Hispanic Heritage Month: Examining Latino-Owned Business Success

Today, 62.5 million Latinos comprise 19% of the U.S. population, and the nearly 5 million Latino-owned businesses in the U.S. contribute more than $800 billion to the U.S. economy annually, according to Congress’s Joint Economic Committee (JEC). Further, nearly 1 in 4 new businesses in the U.S. today are Latin-owned, and they are major drivers of job-creation. In fact, companies less than five years old create an average of 1.5 million new jobs each year, according to the committee.

If Latino owned businesses grow as fast as the U.S. average, they could add $1.4 trillion to the U.S. economy, which according to JPMorgan Chase, would add almost eight percent to the $18 trillion U.S. economy. Chase also said that when Latino entrepreneurs start a business, 70% of their funding comes from personal savings, while just 6% comes from commercial loans.

In 2022, there was a reduction in the share of businesses seeking funding and financing across virtually all sources of funding, according to the Stanford Graduate School of Business State of Latino Entrepreneurship Report. Despite this trend, the study found that Latino-owned businesses were 50% more likely to request financing than white-owned businesses, with plans to use the funds to expand their businesses, acquire additional capital assets, and meet operating expenses.

Although the economic contributions of Latino businesses are extensive, they face limited access to capital. One of the reasons is that minority-owned enterprises are more likely than their counterparts to show signs of financial vulnerability. Latino-owned firm are less likely than Non-Latino owned companies to be approved for large loans, particularly from larger banks, which rejected more than 85% of small business loan applications overall in August.

Biz2Credit examined the success of Latino-Owned Businesses in the past 12 months and found that average annual revenue for Latino businesses increased by 23.1% in 2022-23 over the previous 12-month period, based on a study of 57,000 submitted applications on Biz2Credit’s online platform. Meanwhile, average operating expenses increased 23.6%, while earnings rose 21.1% for Latino-owned firms.

While these results are encouraging, Non-Latino firms saw revenues soar 54.4% and earnings skyrocket by 75.2%.

The Biz2Credit study examines financial indicators including annual revenue, operating expenses, age of business, and credit scores of both Latino-owned and Non-Latino-owned companies. A look at Latino-owned firms:

· Average annual revenue increased from $488,827 in 2021-22 to $601,636 in 2022-23, an increase of 23.1%.

· Average Operating expenses jumped from $395,265 in 2021-22 to $488,368 in 2022-23, an increase of 23.6%.

· Average earnings (Annual Revenue – Operating Expenses) rose from $93,562 in 2021-22 to $113,268 in 2022-23, a 21.1% increase.

· The average credit score for Latino-owned businesses increased from 632 in 2021-22 to 641 in 2022-23.

· The average age of business for Latino-owned business increased from 52 months in 2021-22 to 54 months in 2022-23.

An example of growth

Gainesville, Georgia-based Vital Foods has been processing and portioning poultry products since it was established in 2015. Starting with just three employees, the company has now grown to over 1,200 employees and was recently able to expand after receiving an infusion of working capital.

“Five days after submitting my working capital application, I received the money,” said Juan Carlos Lomas, CEO and founder of Vital Foods. “The funding enables us to begin operations in our new plant in South Carolina, and to process enough meat up to our standards to meet the two million pounds per week goal.”

Overall, it was a solid year for Latino-owned businesses, but they trained in comparison to the success of Non-Latino firms in the past 12 months. Average revenues were up, but so were expenses, a reflection of inflation during the past year. However, Non-Latino firms fared much better:

· Average annual revenue for Latino-owned businesses increased from $488,827 in 2021-22 to $601,636 in 2022-23. However, Non-Latino firm revenues soared to $667,204 in 2022-23, up from $432,260 during the previous 12 months — an increase of whopping 54.4%.

· Average Operating expenses for Latino-owned businesses jumped from $395,265 in 2021-22 to $488,368 in 2022-23. Meanwhile, the expenses of Non-Latino firms leapt from $341,316 in 2021-22 to $507,840 in 2022-23, an increase of 48.8%.

· Average earnings (Annual Revenue – Operating Expenses) for Latino-owned businesses rose from $93,562 in 2021-22 to $113,268 in 2022-23. Meanwhile, earnings of Non-Latino firms rose during the past 12 months from $ $90,944 in 2021-22 to $159,365 in 2022-23, an increase of 75.2%.

· The average credit score for Latino-owned businesses was 641 in 2022-23, while the average credit score for Non-Latino businesses in 2022-2023 was six points higher at 648.

· The average age of business for Latino-owned business was 54 months in 2022-23, while the average age of business for Non-Latino firms in 2022-2023 was 63 months.

· The largest percentage of Non-Latino firms (63%) were Limited Liability Companies (LLCs), while Corporations accounted for 22%, and Sole Proprietorships comprised 13%.

Geographically, Florida was the state from which the greatest number of small business loan applications originated, followed by California, Texas, New York, and New Jersey.

“In my district, you have different things that make our small businesses grow. Franchises, for example, are all over the place, so I know the impact that it has,” said Congressman Henry Cuellar (D, Texas 28), whose district is primarily of Hispanic ancestry.

“A lot of small businesses in the southern part of my district deal with international trade; 40% of all trade between the U.S. and Mexico comes through the port of Laredo, Texas,” he said. “A lot of small and medium sized businesses are involved in trade: customs brokers, freight forwarders, logistical and transportation companies, and warehousing companies.”

His district has many independent drilling companies and firms that supply and work with the oil and gas industry. Additionally, there are small businesses that supply to the defense industry and military bases in Texas. In fact, Congressman Cuellar says that over 15% of the businesses in his state are owned by Latinos.

“I sit on the Appropriations Committee, and we’ve added monies for the Small Business Administration to make sure that they have the resources to put monies into the small business development centers, micro loans, technology partnerships, women business centers, and community development,” Congressman Cuellar said. “We’re looking to provide assistance to the SBA, to make sure that we provide the right environment so you can have minority-owned business businesses and women-owned flourish.”

Access to capital is key. Latino entrepreneurs can look at various SBA loans if they need capital, and they have a better shot at getting money from regional and community banks that are more apt to process SBA loans than big banks are. Additionally, Latinos are finding access to capital from non-bank alternative lenders, who charge higher rates but are also more willing to take on risk and provide funding to Latino-owned firms. Often, speed and accessibility are more important drivers than interest rate especially for companies in need of working capital and money for expansion.