By Staff/ Miami.
This is the eighth annual State of Latino Entrepreneurship report collecting data from Latino-owned businesses, the fastest growing segment of the U.S. business population.
Today, the U.S. is home to more than 62.5 million Latinos, representing 19% of the U.S. population. With an economic output of $2.8 trillion and nearly 5 million businesses across the country generating more than $800 billion in annual revenue, Latinos are a prominent consumer base and a growing source of economic activity.
In this report, we focus on employer businesses with at least one employee other than the owner. To match census parameters, our study incorporates employer businesses generating at least $10,000 in annual revenue. Hereafter, all data presented in this report correspond to Latino-owned employer businesses (LOBs) and White-owned employer businesses (WOBs) unless stated otherwise.
The analyses show that U.S. Latinos continue to strengthen the American economy by creating employer businesses at a faster rate than WOBs. At the same time, LOBs have outpaced the revenue and payroll growth of WOBs and American businesses at large. Regardless of the extraordinary challenges presented by COVID-19, most LOBs have recovered from the pandemic, and more have expanded their market reach beyond consumers (B2C), to governments (B2G), and nonprofit organizations.
THE MOST PRESSING CHALLENGES AND OPPORTUNITIES
Latino-owned businesses continue to outpace the growth rates of White-owned businesses–and U.S. businesses in general–in terms of number of businesses and revenue. At the national level, from 2007 to 2019, the number of LOBs grew by 34% while the number of WOBs dropped by 7%. LOBs outpaced WOBs in revenue growth during the same period and their annual payroll grew over twice as fast. During the pandemic (2019-2022), the median growth rate in revenue for LOBs was 25% and 9% for WOBs, and the median three-year compound annual growth rate (CAGR) for LOBs was 7% and 3% for WOBs.
Latino-owned businesses are recovering from the pandemic and have expanded their customer base. Although LOBs were more negatively impacted by COVID-19 than WOBs in 2020 and 2021, LOBs are now more likely than WOBs to say their businesses have recovered and are doing better than before the pandemic. The growing recovery comes along with a wider set of customers as LOBs are doing more business with governments, corporations, and nonprofits than in the past two years.
In 2022 there was a reduction in the share of businesses seeking funding and financing across virtually all sources of funding. Despite this trend, LOBs were 50% more likely to request financing than WOBs, with plans to use the funds to expand their businesses, acquire additional capital assets, and meet operating expenses.
Although a relatively small proportion of all businesses secure government and corporate contracts (13% LOBs and 10% WOBs), LOBs tend to obtain contracts that are substantially smaller and take longer to secure than WOBs. More specifically, LOBs secure corporate contracts that are 3.3 times smaller on average than WOBs, and state and federal government contracts that are more than 30 times smaller than WOBs. Additionally, the procurement period for government contracts takes more than a year for 37% of the LOBs. This is in sharp contrast to the more than a third of WOBs that obtain government contracts in less than six months.
At the time of application for business loans from national banks, LOBs have similar, if not better, qualifying indicators than WOBs on average. These include a gross revenue that is three times larger than WOBs, similar business and personal credit scores as WOBs, and lower outstanding debt than WOBs. Nevertheless, LOBs have substantially lower approval rates than WOBs when applying for larger loans ($50,000 or more), and higher rates of approval for small loans (less than $50,000).
To build awareness and expand their customer base, LOBs use a wider array of marketing approaches and social media platforms than WOBs. LOBs are also more likely than WOBs to report strategies that differentiate their products and services from their competitors.
Lastly, we found that in the summer of 2022 American business owners (both LOBs and WOBs) perceived the Great Resignation as a less severe issue than portrayed in the news media. Nonetheless, our analyses reveal that the Great Resignation has hit LOBs harder than WOBs, with more LOBs reporting challenges in employee retention and recruitment.
The survey respondent pool consisted of 5,011 Latino-owned employer businesses and 5,017 non-Hispanic White-owned employer businesses, which served as a benchmark comparison group. All the companies sampled generated at least $10,000 in annual revenue and had one employee beyond the owner. Our comparative analysis provides a detailed understanding of the present challenges and opportunities that Latino-owned employer businesses face in the United States.
SLEI Research conducts an annual national survey to assess the current state of U.S. Latino entrepreneurship. SLEI Research operates as a collaboration between the Latino Business Action Network (LBAN) and the Stanford Graduate School of Business Center for Entrepreneurial Studies.