Business Funding Bias: Another Obstacle for Latinos

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Latino-owned businesses struggle with bias and racism when it comes to securing financing, according to a report published by the Stanford Latino Entrepreneurship Initiative (SLEI).

The State of Latino Entrepreneurship report examines national trends underlying Latino business growth.

Lack of business funding—due to bias—is the report’s prime concern.

“It’s easy to slip into the notion that everyone is a racist, and that’s wrong,” said Jerry I. Porras, who leads the SLEI at Stanford Graduate School of Business, in a press release.

“But there’s a lot of unconscious racial bias — not intended, if you will, but a product of our socialization. Over time, if you’re able to recognize how this bias is creeping into our culture, you can consciously make the decision to eliminate it.”

Many Latino Businesses Start Small, Stay Small

The report compiled data from SLEI’s survey of 5,000 entrepreneurs, its research panel of over 1,100 participants, and other national sources such as the U.S. Census Bureau.

Latino business bias

The report found that Latinos start more businesses than any other group.

But Latino companies often start small and stay small, making up 12% of all U.S. firms, but only 6% of all employer businesses and only 3% of employer businesses with over $1 million in annual revenue.

If the number of Latino-owned companies grew to be equivalent the size of their non-Latino counterparts, it would add 5.3 million new jobs and $1.5 trillion to the U.S. economy.

Bias Is a Reason for Lack of Business Funding

Additionally, the report uncovered that:

  • About half of employer Latino firms are owned by immigrants.
  • Latino business owners apply for financing at comparable rates to white business owners. But they are more likely to experience a funding shortfall. Most Latino-owned businesses did not apply for financing in the past 12 months. Among those who did, over 25% did not obtain any amount of the financing requested.
  • Government contracts provide a path to scalability for Latino-owned businesses. But among employer firms, Latinos have government clients at a lower volume when compared with white business owners.
  • Successful Latino-owned businesses are more likely to be tech companies with diversified funding streams. But Latino tech companies report access to capital as a major factor impacting their profitability.

Moreover, when applying for financing, 28% of Latino business owners obtain full funding, compared with 48% of white business owners.

“That statistic stuck in my head,” Porras said. “That’s a huge gap.”

“The question is why? There are a lot of successful Latino businesses out there, many of them good investments, but how do the funders get convinced of that and see the same level of risk you take when you fund a white owner? That’s a real challenge.”

Latinos and the Wealth Gap

Latinos already suffer from a massive wealth divide.

Racial and economic divisions could continue this disparity. Bias is frequently attributed to personal and individual choices when, in fact, the income and wealth divide is a result of systematic discriminatory treatment of communities of color.

Funding bias for Latino-business owners goes to show it is still alive and well. That hurts Latinos’ ability to build wealth.

SLEI’s work aims to change this with their training program.

SLEI’s Education Scaling program helps Latino business leaders interested in growing their businesses. Two cohorts of 70 to 80 CEOs from around the U.S. attend the program annually.

“In addition to attending weekly webinars, the students spend three days at Stanford GSB, have access to personal mentors, and are introduced to SLEI’s growing network of capital providers,” according to the SLEI press release.

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