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Latino Entrepreneurs: How Philanthropy Can Fuel Small Business

October 15, 2015

Hand-with-FlagsAs National Hispanic Heritage Month comes to a close, it's a good time to recognize and celebrate the critical role that Latino-owned businesses play in the U.S. economy. Consider, for starters, that between 1990 and 2012, the number of Hispanic entrepreneurs in the United States more than tripled, from 577,000 to 2 million (Source: Partnership for a New American Economy).

While significant, however, those gains are modest compared to the growth of white-owned businesses over the same period. What's more, Latino-owned businesses generate less annual revenue than non-Latino small businesses and grow at a slower rate. And, like many small businesses and entrepreneurs, Latino-owned businesses report that access to capital is a major barrier to growth.

That should not come as a surprise. A recent Harvard Business School study (66 pages, PDF) reports that small business loans as a share of total bank loans in 1995 was about 50 percent, compared to only 30 percent in 2012. And a report on minority entrepreneurship by researchers at UC-Berkeley and Wayne State University finds that minority-owned businesses typically encounter higher borrowing costs, receive smaller loan amounts, and see their loan applications rejected more often.

The reasons for such disparities are many, but one thing seems abundantly clear: resolving them is not just a question of social justice; it goes to the heart of American competitiveness in a fast-moving global economy.

On the plus side, there are no shortage of examples of dynamic businesses started — and nurtured — by Latino entrepreneurs who have secured access to affordable loans from lenders who understand their dreams, their businesses, and their challenges.

One such entrepreneur is Elizabeth Figueroa of Elizabeth J. Figueroa & Company Textile and Design House, in Los Angeles. After twenty-eight years working in the garment industry, Figueroa decided to open her own business. As that business grew, a small business loan enabled her to increase her floor space, hire additional workers, and open a bridal couture division.

Another is Jimmy Shaw, who left a career in advertising to pursue his dream of opening a restaurant. As Shaw’s business grew, a small business loan helped him open at a second location. Subsequently, Jimmy’s Loteria Grill  paired with the Torta Company, creating twenty new jobs.

Figueroa and Shaw are but two of the millions of successful, hard-working Latino entrepreneurs who have laid claim to the American dream and are creating jobs in their communities. And their stories serve as a reminder that this is a space where philanthropy is uniquely positioned to make a difference.

At the Surdna Foundation, we have hit upon what we believe is an innovative approach to supporting the growth of the Latino small business sector. It involves making a single low-interest loan from our Program Related Investment fund to a consortium of five Latino-serving Community Development Financial Institutions (CDFIs) of varying size and experience (thereby limiting our risk exposure to a single lender). CDFIs are mission-driven, nonprofit lenders that specialize in helping businesses attain affordable loans, often bundled with business services and management training.

Comprised of members of the National Association for Latino Community Asset Builders, all of whom provide culturally and linguistically relevant small business development services, the consortium is a collaboration of some of the nation's most innovative nonprofit lenders. As lead member, Valley Economic Development Corporation, a national lender, received the initial investment and then re-lent the funds to the four other lenders: LiftFund in San Antonio, Finanta in Philadelphia, the Latino Economic Development Center in Minneapolis, and the Mission Economic Development Agency in San Francisco.

The primary goal of the initiative is to increase the capacity of nonprofit lenders to deploy capital to small businesses in targeted markets. Businesses that receive financing will be able to use the capital to expand their operations, finance equipment, address short-term cash flow needs, and/or establish lines of credit with contractors and vendors. The five lenders also will provide loan recipients with technical assistance in areas such as business plan development, cash flow management, marketing, and networking. The hope is that Surdna's PRI can be leveraged many times over, eventually increasing the capitalization of the consortium.

Through the process, we also hope to learn how philanthropy can help the financial industry grow the CDFI field and increase the amount of capital available to Latino and other entrepreneurs of color. Because we know that when small businesses are able to access capital, they grow and create jobs. That not only strengthens the foundations of local economies, it also increases economic mobility and gives millions of people the ability to provide a better future for their families.

Headshot_Jose_GarciaAnd that's something we all can celebrate.

José Garcia is a program officer in the Strong Local Economies program at the New York City-based Surdna Foundation. This is his first post for PhilanTopic.

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