The number of Latino-owned businesses (LOBs) has been increasing over the last 20 years. The vast majority of these businesses are small, unipersonal, or family-owned. The number of LOBs has been doubling every 10 years. They increased by 46.2 percent from 2007 to 2012, while the number of non-Latino businesses declined by 2.1 percent during the same period. A publication from Geoscape states; “This means their hard work will continue to accrue to the benefit of small and large business for many decades to come.”1
Following the 2007 to 2012 period, LOBs have grown 31.6 percent since 2012, more than double the growth rate of all businesses in the U.S. (13.8 percent). In the last 5 years, LOBs in the South Atlantic Region grew by 42.8 percent, surpassing those in the Pacific Region, which grew at 27.3 percent. The Latino share of new entrepreneurs represented 24 percent of all firms, compared to 10 percent a decade ago – reflecting a 140 percent increase. Latinos are 1.5 times more likely than the general population to start a business, according to the Kauffman Index of Entrepreneurial Activity. Sales from LOBs experienced an increase of 32 percent since 2012. Between 2012 and 2017, 27.4 percent of the growth in all businesses in the U.S. can be attributed to Latino-owned businesses.2 According to Geoscape, there were 4.37 million Latino-owned businesses at the end of 2017 that contributed $709 billion to the U.S. economy.
There are many factors that influence the number of LOBs: 1) the growth of the Latino population; 2) a new wave of Latino immigrants; 3) discrimination in labor markets; 4) lack of access to formal credit markets; 5) increases in Latina-owned businesses; and 6) low educational attainment of business owners.
Growth of the Latino Population
The Latino population in the U.S. has been steadily increasing in the last decades. According to the U.S. Census Bureau, the Latino population reached just over 57.5 million in 2017, representing 17.8 percent of the U.S. population. It is projected that the rapid increase of the Latino population will reach over 28 percent by 2060, fueled by native-born Latinos, a younger population with a median age of 27 years, and their high fertility rates.
A New Wave of Latino Immigrants
Large numbers of Latino immigrants with high educational levels, vast business experience, and large social and business networks have been immigrating to the U.S. Fleeing political and economic crises in their native countries, these immigrants are from Latin American countries such as Cuba, Venezuela, Colombia, Argentina, and Brazil. Most of them have settled in the Miami area, which explains the rapid growth in the number of Latino businesses in the South Atlantic region. These immigrants came to the country searching for business opportunities. Due to their business experience, access to financial capital, and the extent of their social and business networks, many of them tend to start up and develop medium and large-scale businesses.
Discrimination in Labor Markets
A large percentage of native-born Latinos and immigrants who came to the U.S. in search of better economic opportunities for their families continue to face discrimination in the nation’s labor markets. Discrimination is often due to bias against them, their immigration status, and language accents. This exclusion pushes some of them to start up small businesses.
Lack of Access to Formal Credit Markets
Most LOBs do not have access to formal credit markets at the time of start up, so they rely on family savings, loans from extended family and friends, and recently they are using credit cards with high interest rates. The lack of or limited access to credit is a huge constraint for their business operations.
Increases in Latina-Owned Businesses
Between 2007 and 2012, the number of Latina-owned businesses grew by 87 percent, from 800,000 to 1.5 million. Usually, their businesses are very small, located in homes, and offer goods and services sought by ethnic peers. Like Latino-owned businesses in general, a large number of them face constraints both at their start-up and in the development stages.
Low Educational Attainment of Business Owners
Low educational levels place important constraints for business development because they limit business owners’ business knowledge, access to new opportunities, to market information, and new technologies.
In summary, LOBs have grown in numbers in the last few decades. They contribute to the U.S. economy through their sales levels and the number of jobs they create. LOBs in the U.S. come from diverse social, economic, and geographic backgrounds making them different depending on their heritage and national origin. Each of these groups have advantages and deal with constraints when doing business in today’s economy.
1 GEOSCAPE, 3-20-17.
2 BusinessWire, 05/06/2018