“Arizona is open for business!”
It’s Governor Doug Ducey’s rallying cry and campaign motto.
In a state still living in the shadow of SB 1070, with real and perceived business impacts, the phrase a bit of a reset for Arizona.
Latino-owned businesses are surging. These companies have grown 31.6 percent, double the growth rate of all U.S. companies, since 2012. The rate of growth tells an impressive story, but revenue and other business milestones lag behind non-Latino businesses. Many Latino businesses have no additional employees beyond the owner, and only 3 percent of these businesses ever reach $1 million in revenue.
Latinos are breaking into all kinds of industries. Hospitality (including food service) is the largest category at 20 percent, with categories like other services, construction, retail and transportation in the top five, according to a study by a capital lender.
The bright spots are Latino-owned businesses, especially female-owned, are growing faster than other businesses. But they could be growing faster and adding more to Arizona’s economy but for hurdles Latino business owners face.
Starting from behind
It is expensive to start and scale a business.
In the era of startups, venture capital and Shark Tank, Latino-owned businesses are underserved in access to business capital.
A 2016 report by the Stanford Graduate School of Business points to financial education and cultural issues as reasons for this funding gap.
Standford talked to hundreds of Latino-owned businesses, and 42 percent said they were turned down for bank loans.
This in part because many Latino business owners have low or unestablished credit.
“Business owners that want to secure funding for their company should have a credit score of at least 660. Despite their revenue growth over the past 12 months, the average credit score for Latino-owned companies in our study was 594,” said Rohit Arora, in the Biz2Credit study. "This makes it difficult to secure financing from banks at reasonable rates."
Others said they preferred to get personal loans, and funds from friends and family. They were hesitant to get outside funding or set up equity models.
One advantage of the educational and cultural resistance to outside and alternative funding is Latino-owned businesses were less impacted and recovered faster from the Great Recession. Many businesses thrived.
But Latino-owned businesses are taking in less money than the average U.S. business. In 2012, the most recent Census data on the topic, the average U.S. Latino-owned business brought in $155,806, while the non-Latino business brought in $573,209.
Businesses generally grow in employees and revenue over time.
Hitting $1 million in revenue is considered a milestone of a successful U.S. business. Census data shows only 3 percent of Latino-owned businesses hit this mark.
Over time, Latino-owned businesses scale slower than the average business in the U.S. Less than 20 percent of businesses have any employees after 25 years.
If Arizona’s Latino-owned businesses were at parity with non-minority owned businesses, they could contribute an additional $36 billion for Arizona’s economy, according to data presented by Mónica Villalobos, Vice President of the Arizona Hispanic Chamber of Commerce. She was the editor of the publication DATOS: The State of Arizona's Hispanic Market 2018.
As the growing Hispanic population finds its voice in the Arizona economy, female entrepreneurship has taken the lead. Of the estimated 123,000 Latino-owned businesses in Arizona, 66,000 of those were owned by women.
In the 2012 Census, there were nearly 500,000 total businesses in Arizona, with 182,000 of them owned by women.
Women-led firms are seeing the greatest growth of any category.
Arizona in 2038
“By 2038 we would want to see Hispanic buying power in Arizona triple,” Villalobos told 12 News.
An optimistic projection. But the outlook is good. The number of Latino businesses applying for and securing business loans is growing. Lending company Biz2Credit saw a 22-percent increase in this category in the last 12 months.
Standford says the Latino-owned businesses are in diverse communities and diverse industries.
"Less than one-quarter of firms are in majority Latino neighborhoods," according to the study.
These companies are also concentrated in industries that are seeing the biggest growth like healthcare, construction, and administration.
Latinos are becoming bigger consumers, too. Latino buying power in Arizona could hit $57 billion in 2022, by a projection from the University of Georgia.
Education levels of the Hispanic population in Arizona are rising. High school and college graduation rates are increasing. Financial literacy will increase, Latino-owned businesses will try new funding methods and resources will become more numerous.
Latino businesses are already the most concentrated in the industries that are growing the fastest.
As the Hispanic population is more represented in the business world, incubators, VCs and other small business resources will help realize the potential of Latino-owned businesses. Latino-owned businesses will make more revenue and employ more people.
“They talk about ‘shop local.’ I think you should shop brown,” Phoenix chef Silvana Salcido Esparza told Cronkite News in 2017. “I think you should shop women-owned. I think you should shop minority-owned. I think you should shop local, definitely, but it goes deeper.”