Starting a business is a bold step, especially for the many Hispanic entrepreneurs in the U.S. This journey comes with a unique set of challenges for the community, especially the financial ones.
And even though Hispanic-owned businesses are among the fastest-growing business initiators in the country, many of them still face challenges such as limited access to funds, lower growth opportunities, and no long-term stability.
An article from the Los Angeles Business Journal shared a study done through a survey of around 2700 Hispanic small business owners across the U.S. that revealed some of the biggest challenges facing the Hispanic demographic. It came down to issues like having a good credit score, acquiring materials, moving into new markets, and other business requirements, but the major one was about financial challenges.
Let’s uncover the 5 reasons that become challenges for the Hispanic community in terms of finances and how to resolve them.
Reason 1: Language & Cultural Barriers to Entry
The language gaps and cultural nuances can make it challenging when navigating the process of starting a business and its financial challenges.
Many Hispanic entrepreneurs struggle with English-only applications, tech systems, legal terminologies, conversations with lenders, and networking. This lack of proficiency in English causes a gap in communication, the biggest 360 need of a business.
However, major businesses in the US are recognizing the importance of language inclusivity, so local non-Hispanic firms now offer services in both English and Spanish.
For instance, Cox, an internet provider in the U.S. with a solid reputation, offers Cox servicio al cliente, 24/7 support for Hispanic customers to inquire about their services, plan upgrades, billing, etc., all in Spanish. This is a plus for Hispanic startup businesses too, as they can avail their reliable internet service, which is a vital need for any business of today, especially startups. Now, let’s look at the impact this issue brings:
- difficulty in understanding business documents
- Working out the loan terms
- Chance of miscommunication with banks or vendors, which makes Hispanics avoid financial institutions for fear of misunderstanding
How can this be overcome?
It’s necessary to have a little knowledge and a basic understanding of the English language. The Hispanic people can seek out advisors well-versed in dealing with bilingual clients or Spanish speakers. The business owners can proactively look for services that have Spanish language support.
Reason 2: Limited Business Network
The networks and networking events are mainly a fast-track way to get access to mentors, investors, partnerships, and new opportunities in your business.
However, many Hispanic entrepreneurs start with smaller professional circles and, usually due to mistrust, rely on family networks or word of mouth. But the key to success comes from exportation, and that must be understood.
This issue impacts having:
- Fewer referrals for investors or loans
- Less visibility in local business communities
- Limited mentorship opportunities
How can this be overcome?
This can be overcome by attending and being present at Hispanic business expos, joining chambers of commerce, and tapping into entrepreneurial spaces that support first-time founders. These can be events at universities for last year’s students, business fairs, and even competitions.
Reason 3: Lack of Official Funding & Mistrust
The best place to get loans safely is the bank – the official funding source. You can start a business and get loans from any bank that approves of your pitch, idea, the feasibility reports, and aligns with what you can pay back in interest.
This doesn’t even take much time, as they do a basic scan and provide you with the necessary funds. However, the Hispanic business owners prefer using their personal savings or using family and community support to fulfil this need, due to mistrust and risk of miscommunication due to language or other barriers.
This usually stems from negative experiences of others in the community or unfamiliarity with the system in the U.S. Meanwhile, the banking system also mistrusts them due to a bad credit score or other financial downturns, like no personal assets.
This issue impacts:
- Funds being difficult to obtain
- Having little financial history, like a credit score
- Having little to no options to raise capital
- A higher reliance on lending from family/friends
How can this be overcome?
Hispanic-owned startups can start small, such as online, and build credibility with some personal profits that the bank can feel assured of.
They can start by opening up an official business bank account so the bank has no room to mistrust and maintain a credit score. They should use digital bookkeeping tools and build trust with local community banks.
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Reason 4: Low Collateral Value
Many startups in the Hispanic community begin from personal savings without the high-value assets like property, commercial equipment, or large investment portfolios.
The community is also mainly of immigrants, the first and second generation, so they also don’t own personal assets. These can be property, gold, or other valuables to put as collateral for loans at the bank. This can result in limited funding options.
This issue impacts the:
- The rate of loans being rejected
- Reliance on a lender with higher interest rates
- The expansion of business slows
How can this be overcome?
The business owners facing these issues may explore options like microloans, SBA (Small Business Administration) programs, and community development financial institutions (CDFIs) to help get funding, since these don’t rely on collateral but on the business idea, pitch, and its potential.
Reason 5: Low Credit Score
The credit score is one of the most important when it comes to securing a business loan. They impact everything from the interest rates to approvals on the finances. Hispanic business owners who recently immigrated and have previously had no credit history often have “thin” scores and low chances of approval.
What does it mean?
- Loan being denied
- Higher rates of interest
- Limited access to credit lines
How can this be overcome?
The business owners can have secured credit cards, pay the small business expenses through credit to build history, and also monitor their credit scores regularly. Also, having a financial advisor from the start would help and is a good investment to have one.
Lastly, there are many challenges the Hispanic community and its businesses face. And though the financial challenges are some of the biggest ones, they are solvable with knowledge, community support, and access to trusted sources. Overall, the above-mentioned reasons may help Hispanic owners understand and overcome the issues faced.
