Updated: Apr 18, 2020
On the weekends, food truck owner Orlando Osornio, 30, and his wife, Denise, sell mile-high tortas, filled with California fusion-inspired ingredients: hot Cheetos, bacon, mango-habanero sauce, or pineapple. Some come for the birria torta, or the chicken-bacon-alfredo torta.
A line of customers winds its way around the side of his tent as meat sizzles on the grills. On the other side of the mesh, Osornio and his crew pack and stack toasted buns as fast as they can.
Two years ago, when Osornio, who is Mexican-American, was contemplating launching Tortas al 100, he knew one thing: He didn't want to apply for a loan. Osornio had racked up "about $30,000" in credit-card debt as a teenager and said when life smacked him in the face in his early 20s, he got serious about paying it down and fixing his credit score.
That experience, he said, was what prompted him to forgo applying for a small-business loan. Instead, Osornio estimated he and his wife spent at least $50,000 of their salaries on the burgeoning business, including food, four grills and a tent, during its first year of operation.
Latino small-business owners are the fastest-growing group of entrepreneurs in the U.S. even as they battle systemic racism that has resulted in lower incomes and loan rates. Over the past 10 years, the number of Latino business owners grew 34%, compared to 1% for all business owners in the United States, according to a recent study from Stanford University. And more Latinos than ever are applying for small business loans to launch or grow their operations.
The growing success of Latino small business owners comes as Latinos are increasingly becoming an economic force in the U.S. The same Stanford study found Latino-owned businesses contributed about $500 billion to the economy in annual sales.
A 2019 report to Congress based on data from 2017 found almost 60 million Latinos in the United States already account for $2.3 trillion in economic activity in total, which on its own would rank as the eighth-largest economy in the world. And Latinos are projected to make up 30% of the U.S. population by 2020, meaning the group's contributions are only likely to grow.
Latino-owned businesses employ more than 3 million people, according to the 2019 State of Latino Entrepreneurship report by the Stanford Latino Entrepreneurship Initiative (SLEI), a Stanford University research initiative centered around Latinos in business. All told, Latino-owned businesses account for about 4% of U.S. business revenues and 5.5% of U.S. employment.
However, Latino-owned companies remain smaller than white-owned firms, averaging $1.2 million in revenue compared with $2.3 million brought in by a white-owned company. That is a problem, said Jerry Porras, a professor emeritus of organizational behavior and change at Stanford Business School; co-founder of the Latino Business Action Network, a nonprofit out of Stanford University focused on empowering Latino business owners; and co-director of SLEI.
"I think that there's really a positive story when you look at Latino businesses across the country," he said. "The number is smaller as a base but it's growing very rapidly. Latinos are oriented towards starting businesses and are doing it at a significant rate.”
If Latino-owned employer firms were given the same chances, Porras said, they would generate an additional $4 billion in revenue and 1 million jobs.
Latino small business owners tend to be younger
Across the U.S., Latinos are represented in all the major industry sectors, owning businesses in manufacturing, education, health services, finance, construction and more.
Latino business owners tend to be younger than non-Latino business owners. Roughly 33 percent of Latino entrepreneurs are younger than 45, compared to just 22% of non-Latino entrepreneurs.
For every 100,000 Latino adults in the United States, on average 510 became entrepreneurs each month in 2018.
However, research by the Institute on Assets and Social Policy, an institute that studies economic opportunities for people of color, shows that historic disenfranchisement of people of color has led to those very people having less generational wealth than white people.
Furthermore, policies that favor the affluent have continued to widen the gap, particularly between white families and black or Latino families.
While the income gap between blacks and whites closed somewhat between 1970 and 2016, Hispanics fell even further behind at all income levels, the Pew Research Center think tank found in 2018. Even top-earning Hispanics earned only 65% as much as whites in 2016, down from 74% in 1970.
And Hispanic people on average continue to have lower salaries than white people, research out of Stanford showed.
In the end, this combination means Latinos typically have lower credit scores, which can mean higher interest rates or being turned down for loans.
According to a report submitted to the U.S. House Financial Services Committee in 2019 by UnidosUS, a nonpartisan think tank focused on the Hispanic community, banks originally had loan officers who determined the “trustworthiness” of a loan applicant. As such, people of color were often discriminated against.
In the following decades, banks lost their loan officers to the war effort, and soon invented credit scores as a stand-in. However, these, too, had their issues as they were built on longstanding disparities and have resulted in communities of color, young adults, people with low incomes and immigrants having disproportionately low credit scores.
According to the 2017 Small Business Credit Study by the Federal Reserve Banks, of applicants denied credit, 45% of Latino applicants were turned down for insufficient credit history and 37% for having too low a credit score. (Applicants could choose more than one response.) In comparison, white applicants were turned away at rates of 33% and 26%, respectively.
“I think the Latino story in some ways follows the story of why black families have less wealth than white people today,” said Urban Institute research fellow Steven Brown. “There is a lack of the same kind of resources that help build wealth."
Brown cited restricted access to homeownership under policies such as “redlining” as a primary way Latinos were kept from building generational wealth. For decades, black and Latino neighborhoods were unfairly deemed too risky for loans and mortgages through redlining. That left people there reliant on speculators or private sales.
“When Latinos have been able to buy homes, they have historically been relegated to neighborhoods where the homes didn't have as much value, so they're unable to build as much wealth and pass it on,” Brown said.
In more recent years, as Latinos have become more prominent in U.S. culture, their economic standing has risen.
A 2019 study of 61,000 small-business loan applications submitted to Biz2Credit’s online marketplace found the number of credit applications from Latino-owned businesses rose 23 percent from 2018 to 2019.
And over the last year, Latino-owned businesses reported an average revenue growth of 14%, outpacing the growth of the U.S. economy, the Stanford report showed.
While revenues climbed, though, the average credit scores of Latino business owners dipped to 588 from 594 last year, according to Biz2Credit.
According to Biz2Credit CEO Rohit Arora, that could indicate business owners are using personal credit cards to fund their business growth if their companies did not qualify for loans. Furthermore, cost management can be difficult for young businesses, and that may factor into the dip in scores.
“When credit scores are less than 600, it is hard to get traditional bank loans,” Arora said in the report his firm released.
Porras said the lack of credit can force Latino business owners to make riskier financial decisions, such as relying on personal credit cards to grow their business or taking out a loan on their accounts receivable.
"By and large, I think Latinos are very unsuccessful in securing loans from the more professional sources," said Porras. "It's the smaller ones that are hurting the most," he added, referencing business size.
In other cases, Latino borrowers may be less trusting of financial institutions as a whole, based either on past experiences or a general understanding of systemic racism by lending institutions.
"Latinos have to pay more for interest," said Fausta Ibarra, 59, who owns Tropical Cuts hair salon in Salinas, California. "We have to pay more for everything."
Ibarra, who calls herself a “cien por ciento” -- or 100% -- Mexican woman, had poor credit after issues with a house she and her sisters bought together in the early 1990s. When she applied for a loan in 1993 to open her hair salon, a brightly lit salon tucked into a small strip mall in Salinas, Washington Mutual Bank denied the loan. (The bank collapsed in 2008 during the financial crisis.)
She ended up borrowing nearly $30,000 from friends, family and coworkers, slowly paying them back one by one.
When Ibarra tried to purchase a home in 1996, her low credit still held her back. There was, however, another way, the real-estate agent told her. Ibarra ended up paying more than the house was on the market for, and she had to borrow from friends and family so she could put down a deposit of $10,000, twice what she was prepared to pay out of pocket. Ibarra felt taken advantage of.
"Los Latinos tienen que ganarse el pan cada día," said Ibarra in her native Spanish. "Yo sí pienso que los Latinos pueden contribuir más si nos dan la oportunidad para sacar adelante a nuestros hijos. Yo pienso que todos tenemos las ganas de progresar pero no se nos dan las facilidades que se les da a una persona ciudadana de aquí."
That translates in English to: "Latinos have to start all over again, every day," Ibarra said. "I do think that Latinos can contribute more to this country if they give us the same opportunity to better ourselves and our children. I think we all want to progress, but they don't give us the same tools they give someone who was born here."
According to a 2017 New American Economy report on the power of Hispanics in the U.S., Hispanic entrepreneurs own a large chunk of transportation and warehouse businesses, laying claim to more than 20% of the industry in 2012. They also owned about 12% of the country’s construction firms.
Advocates say that, given a chance, Latinos could grow their portion of the economy even further. However, the "opportunity gap between Latinos or Hispanics and their white, business-owning counterparts is wide.
"Wealth is the missing ingredient in the Latino community," said Porras. "If we could add more wealth, people would consume more and grow the economy. How do we get more wealth? Grow businesses."
"It's a synergystic process," said Porras. "In the long term, it will benefit the whole country."
All Latinos need, Porras said, is a chance.