State of Latino Entrepreneurship

2021 State of Latino Entrepreneurship Report reveals opportunities and challenges facing Latino businesses since COVID

Last year, the State of Latino Entrepreneurship Report revealed that Latino-owned businesses have become the fastest-growing segment of the U.S. small business ecosystem. This year’s 2021 State of Latino Entrepreneurship Report continues to analyze the impact of Latino-owned businesses, with a focus on how the COVID-19 pandemic continues to affect Latino-owned employer businesses (LOBs) compared to White-owned employer businesses (WOBs). 

The report was conducted by the Stanford Graduate School of Business in conjunction with the Latino Business Action Network (LBAN) and is their seventh annual report and their largest survey to date. This year, the State of Latino Entrepreneurship Report surveyed 15,000 business owners— 7,500 Latino-owned employer businesses and 7,500 non-Latino, White-owned employer businesses as a benchmark comparison group. 

Among its many findings, the report took a specific look at how the pandemic has impacted businesses in 2021 and found that businesses fared better in 2021 than 2020. Over three-fourths of businesses reported moderate impact however that impact has lessened from 2021 to 2022. 

Additionally, research based on employer firms found that Latinos are increasing their number of employees at a much faster rate than their white counterparts and are more likely to provide opportunities for growth and advancement for their employees. 

As the fastest-growing segment of the U.S. business population, Latinos continue to start businesses at a faster rate than all others — 44% growth in the number of businesses in the last 10 years compared to just 4% for non-Latinos. Currently, there are over 5 million Latino-owned businesses and this number will only continue to grow. The following key insights highlight the opportunities and challenges facing Latino business owners since the COVID-19 pandemic, offering important data that business owners, employers, and organizations can use to support Latino business owners and minimize their struggles so that Latino businesses continue to thrive. 

State of Latino Entrepreneurship Report

Overall Effect of Pandemic in 2020 and 2021. (Graph source:  2021 State of Latino Entrepreneurship Report)

7 Key insights from the 2021 State of Latino Entrepreneurship Report 

Latinos are important job creators, growing their number of employees at a faster rate than White-owned employer businesses

 The number of Latino-owned employer firms has grown 35% in the last 10 years compared to 4.5% among White-owned businesses, with job growth outpacing growth in the number of new businesses. The number of employees at LOBs has grown 55% since 2007, compared to 8% job growth among WOBs. Among the roughly 5 million LOBs in the U.S. 9% are employer businesses. This subset of 400,000-450,000 LOBs employs over 2.9 million people. The average LOB has about 8 employees, providing an important and growing source of employment across the United States.

Additionally, this year’s research finds that Latino business owners are more likely to provide opportunities for the growth and advancement of their employees than White business owners. LOBs are more likely to provide their employees with benefits and opportunities, including promotions, employer paid benefits, above minimum wage jobs, the development of skills, and training. 

Latino-owned employer businesses are as likely as White-owned businesses to be tech businesses

The overall industry distributions of LOBs and WOBs are similar, though LOBs over-index in food services and WOBs in professional services. Contrary to stereotypes about the industries in which Latino-owned businesses operate, this year’s report found that among employer businesses, Latinos are equally likely as their White counterparts to own tech companies.

You might be interested: Dr. Marlene Orozco demystifies misconceptions about Latinas through data 

Latinos are more likely to be required to provide collateral to secure funding than White-owned employer firms

LOBs and WOBs show no statistically significant difference in low risk credit scores (720+), with 60% of LOBs and 63% of WOBs reporting this credit range. Although LOBs demonstrate similar overall financial viability to WOBs, when several characteristics of credit worthiness were examined, LOBs are more likely to be asked to provide collateral, such as personal guarantees and putting up personal and business assets, when taking out loans.

State of Latino Entrepreneurship Report

Collateral Used to Secure Funding. (Graph source:  2021 State of Latino Entrepreneurship Report)

PPP funding provided a greater lifeline for Latino-owned businesses during the pandemic despite some challenges in accessing it

Although more LOBs were interested in the PPP than WOBs, 57% compared to 49%, a similar share of LOBs and WOBs ended up applying for the PPP, 31% and 30% respectively.

Data on racial disparities in the access to PPP loans found that in the early stages of the PPP, LOBs had their PPP loans approved at nearly half the rate of WOBs. Due to these disparities, the SBA implemented rule changes in later rounds of PPP to prioritize lending to the smallest businesses and those that are minority-owned. 

Overall, 30% of LOBs received funding compared to 23% among WOBs. However, LOBs report more challenges than WOBs in accessing the PPP, including a lack of response from banking providers or lack of guidance on how to apply. 

Latinos are more likely to report making proactive strategic business changes in response to the business challenges created by the pandemic

The pandemic had significant negative impacts for both Latino and White owned businesses, with supply chain disruptions, reduced revenues, and increased costs showing up as important challenges for both groups. Latino business owners reported a greater number of specific negative consequences to their businesses (e.g., temporary business closures and lack of financing). However, they were more likely to report making proactive efforts to combat the

challenges of the pandemic. Chief among these was a propensity for LOBs to more frequently initiate technology based solutions and strategies as they sought to adapt their businesses to the demands and opportunities created by the pandemic.

You might be interested: SBA Women’s Business Ownership Assistant Administrator Natalie Madeira Cofield shares resources for women entrepreneurs to grow and thrive

Latinos were more likely to tap into their personal savings and max out on credit cards and their home equity in order to weather the pandemic

The pandemic exacerbated many of the pre-existing financing challenges that Latino-owned businesses faced prior to the pandemic. Chief among these challenges is the lack of available financing, resulting in high use of credit cards and other sources that leave business owners

personally vulnerable. Compared to White business owners, Latinos were more likely to report tapping into their personal savings, using business and personal credit cards, soliciting loans from banks, and taking out home equity loans. These debt sources create greater risks to the Latino entrepreneurship community, possibly impacting their growth prospects.

Both Latino and White business owners are generally optimistic about their ability to rebound from the pandemic.

Both LOBs and WOBs reported confidence that their businesses will recover from the pandemic, with 79% and 77%, respectively, sharing this outlook. This confidence has remained high for both groups relative to 2020 confidence levels despite the many twists and turns of the pandemic. The pandemic has also fundamentally changed the workplace whereby more than half of all LOBs indicate some combination of remote work and in-person for employees. Among employer businesses, 19% of LOBs and 23% of WOBs indicate that all employees can work remotely post pandemic.

SOURCE:  2021 State of Latino Entrepreneurship Report

Author

  • Victoria Arena is a writer and student, passionate about writing, literature, and women's studies. She is bilingual, fluent in both English and Spanish. In 2017, she received her Associates in Fine Arts for Creative Writing from Brookdale Community College. Now, she is working toward her Bachelor's in English Literature at Montclair State University. Along with literature, Victoria is interested in Gender and Sexuality Studies, which she is pursuing as a minor, focusing closely on women's issues, gender inequality, and LGBT issues. These studies provide her with a feminist lens, which influences her work from both fiction to academic writings.

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