Economy Depends on Funding Latinx Biz

Latinx founders are the fastest-growing group of entrepreneurs in America, but their businesses are struggling to scale. “Scale” is business jargon for when a company grows in size, reach, and volume of sales.

While the percentage of all Americans running a business has stayed at 6.2 percent over the past two decades, Latinx founders are the fastest-growing demographic among all U.S. entrepreneurs. These businesses have gone from 6.5 percent of all entrepreneurs in 2001 to 15 percent as of 2019.

Latinx founders own 350,000 businesses with employees in the United States, and these businesses create nearly 3 million American jobs. Many more are “solopreneurs,” businesses run by one owner. Despite the number of businesses, only 3 percent of the Latinx-owned companies with employees reach over $1 million in revenue, compared with 9.2 percent for non-Latinx businesses.

As the saying goes, it takes money to make money, so some experts believe that this gap between Latinx and non-Latinx businesses is due in large part to a lack of access to funding for growth.

Research shows that Latinx founders tend to have fewer financing opportunities than other entrepreneurs, and the amounts they receive are generally lower. Latinx founders are more likely to have their profitability negatively impacted by lack of access to funding and a higher cost of capital (higher interest for loans). Without funding, small businesses can’t obtain what they need for growth: new hires, new equipment, marketing, manufacturing partners, etc., to scale.

Some organizations are working to better understand and close this gap. The Aspen Institute hosts a forum on Latino Business Growth that has advocated for changes to common misconceptions about Latinx entrepreneurs. The idea is to present Latinx businesses to investors, the media, and other partners in the startup ecosystem more accurately as thriving enterprises (not anemic ventures with special needs). The organization also advocates using community anchor institutions, such as universities and local banks, to aid in training and resource development for Latinx founders. The institute estimates that improving the system for Latinx founders could yield an additional $1.4 trillion to the U.S. economy.

Resources: / Photo: Scott Graham, Unsplash

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