Here’s a startling paradox: Hispanics in the U.S. are starting and running businesses at a faster rate than other groups. Yet, despite this amazing feat, they still trail their non-Hispanic counterparts in the ability to scale their enterprises, essentially leaving more than $1 trillion in revenues on the table.
As a community-focused business lender and nonprofit, CDC Small Business Finance is working to change the course of this stark reality. Last year, we commissioned a study with the help of NALCAB to show the major barriers — from lower credit scores to lack of formal business 101 skills — that keep Hispanic entrepreneurs from achieving more.
“Latinos are the fastest growing entrepreneur group in the U.S., and California is home to one-third of the nation’s Latino business owners.” said Robert Villarreal, executive vice president of CDC Small Business Finance.
“Yet there’s a massive wealth disparity between Anglo and Latino families; we need to bridge those wealth gaps by helping Latino business owners reach higher,” added Villarreal, also president of the Small Business Finance Fund, a CDC affiliate and community development financial institution, or CDFI.
In response to the study’s recommendations, we implemented three strategic initiatives to bolster this community.
Let’s revisit those initiatives and see where we stand now.
Initiative #1: Provide Hispanic-focused loans products, services
Barriers to overcome: For most Hispanic business owners, when they need business capital, their first move isn’t going to a traditional lender. Instead they usually tap the following sources: personal savings, credit cards, and loans from friends and family. And Hispanic entrepreneurs who do attempt to get a small business loan with a traditional bank have a significantly higher chance of being turned down due to lower credit scores. Banks usually want a 720 FICO score or higher.
What we’ve done to help: Not long after our study was released, we created a loan product designed specifically to serve Hispanic and African American businesses, with a focus in the Los Angeles area. This loan removes many of the barriers that keep Hispanic business owners from qualifying for capital.
Unlike traditional lenders our loan product requires:
- No minimum credit score
- Lower debt coverage ratios, and
- Flexible underwriting terms.
Over the last 14 months, we’ve funded more than $3.2 million in loans through this program. In addition to removing the hurdles Hispanic borrowers typically encounter, we also stepped in to break a negative financial cycle that afflicts many minority entrepreneurs. Through our focused efforts, we helped a number of clients out of high interest online-only financing into our loans, which offer affordable, fixed rates.
“We funded these business because we believe in them,” Villarreal said. “By refinancing the online loans, we were able to stabilize them.”
Related: Study shows Hispanic business owners face hurdles in accessing business capital
Initiative #2: Spread the word about our Hispanic-focused business loan product
Barriers to overcome: Hispanic business owners are likely unaware that loan programs geared toward them.
What we’ve done to help: We followed the study recommendation to work directly with organizations that cater to the Hispanic business community to raise awareness of business capital opportunities. We accomplished this goal by partnering with two: the LA Latino Chamber of Commerce and the LA Business Association. The goal now is to fortify those relationships for a consistent flow of referrals, which means more capital to Hispanic-owned businesses.
Related: Veteran Taps Loan Program That Helps Latino Business Owners In L.A.
Initiative #3: Provide Hispanic entrepreneurs with Business 101 skills to increase funding odds
Barriers to overcome: Many Hispanic-owned businesses lack formal, basic business skills, which can help them qualify for the financing they need.
Where we are now: To qualify for any business loan, you typically need a strong business plan, a history of financials or solid projections, and a decent credit history. Many Hispanic entrepreneurs possess the drive to succeed in business but just need an extra push in those three areas. That’s where credit coaching and business mentoring come in.
Unlike a traditional lender, CDC Small Business Finance has in-house business advising experts who help aspiring and existing business owners get loan-ready. About a year ago, we added Marsel Watts to that team to help target the Los Angeles region, and in turn, help more Hispanic business owners get funded. In fiscal 2018, the business advising team has helped nurture borrowers from intake to in-house coaching to funding to produce a total of $5 million in business loans.
Related: Working to Close Massive Financing Gap for Latino Small Businesses
What’s next?
Villarreal is encouraged by these results and acknowledges there’s more great work to be done. In LA alone, he wants to increase lending to the Hispanic community to the double digits over the next fiscal year.
Villarreal says CDC is heading in the right direction even outside of the Los Angeles directive. Company-wide over the last 18 months, we’ve issued $10 million in business loans to Hispanic business owners.
Do you need help launching or expanding your business in California, Arizona or Nevada? CDC Small Business Finance offers several loan options that can help you achieve your small business goals.
Tell our loan experts about your business, and they’ll work to match you with a financing plan that best suits you. Let’s talk! Reach us at loaninfo@cdcloans.com or (619) 243-8667.
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