The Economic Impact of Hispanic Entrepreneurs

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What makes up a dynamic economy? The answer is multi-faceted, but two things that stand out are entrepreneurship and business creation. In 2019, new businesses created more than 1.5 million new jobs, with Hispanic or Latino entrepreneurs at the forefront of job creation. 

With almost 5 million Hispanic-owned businesses in the U.S., Latinx entrepreneurs’ contributions to the nation’s economic health can’t be overstated. And things aren’t stopping any time soon. Estimates show that Hispanic small business owners will make up 29% of the population by 2050. If their businesses grow at just the U.S. average, they could add over a trillion dollars to the U.S. economy. This accomplishment becomes even more impressive when you consider the systemic issues the Latino community faces. 

Challenges Faced by Latino Entrepreneurs

Despite contributing so much to the economy, Latino business owners and entrepreneurs continue to face systemic challenges leading to an opportunity gap when compared with non-Latino counterparts. Perhaps none are more devastating to their bottom line than structural inequalities and limited access to capital. 

Gaps in Funding

Funding gaps are arguably the biggest challenge faced by Latinx businesses in the U.S. Recent research by Stanford shows that of all Hispanic-owned businesses that applied for bank loans of $100,000 or more within the last year, only 20% were approved. This is an especially harrowing number when you consider that the same study found that 50% of white entrepreneurs received those kinds of loans when they applied. This kind of institutional gatekeeping is both harmful and hard to combat.

We’d like to think we’ve moved past overt prejudices like this, but the numbers don’t lie. There’s not a lot individual Latino business owners can do, especially when this reality leads to them having less capital to work with. A 2020-21 report shows that the average loan given to Latinx-owned companies was $47,031, over $30,000 less than those given to other businesses. 

These disparities make it more likely that Hispanic entrepreneurs will attempt to get funding from less reputable sources, opening them up to financial risk. 

Language Barriers

Not all systemic barriers are monetary. In a multicultural society like that in the U.S., there would ideally be no issues for Hispanic entrepreneurs, regardless of their preferred language. Unfortunately, some financial institutions don’t offer the language services that would help Latinx business owners whose first language isn’t English. 

This might not be an issue with the larger banks or loan providers, but as noted above, systemic issues might cause Hispanic business owners to go to other institutions that may not be as well-equipped. The lack of communication can further impede a Latinx business owner’s goals.

While not an all-inclusive look into everything that Hispanic business owners have to overcome, these two challenges illustrate the two major hurdles standing in their way. These issues are both cultural and monetary. It makes it all the more impressive that Latinx entrepreneurs have contributed so much to the economy despite these obstacles. 

The COVID-19 Pandemic

Small businesses of all kinds were hit hard by the COVID-19 pandemic. Between February and April of 2020 alone, the number of active business owners fell by 22%. But the effects were especially felt among Latinx entrepreneurs, with the number of Latinx-owned businesses dropping by 32%. By March of that same year, an overwhelming majority of Hispanic businesses were in trouble. 

In a 2020 report, 4 in 5 Latinx-owned businesses reported that the economic impact of the pandemic had negatively affected their business. 

Sadly, the systemic issues Hispanic business owners face slowed relief from these setbacks. Latinx-owned businesses did not receive the same kind of support that other businesses did in the initial recovery efforts of the pandemic. 

The Paycheck Protection Program (PPP) sent out nearly $800 billion in loans to businesses, but Hispanic entrepreneurs struggled to gain access to those funds when compared with white-owned businesses. According to the Stanford Latino Entrepreneurship Initiative, white business owners received PPP funding at twice the rate of their Hispanic counterparts. 

But the story of Latinx entrepreneurs is one of resilience in the face of these hardships. 

The Economic Contributions of Hispanic Entrepreneurs

You don’t have to look into the future to see the economic impact of Latinx-owned businesses. A 2020 report by the U.S. Hispanic Chamber of Commerce (USHCC) showed that the nearly 5 million Hispanic-owned businesses contribute over $800 billion to the American economy. 

On a grander scale, the entire gross domestic product (GDP) of Latinx households in the U.S. came in at $1.2 trillion, according to the latest U.S. Census Bureau data.That’s not just the GDP of a small country — that’s equal to the GDP of France.

Hispanic Americans pack an economic punch that can’t be ignored, despite the barriers they face in the business world. That same census data also showed that Hispanic immigrants are more likely than the general U.S. population to be entrepreneurs — 30.6% more likely, to be specific. This means Latinx people in the U.S. contribute more to business growth than the national average.

There could be many explanations for why Hispanic people in the U.S. are more likely to start a business. It could signify that Latino business ownership rates are catching up to the general population. On the other hand, it may be that structural barriers make it harder for Latinx to thrive in the standard labor market. 

A Deep Dive Into Hispanic Entrepreneurship Data

The number of Hispanic-owned businesses in the U.S. grew by 34% in the last decade. Compare that to a growth of just 1% among all other small businesses, and you can see that Latinx businesses comprise the fastest growing demographic of small businesses. We’ve gone through the data to show what that means in a broader, monetary sense for the U.S. economy, but let’s look at the human factor. 

A 2018 report found that 331,625 employer firms had Latinx owners. This number accounts for nearly 6% of the total number of employers in the U.S., representing around 2% of actively employed workers. That might not sound impressive, but that percentage represents about three million people. These workers collectively generate more than $100 billion in annual revenue. 

For Hispanic-owned businesses, employing people seems to be the rule, not the exception. Over half of all Latinx enterprises employ at least one person, and more than a third employ five workers or more. 

The industries relevant to these businesses are diverse. Latino-owned business ownership can be seen in construction, healthcare, finance, nonprofits, and everywhere in between.

The Impact of Hispanic Women in Business

The 2020 State of Latino Entrepreneurship Report states that women represent 40% of all Hispanic business owners, an increase of 20% in five years. One explanation for this increase showcases the kinds of intersectional hardships faced by this group. 

In the traditional labor market, Hispanic women make just 55 cents for every dollar earned by white, non-Hispanic men. In certain states, like California, that number can be as low as 42 cents. It’s little wonder that many Latinas are choosing to exit the formal labor market to start their own businesses.

As one of the fastest-growing segments of the small business industry, Latinx women contribute a very sizable chunk of money to the economy. Recent data shows that as of 2017, businesses owned by Hispanic women earned $34.7 billion in sales. 

Like many businesses, these firms were hit hard by the COVID-19 pandemic. According to the Stanford School of Business, 30% of businesses owned by Hispanic women experienced closures because of the pandemic. With white business owners twice as likely as Latinx owners to get PPP loans approved, Hispanic women have struggled to come back from these setbacks.

These disruptions haven’t been able to keep Hispanic women down, and their economic power continues to bounce back and grow. A recent poll found that among a broad group of Hispanic and Black entrepreneurs, 88% felt they managed to meet or exceed business goals despite the pandemic-related disruptions. If nothing else, this speaks to the resiliency of Latinas and the Latinx community as a whole, and shows their future is bright.

The Future of Hispanic Entrepreneurship

The gains that Hispanic-owned businesses have earned in recent years have come after many challenges. Systemic biases and structural barriers continue to place obstacles in the way of growth. Still, the story of Latinx entrepreneurship is one of powering through these obstacles. 

The 2021 State of Latino Entrepreneurship report found that 50% fewer businesses reported significant negative impacts to their bottom line compared with the previous year. This is largely the result of positive business outcomes and proactive business practices throughout the numerous industries these businesses touch. 

There’s a real sense that the Hispanic entrepreneurial spirit, which has helped people weather recessions, civil unrest, and more, is paving the way for the growth we see now. 

Interested in fostering and honoring that entrepreneurial spirit among Hispanic employees in your business? Check out our article, 5 Ways Your Business Can Celebrate Hispanic Heritage Month to do so in a respectful and impactful manner. 

Or, if you’re interested in joining the ranks of Hispanic entrepreneurs, read How to Start Your Own Business: Startup Steps You Can Tackle Now in our Learning Center and take that first step.