Latino-owned small businesses struggle to grow their companies

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Excerpt via PASADENA STAR-NEWS - More than 40 percent of the nearly 400,000 Latino-owned small businesses in the greater Los Angeles area have been denied capital because of low credit scores and other perceived risks, a new study reveals.

The report, “Fueling California’s Economic Growth: A Study on Latino Small Business and Capital Access” by the Small Business Finance Fund, defines the L.A. region to include Los Angeles, Long Beach and Santa Ana. But the statistics are reflective of the entire state.

Access to capital is important for all entrepreneurs, whether the funding is needed for a startup venture or to grow an existing business.

Small business lending by traditional financial institutions and household wealth contracted significantly in the wake of the Great Recession and access to capital remains problematic for all entrepreneurs, despite the economic recovery. But evidence shows that Latino small business owners are denied credit more often, charged higher interest rates and discouraged from applying for loans more often than their white counterparts, according to the report. That’s primarily because they tend to have lower credit scores, limited collateral and less startup capital.

And it has a ripple effect.

The lack of access to mainstream financial services and bank financing creates a financial disconnect, the report said, and it can be exacerbated by a lack of familiarity with the legal system, tax laws, local codes and standard accounting practices. 

A study from the Center for Global Policy Solutions, based on the U.S. Census Bureau’s Survey of Business Owners (SBO), analyzed business owners by race from 2007-2012 and found that firms owned by people of color have contributed a great deal to the U.S. economic recovery following the 2008 financial crisis.  During that five-year period, non-white business owners added more than 72.3% of the jobs created by privately held companies. Nearly all minority entrepreneur groups experienced significant growth in the number of their firms. That’s just a fraction of the potential, according to the report. Discrimination, both past and present, is inhibiting the true growth of these businesses. Without that, an additional 1.1 million businesses could be established and could produce an estimated 9 million more jobs. This would increase the nation’s income by $300 billion.

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