5M and counting: The state of Latino-owned businesses in the U.S.
U.S. Latino-owned businesses like J & J Artificial Limb and Brace are growing. A new report from the Stanford Latino Entrepreneurship Initiative, partially funded by Wells Fargo, examines the trends among business owners.
When Esperanza Friedman decided to open a pediatric and adult orthotic and prosthetic care center with her husband in San Diego, they had some challenges. They had spent more than a decade working in Los Angeles, so they didn’t know the local doctors, and they had limited capital and a hard time acquiring a building to lease — challenges similar to what many Latino business owners face in the U.S., according to a recent study.
Fortunately, Friedman used her savings, restricted her spending, and acquired a building. The practice, J & J Artificial Limb and Brace, opened in 2001 and has been expanding offices and growing revenue at around 10 percent each year.
“People like me that are Latinos and Hispanics, women — or whatever is the challenge — I think you just have to work extra hard for what you do,” Friedman said. “And if you work hard for what you believe, it’s going to happen because it’s just a matter if you believe in yourself. If you see the other ones are working hard, then you work harder. That’s how I think.”
‘This report is so critical’
J & J Artificial Limb and Brace is one of an estimated 5 million Latino-owned businesses in the U.S., according to the fourth annual Survey of U.S. Latino Business Owners. The results of the study were released Jan. 25 by the Stanford Latino Entrepreneurship Initiative, a collaboration between the Latino Business Action Network and the Stanford Graduate School of Business. The study, which was funded by Wells Fargo and other donors, examined the characteristics of U.S. Latino-owned businesses, their business approaches, and their access to capital.
“These approximately 5 million Latino-owned businesses across the U.S. are creating value in supply chain categories ranging from technology, marketing, and construction,” said Regina Heyward, head of Supplier Diversity for Wells Fargo. “Wells Fargo has worked with Stanford and LBAN because we believe in investing to build capacity in Latino-owned businesses. Their business growth and scale will help drive equitable outcomes for the Latino community.”
The study notes that the number of Latino-owned businesses grew by 46 percent from 2007 to 2012, according to the U.S. Census Bureau.
“This is the largest sample size to date in the U.S. of surveyed Latino business owners coast to coast,” said Mark Madrid, CEO of the Latino Business Action Network. “This conquers the pervasive notion that there is a deficiency of research on the Latino entrepreneurial sector, which is the fastest-growing in the U.S.”
After surveying about 5,000 Latino business owners, the study found that many of these businesses start and stay small. Only 3 percent are considered scaled, like J & J Artificial Limb and Brace, which generates more than $1 million in annual gross revenue.
“We have a huge opportunity,” Madrid said. “If we don’t do something to make sure businesses hoping to scale can do so, we will miss out on a massive American economic contribution. That’s why this report is so critical.”
The study found certain factors that are prevalent among businesses that are considered scaled. Scaled businesses are more likely to have Minority- and Women-owned Business Enterprise business certifications; be members of business organizations like chambers of commerce or trade associations; be formally registered with local, state, and federal agencies; operate in the technology sector; and export products and services.
Madrid added that he thinks people would be surprised to see that 8 percent of Latino-owned businesses operate in the technology sector. “It’s not 1 or 2 percent, but we’d also love to see that number grow,” Madrid said. “I think that’s something to watch in the future.”
An infographic shows two red circles, one with a dollar sign and arrows in the middle, and one with a computer. The dollar sign one points to a yellow spot and says: 3 percent of all Latino-owned businesses generate at least $1 million in annual gross revenue. The other points to a yellow spot and says: 8 percent of Latino-owned businesses operate in the technology sector.
‘There is potential and hope for those who grew up in underserved communities’
The study also examined Latino business owners’ attitudes regarding applying for financing, knowing their credit scores, and their backgrounds. It found that 60 percent of Latino-owned businesses did not apply for financing in the 12 months prior to taking the survey. Scaled businesses like the Friedmans’ were also more likely to have their funding approved, according to the study.
Friedman applied for a loan in the spring of 2018 to open a new building and received the full amount. “There’s often a need for a loan and, for this case, the new building,” she said. “If I keep my credit score high and good, there’s a good chance I can get whatever I need.” According to the study, 72 percent of small business owners do not know their business credit score, and 60 percent do not know how to find it.
Another major finding: Most Latino business owners who earn at least $1 million in annual gross revenue said they were raised in lower- to lower-middle-income households. “That’s saying there is potential and hope for those who grew up in underserved communities,” Madrid said.
Friedman can relate. She said she came from “pretty much nothing” while growing up in Mexico. Decades after coming to the U.S., though, she said she’s doing well and is proud of what her business has accomplished. “Being a business owner, everybody knows it’s challenging,” Friedman said. “You have to keep going. You have to keep working hard.”