For the past decade, Santiago and Margarita have run a popular neighborhood eatery for home-style Latino cooking in Philadelphia. They are just one of millions of Latino-owned small businesses playing an increasingly critical role in rebuilding local economies and bringing vibrancy to urban and rural neighborhoods.
Between 2002 and 2007, the number of Latino-owned small businesses grew to 2.3 million, an increase of 43.7%; non-Latino small businesses grew in number by only 14.5% in the same period.
But those numbers probably underestimate the impact of the Latino business community, which could be greater than 3 million.
Yet, Latino-owned small businesses are bringing in significantly less annual revenue and grow at a much slower rate, compared to non-Latino small businesses. In 2007, average gross receipts for Hispanic-owned firms had increased to $152,700 but were still far below average revenues of $490,000 for non-minority-owned firms. If Latino small business starts are accelerating, why aren’t revenues keeping pace?
Many Latinos — particularly immigrants — live outside of the mainstream financial system, and for those that are unbanked or underbanked, it is more difficult to access the necessary capital to grow a business. A lack of familiarity with the legal system, local and tax codes and standard accounting practices can leave entrepreneurs vulnerable to unanticipated costs, scams and unfair business dealings. Limited English proficiency can magnify these challenges for an entrepreneur.
Santiago and Margarita turned to FINANTA, a nonprofit Community Development Financial Institution that has supported entrepreneurs in Philadelphia for more than 17 years. FINANTA provides business development assistance and financing solutions in a way that is conscious of its clients’ business requirements, as well as cultural and language barriers. FINANTA helped Santiago and Margarita to strengthen their business practices and eventually made a $90,000 loan to the couple for business expansion. The lesson is clear: culturally-relevant business development assistance, paired with access to appropriate capital empowers Latino small business owners to make smart business decisions and expand their business.
A growing number of mayors are taking action to replicate such experiences. In San Antonio, former Mayor Julian Castro, now U.S. Secretary of Housing and Urban Development, recognized the importance of small business in a city that is over 63% Hispanic when he launched Café Commerce, a multi-year $1 million commitment to the delivery of small business development services.
Building on this innovative work, the Asset Building Policy Network, a coalition of the nation’s preeminent civil rights and asset building organizations together with Citi Community Development, launched a program aimed at strengthening small business development programs that support predominately Latino communities.
With funding from the Citi Foundation, NALCAB – National Association for Latino Community Asset Builders – will document the most effective practices to reduce barriers to growth, unlock access to capital and integrate small business owners into the financial mainstream. This pilot is part of Inversiones, NALCAB’s national initiative to support Latino entrepreneurship, which was recognized as a Clinton Global Initiative Commitment to America in 2012.
NALCAB will publish the results of this project to provide new guidelines and practical advice for the growing number of non-profit organizations and cities that want to support the growth of Latino businesses at the neighborhood level. It will also provide specific policy recommendations for state and federal officials to effectively harness the economic potential of Latino businesses.
There is a demographic imperative here for the entire U.S. economy too.
Citi Community Development supports a number of additional programs to connect Latino entrepreneurs with greater economic opportunities, including the Immigrant Business initiative in New York City, which delivers targeted services in Spanish via community-based organizations, and USC Bridges to Business Success in Los Angeles, which provides procurement training to build the capacity of small minority, women, and veteran-owned businesses.
Latino unemployment is at 6.6%, 1.1% higher than the national average. Now is the time to test new ideas that will unlock the full economic potential of Latino entrepreneurs and create the jobs our economy needs.