Hispanic In Business
The Hispanic population is the fastest growing demographic group in the United States - and the group's business sector is matching this pace. Recent statistics from the U.S. Hispanic Chamber of Commerce reveal that nearly 3 million Latino-owned companies now pump almost $400 billion annually into the economy.
Even so, many of these entrepreneurs have yet to realize that a network of support services - once full of gaps - has begun to strengthen and tighten. This section offers a summary of all the help that's out there, from financial services, procurement opportunities and mentor programs to trade associations, social networks and publications.
Financial Services: SBA Loans
A hefty check with no strings attached is every business owner's dream. But according to the U.S. Small Business Administration, it's time to wake up. Outright grants for launching a company are virtually nonexistent at the government level, except for a few in highly specialized areas -- and none exist for start-ups.
The best bet for Hispanic entrepreneurs is to borrow capital. While some banks offer programs specifically geared to the Latino business owner, the easiest to obtain are U.S. Small Business Administration loans. A word of caution, though - minority-owned businesses don't receive special consideration in loan approvals, although the SBA does actively court participation from Hispanic and other minority populations.
In addition, the federal government does not lend money directly to small businesses. Rather, it offers lender guaranties, a sort of safety net that encourages private banks and lending institutions to approve applications.
Here are several SBA programs for business owners who may have problems obtaining traditional loans:
- Basic 7(a) Loan
Non-government lenders, which include the majority of U.S. banks and some non-bank lenders, issue 7(a) loans. Available on a guaranty basis and structured on SBA requirements, this program requires that applicants be both eligible and creditworthy. For instance, applicant businesses must: meet SBA size standards, be for-profit, lack business or personal resources to come up with financing and be able to demonstrate repayment.
- CDC/504 Loan
In cooperation with Certified Development Companies, the 504 Program, a financing tool for community economic development, offers small businesses long-term, fixed-rate financing for major fixed assets, such as buildings and land. Typically, a 504 project includes a private-sector loan secured with a senior lien covering up to 50% of the project cost, a loan secured with a junior lien from the CDC covering up to 40% of the cost and a contribution of a minimum 10% equity from the applying small business.
This program, which recently received additional funding through the Recovery Act, works with commercial lenders to provide loans in amounts too small (up to $35,000) to be of interest to larger loan programs. Borrowed money can purchase inventory, supplies, furniture, machinery, etc., but cannot go toward real estate or to pay existing debts. The loans are delivered through specially-designated non-profit intermediary lenders, which provide technical assistance to applicants.
Because SBA loans come through non-government sources, business owners must visit their local participating banks or lending institution to apply.
Go to www.sba.gov/localresources/district/or/financing/OR_ORPLPCLP.html for a list of SBA lenders. The Small Business Administration provides its site in both English and Spanish.
Financial Services: Additional Loan Programs
In addition to SBA-guaranty programs, some national and regional banks offer loan services specifically to Hispanic and other minority entrepreneurs.
The United States Hispanic Chamber of Commerce (www.ushcc.com) works with a number of banks to create loan programs. One is aimed at lending more than $1 billion over the next five years to small businesses in high-growth Hispanic markets across the United States.
Another loan program provides a full range of Latino business services available in many areas of the country. The goals are to build partnerships with national and local organizations, recognize the Hispanic community's entrepreneurial achievements, and provide financial tools for growing solid businesses.
Others banks also offer various loan arrangements to minority entrepreneurs, as well as to any business owner in low- and moderate-income communities. These programs typically cover real estate, equipment and working capital. One such loan is through a Minority and Women Prequalification Program, which includes SBA pre-approval as well as technical assistance in the application process. To qualify, firms must earn less than $25 million annually. Loans (up to $25,000) can go toward working capital, inventory, equipment and real estate expansion.
For additional guidance on small-business loans, visit Business.gov at http://search.business.gov/startLoans.html.
Before applying for any type of loan, it's important to understand that lending institutions will ask for certain prerequisites before they'll write a check:
- Ability to Repay. Banks look at business cash flow and collateral, so start-up owners should put together a loan package detailing a projected repayment plan.
- Credit History. Check your personal credit rating well before applying for a loan. Errors take up to four weeks to rectify, so make sure it is correct and up to date. For help in interpreting or evaluating your credit report, consult an accountant or banker you can trust.
- Equity. Even start-up business owners usually must invest some personal funds into the company. The amount depends upon the type of loan.
- Collateral. These are those personal and business assets that can be sold to repay a loan. Most loan programs, including microloans, mandate at least some collateral.
- Experience. Entrepreneurs lacking experience in their new businesses should not apply for loans unless they plan to take on partners or staff familiar with the field. In addition, the owner should take time to work in the discipline first, as well as enroll in related classes.
Paperwork requirements vary, but the U.S. Minority Business Development Agency (www.mbda.gov) advises would-be borrowers to gather the following documents:
- Loan application. This requires at minimum business and personal information, the requested amount, purpose and banking information (checking account).
- Signed copies of business and personal Income tax returns for past three years. The lender will confirm with the IRS the returns' accuracy.
- Company financial statements for the past three years.
- Personal financial statement.
- Business plan and projections (typically required for start-up businesses, term loans or other special conditions).
- Listing of accounts receivable and payable agings (for asset-based loans).
Financial Services: Investor/Venture Capital
Although finding investor backing can be a tough way to go, alternatives for smaller businesses, including Hispanic-owned, do exist. Keep in mind, though, equity investments are rather high risk, so investors invariably seek a high return on investment. As always, the friendliest place to start is the Small Business Administration.
The SBIC, or Small Business Investment Company, guarantees privately owned and managed investment funds, licensed and regulated by SBA, to make equity and debt investments in qualifying small businesses. As with loans, the SBA does not use the SBIC Program to invest directly, but works through intermediary financial institutions.
SBIC primarily helps companies with real growth potential with equity-type arrangements that allow partial ownership and profit-sharing. SBICs finance small firms by providing straight loans and/or equity-type investments which often give them partial ownership of those businesses in the hope of sharing in the companies' profits as they develop. To qualify, a company may not have a net worth greater than $18 million, with an average after-tax net income for the prior two years no greater than $6 million. For more information about SBIC, go to http://www.sba.gov/aboutsba/sbaprograms/inv/index.html.
The Community Development Venture Capital Alliance (www.cdvca.org), a non-profit organization promoting the use of venture capital tools to advance local economies, invests in businesses in distressed areas nationwide. Their programs cover a variety of industries, from seed to expansion. CDVCA plays a key part in supporting its member funds and providing entrepreneurial training programs, consulting services and much more.
Pacific Community Ventures (www.pacificcommunityventures.org), also a nonprofit organization, provides resources and capital to businesses with the potential to bring significant economic gains to low and moderate income communities. Affiliated with several for-profit investment funds, PVC offers entrepreneurs access to numerous business development resources through various programs and services.
Besides non-profit and government programs, scores of commercial companies invest in minority-owned businesses. The National Association of Investment Companies (NAIC), the financial industry association for private equity firms investing in an ethnically diverse marketplace, provides a directory of partner companies. Since the NAIC's emphasis is on emerging markets, a good number of member farms target the Hispanic business community. Visit www.naicvc.com for a directory of participating investors.
Financial Services: Getting Through the Process
When it comes to money matters, new entrepreneurs (no matter their ethic background) often find themselves treading water in a sea of paperwork. Some banks and lenders, such as Bank of America, do offer support services for Hispanics and other minorities applying for financial services, but the broadest resources lie elsewhere.
Chief among these is the Small Business Development Center. A collaboration of the private sector, education community, and federal, state and local government, the SBDC offers one-stop help to small-business owners. Entrepreneurs nationwide can visit local branches for application assistance, counseling, goal setting and dozens of other services. Go to www.sba.gov/aboutsba/sbaprograms/sbdc/index.html for program information, as well as for a list of branch locations.
Local community colleges, due to their mission, likewise provide extensive opportunities for small-business building. The National Association for Community College Entrepreneurship fosters entrepreneurial training and education practices at community colleges nationwide. A list of participating colleges is available on the NACCE Web site, www.nacce.com.
Mentoring: Why and How
Many successful Hispanic entrepreneurs - or indeed, entrepreneurs in general - acknowledge that others have helped them along the way. For this reason, a seasoned business owner may feel the urge to return the favor. Becoming a mentor allows a more experienced individual to share expertise, wisdom and guidance with younger people in a similar profession or line of work. In turn, mentors can benefit from a protégé's fresh ideas, and also take pride in their professional accomplishments.
For Hispanic protégés, who may face language and cultural barriers, this brand of guidance is invaluable, and relationships can last for years. Usually, professional mentor duties vary according to the line of work, though fundamentally, a mentor:
- Provides support by listening to a protégé's needs and concerns.
- Guides protégés through problems and challenges.
- Helps protégés establish personal and professional goals.
- Provides professional opportunities, when possible.
- Commits sufficient time to the relationship.
Given the heavy responsibility, entrepreneurs aiming to mentor should have the following qualifications:
- Ability to communicate work ethic and management style to a protégé.
- In-depth knowledge of their chosen fields.
- Willingness to share professional knowledge and experience.
- An overall positive attitude.
- Dedication to the relationship.
- Passion for their professions.
- A high degree of respect from colleagues, employees and the community.
While numerous mentor relationships grow out of academic experiences (e.g. meeting a potential protégé in a class or workshop), there are other ways to get started. Possibilities exist in area chambers of commerce - many of whom sponsor mentor programs - professional organizations and even in online social networking groups.
Some universities arrange relationships for business students, for instance, with community entrepreneurs. Others can evolve from "career days" where business people set up booths at local high schools. In the Hispanic community, several organizations sponsor mentorship programs as part of their missions. The most notable include:
- HISPA (www.hispa.org) provides onsite student support services in an effort to reduce the dropout rates of Hispanic students, beginning in middle school. With a national network of role models and resources, the organization encourages Hispanic professionals to visit schools, where they can share educational and career experiences. The goal is to inspire youngsters to achieve a higher level of academic performance - and to take pride in what they have accomplished.
- The ASPIRA Association is the only national Hispanic non-profit organization dedicated solely to developing educational and leadership potential of young Hispanics. Operating at the grass roots level, ASPIRA provides programs that encourage students to stay in school, prepare them to reach educational goals, develop leadership skills and serve the community. The group currently assists more than 85,000 students each year through school clubs and after-school education and guidance programs. To learn how to get involved, visit www.aspira.org.
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