also anticipate strong long-term growth, and are leveraging digital tools, social media and their community to ensure they continue to flourish in the evolving small business climate.”
The Bank of America survey indicated these entrepreneurs believe they face special challenges that are unique to their culture. However, a large percentage of Hispanic small business owners still credited their heritage for their success and said it was a key differentiator between themselves and other small businesses in the following areas:
- Business growth (43 percent say their heritage helps, versus 16 percent who say their heritage harms; 41 percent say it has no impact).
- Customer development and retention (42 percent say it helps, versus 15 percent who say it harms; 43 percent say it has no impact).
- Networking (39 percent say it helps, versus 23 percent who say it harms; 38 percent say it has no impact).
Source: Bank of America
A Stanford University study showed 27 percent of Hispanic-owned businesses are operated by first-generation immigrants, 26 percent by second-generation and 46 percent by third-generation or later. Gender-wise, women own 44 percent of Hispanic businesses. When discussing age, Millennials make up 40 percent of Hispanic business owners. Just over half of Hispanic businesses serve their local neighborhoods or communities, while 28 percent have customers across the country.
As with any small business, access to working capital to get started and grow is the biggest challenge. Hispanic-owned small businesses rely less on large, national banks than other groups. Only 12 percent of Hispanic businesses received capital from one of these banks, compared to 18 percent of white owned small companies. One reason for the large difference, according to Marlene Orozco of the Stanford Latino Entrepreneurship Initiative, has to do with the size of the company. Per Orozco, “National banks are not willing to take on the risk of these smaller firms.” Orozco further noted that Latinos traditionally fund their businesses “by tapping friends and family, finding angel investors and venture capital, and using their credit cards.” However, there are better and more flexible ways to grow a business and to obtain capital. Online lenders such as OnDeck are accustomed to working with smaller firms and are often a quick and easy loans as an alternative to a large national bank. For businesses that sell on terms to other businesses, factoring (also known as accounts receivable funding or invoice funding) is extremely flexible and can provide almost unlimited growth for businesses that sell on terms to other businesses.
What types of businesses are Hispanics starting? Most people might guess restaurants. However, retail trade firms top the list, followed by restaurants/accommodations and construction. California, Texas, New York, Florida and Arizona are the leading states for Hispanic small business loan requests.
One-in-four Hispanic-owned businesses are along the Pacific Coast (California, Oregon, Washington and Alaska). Another large concentration is in the West South-Central region (Texas, Oklahoma, Arkansas and Louisiana). Surprisingly, the Midwest is seeing the largest growth of Hispanic businesses. The region has witnessed a 30 percent spike in recent years. Economists speculate this may be due to increased Hispanic migration from high-cost states like California and New York to lower cost-of-living states in the middle of the country.
What does the future hold for Hispanic-owned businesses? The percentage of Hispanics in the U.S. is expected to increase from 18 percent today to 29 percent by 2050. As a large number of Hispanic firms are now owned by Millennials and Hispanics are starting companies faster than any other group, expect continued growth in the number of Hispanic small businesses ahead. That’s good news for Hispanic entrepreneurs and for America’s economy.