Latino entrepreneurs looking to Small Business Administration for capital

The Biden administration has significantly expanded its loans to Latino-owned businesses, who face an uphill battle to obtain credit from traditional lenders.

The Small Business Administration (SBA) in fiscal 2023 backed 7,746 loans to Latino businesses, amounting more than $3 billion, according to official figures obtained by The Hill.

That's up from an average of just over 5,000 loans to Latino businesses over the previous five fiscal years, including a pandemic dip in 2020 when the SBA only backed 3,877 such loans.

While the SBA in 2006 backed a record 9,951 loans for Latino businesses, it only doled out about $1.3 billion that year. Dollar amounts for Latino business loans have ballooned under the Biden administration, rising from $1.6 billion in fiscal 2020, to $2.8 billion in FY21, to $2.6 billion in FY22 and $3 billion in FY23.

“America’s more than five million Latino-owned small businesses create jobs, deliver over $800 billion to our economy every year, and add to our nation’s global competitiveness—and they could do even more if we invested in them equitably,” said SBA Administrator Isabella Casillas Guzman. 

“We are seeing a small business boom and the fastest creation rate of Latino-owned businesses in over a decade."

Hispanic entrepreneurs have posted higher-than-average growth numbers over the past 15 years – from 2007 to 2019, the number of Latino-owned businesses grew 34 percent, while the number of white-owned businesses decreased by 7 percent, according to a Stanford Graduate School of Business survey in its eighth year.

"[Latino-owned businesses] outpaced [white-owned businesses] in revenue growth during the same period and their annual payroll grew over twice as fast," reads Stanford's 2022 State of Latino Entrepreneurship report. 

Researchers found that even during the pandemic, from 2019 to 2022, the median growth rate in revenue for Latino-owned businesses was 25 percent, compared to 9 percent for white-owned businesses.

Yet Latino-owned businesses are finding their success is often not reciprocated by traditional lenders.

“Latinos start and grow businesses at higher rates than our white counterparts. However, the traditional financial system fails to provide Latino businesses adequate or fairly priced capital," said Marla Bilonick, president and CEO of the National Association for Latino Community Asset Builders (NALCAB).

"Despite applying for assistance at similar rates as white business owners, Latinos are less likely to receive it."

A 2021 Federal Reserve Small Business Credit Survey report on firms owned by people of color found that 31 percent of Hispanic and Asian-owned businesses had their credit needs met in the 12 months prior to the report, while only 19 percent of Black-owned businesses had their financing needs met.

The report found that 50 percent of white owned businesses had their financing needs met.

In the case of Hispanic-owned businesses, those numbers come despite firms seeking credit. In 2022, according to the Stanford report, Latino-owned businesses were 50 percent more likely to seek out credit than white-owned firms.

In 2022, three out of ten Latino firms requested loans. Among those who didn't request loans, only 36 percent did so because they did not have a need for more capital, compared to only 50 percent of white-owned firms.

And while 64 percent of Hispanic firms that requested under-$50,000 bank loans in 2022 received them in full – compared to 49 percent of white-owned firms – Latino-owned firms trailed in receiving over-$50,000 loans, with only 40 percent of Latino firms receiving the full requested amount in loans from $50,000 to $100,000.

That's despite Latino-owned firms reporting, on average, gross revenue three times larger than similar white-owned borrowers.

The disparity between Latino business growth and loan stagnation has prompted greater SBA participation in the space.

The agency reported 47 percent growth in Community Advantage (CA) loans going to Latino businesses, by dollar amount, from fiscal year 2022 to fiscal year 2023, raising the share of CA loans going to Latino firms from 14 percent in 2022 to 19.7 percent in 2023.

Three quarters of the SBA's reported growth in lending was attributable to Latino firms, which now represent 12 percent of the agency's total guaranteed lending portfolio.