By Bankrate Staff

Claudia Ramos, graphic designer and illustrator from North Hollywood, Calif., dreams of turning her side business, Claudia Ramos Designs, into a full-time gig. Her dreams are specific, she’d like to see her work and that of other Latina artists sold in her very own shop. Ramos, who was born in El Salvador, currently works for Hasbro as a fashion graphic designer by day and (after her seven-year-old daughter goes to bed) on her side business by night.

Starting a business from scratch

In 2013, the company where Ramos worked, American Greetings, closed its LA office. It was a turning point for her as she considered her next steps.

“I thought, ‘Oh, my gosh. What am I going to do?’” she said. Ramos quickly realized that she could rely on her creativity, on which she’d capitalized since she was a young girl.

Ramos began challenging herself. “A friend asked me to illustrate a save-the-date postcard for her wedding, and I said, ‘Okay…’”

Soon after, Ramos’ designs were featured in a wedding magazine, and she opened her Etsy shop.

“It all started using my own money,” she said. “It’s all been out of my own pocket. I’ve never reached out for anyone to sponsor me or reached out to a bank for a loan.”

Ramos’ entrepreneurial spirit is common among the Latino population in the United States. Her Latino counterparts, who make up a full 18 percent of the U.S. population, reached a population of nearly 58 million in 2016, according to Pew Research Center. While the 2018 Stanford Graduate School of Business Latino Entrepreneurship Gap reported that just six percent of all businesses were owned by Latinos in 1996. Today, that number has more than doubled to nearly 13 percent.

Despite these figures, most Latino-owned businesses remain small, with 98 percent reporting less than $1 million in revenue per year.

As a whole, national banks fund Latino businesses less often than for entrepreneurs from other ethnic groups. According to the 2017 Stanford Graduate School of Business State of Latino Entrepreneurship Report, only 12 percent of Latino firms who employ more than one person received bank loans, compared to 18 percent of white-owned firms, 15 percent of Asian-owned firms and 14 percent of black-owned firms.

The importance of Latino entrepreneurs

Though they face constraints, immigrant Latino entrepreneurs make important contributions to the economy, generating $36.5 billion annually in business income.

According to the U.S. Small Business Administration Office of Advocacy, roughly 1.2 million of the 12.2 million business owners in the United States are immigrant Latinos. In fact, the Harvard Business Review reported that immigrants from all over the world constitute 15 percent of the general U.S. workforce, but they account for around a quarter of U.S. entrepreneurs. Almost half of Hispanic-owned companies are owned by women, according to census data.

Eighty-six percent of immigrant-owned firms with at least $1 million in annual revenues are owned by millennials (younger than 34) who came to the U.S. as children, according to “Insights” by Stanford Business. On a larger scale, Latino immigrants are twice as likely as the native-born population to start a small business, according to the United States Hispanic Chamber of Commerce.

Small Business Majority reports that DREAMers don’t shy away from entrepreneurship, either. Those protected under DACA work at small businesses and start their own small businesses in droves.

Financial challenges as a Latino entrepreneur

“I feel like I’m not making a lot, but I feel like I have to learn more marketing strategies,” Ramos says, noting that social media – Instagram in particular – has changed since she first started her business in 2013. “A lot of people don’t see you on Instagram unless you have 5,000 followers. It’s all about numbers. I’ve been giving out giveaways, and I haven’t been selling that much.”

There are a few concrete reasons why most Latino-owned businesses remain small, and Mary Vazquez, community advocate for Point West Credit Union in Portland, Ore., has seen them all:

Funding gaps: Only 12 percent of Latino firms received bank loans compared to 18 percent of white-owned firms. Often, national banks are not willing to take on the risk of smaller firms. In addition, many Latino business owners report they feel unqualified to apply for a bank loan at a national bank. They defer to their own capital, friends, family and credit cards. They tend to use banks or credit unions, venture capital or angel investors as a last resort.

Only 12 percent of Latino firms received bank loans compared to 18 percent of white-owned firms. Often, national banks are not willing to take on the risk of smaller firms. In addition, many Latino business owners report they feel unqualified to apply for a bank loan at a national bank. They defer to their own capital, friends, family and credit cards. They tend to use banks or credit unions, venture capital or angel investors as a last resort. Lower credit scores: According to Biz2Credit, the average credit score for Latino entrepreneurs is below 600, a lower credit score than what is required by many banks.

According to Biz2Credit, the average credit score for Latino entrepreneurs is below 600, a lower credit score than what is required by many banks. Lack of awareness of different funding sources available: Many Latinos tend to resist seeking outside funding, including venture capital or angel investors. The U.S. government’s Small Business Administration guarantees loans, but Latino entrepreneurs access these at lower rates than they borrow from national banks, according to ARF Financial, a restaurant and hospitality lender.

Many Latinos tend to resist seeking outside funding, including venture capital or angel investors. The U.S. government’s Small Business Administration guarantees loans, but Latino entrepreneurs access these at lower rates than they borrow from national banks, according to ARF Financial, a restaurant and hospitality lender. Lack of traditional identification: Banks do not often offer products or services to people with Individual Taxpayer Identification Numbers (ITINs), which are tax-processing numbers issued by the Internal Revenue Service for those who do not have a social security number.

Banks do not often offer products or services to people with Individual Taxpayer Identification Numbers (ITINs), which are tax-processing numbers issued by the Internal Revenue Service for those who do not have a social security number. Language barriers: Low literacy and English proficiency among some Latino immigrants can be a root cause of Latinos not accessing banks or other financial institutions.

Low literacy and English proficiency among some Latino immigrants can be a root cause of Latinos not accessing banks or other financial institutions. Lack of bank services: Often, banks or other financial institutions lack services to help Latino entrepreneurs, including linguistically-appropriate services. Foreign-born entrepreneurs are also more likely to be denied bank loans.

Often, banks or other financial institutions lack services to help Latino entrepreneurs, including linguistically-appropriate services. Foreign-born entrepreneurs are also more likely to be denied bank loans. Fear and mistrust of the government and established institutions : Culturally, community and family are important to this demographic, and it’s an easier leap for many Latinos to borrow from family or friends before approaching financial institutions for funding.

: Culturally, community and family are important to this demographic, and it’s an easier leap for many Latinos to borrow from family or friends before approaching financial institutions for funding. Low collateral value: Banks and other financial institutions are hesitant to grant anyone money without real property, business inventory, cash savings or deposit or other types of collateral. Immigrants new to America may not have enough collateral to qualify for loans.

The solutions to many of these financial barriers start with accessible financial education.

“They need to find a personal coach that can assist them with any of their questions without them feeling like they’ll be rejected or a bother to those institutions,” Vazquez says of the Latinos in her Portland community. “We see those stories every day.”

In 2007, Vazquez was the only Spanish-speaking teller at Point West, but today, almost half the staff at Point West is bilingual and bicultural. She recalls a client, Sara Rodriguez, who felt comfortable with Vazquez because of her Spanish-speaking ability.

Vazquez suggested Rodriguez open a business using the credit union’s help. A stay-at-home mom of four, Rodriguez had no credit and no social security number. She did have an ITIN, so Point West issued Rodriguez a $500 loan to pay for permits and ingredients to start her tamale cart, Sara’s Tamales. Over time, Rodriguez received two additional micro-loans from Point West.

Vazquez points to Rodriguez’s story as a victory and says that other credit unions should follow suit. “We actually renovated our website and it’s bilingual, in Spanish and English. Thirty percent of our staff members speak Spanish. Our call center is Spanish-speaking, and we’re one of the few, if not the only one in Oregon who does ITINs,” she says.

Funding your business as a Latino immigrant

This year, Claudia Ramos plans to attend the #WeAllGrow Latina summit in Long Beach, Calif., to help her answer questions about what’s been elusive in the success of her business. “[The business owners at the conference] have the same goals: to grow and help each other. With what’s going on politically, it’s what we have to do to help each other,” Ramos said. “It’s part of our culture, too. To start my own little shop, I would feel more comfortable going to my family. Family is always there for you.”

She recalls a time when her cousin needed help funding a surgery, and she and her family members all chipped in to help. It’s the same with starting a business, Ramos said. “You lean on family and friends before the bank.”

Vazquez, whose own family is from Mexico, agrees.

“Many times, I’ve seen personally and professionally how the Latino community is always asking friends and family questions about finances. If they have an idea for a business, they always ask a family member or a friend; they never really ask professionals,” she said. “They’re scared of being rejected, or they feel they don’t have the right to explore other options.”

She says that it can be a frightening prospect, particularly for those from another country, to dive into the complex process of obtaining funding.

Consider your funding options

While asking family and friends is often a more appealing option for Latino entrepreneurs, taking the risk of getting funding from a financial institution can help set up your business for success.

A list of pros and cons for various funding options are listed below. Note that regardless of legal status, Latinos can use the business name and number (EIN) to access business credit without having to disclose immigration status.

Business loans

Loans specifically intended for a business purpose. Banks, credit unions, SBA loans and microloan programs can all be business loan options:

Pros: Business loans usually have lower interest rates, and using a business loan rather than a personal loan separates personal and business finances.

Cons: You must qualify for any type of business loan, and requirements vary. Most business loans require a high credit score.

Crowdfunding

You can set up an online campaign and raise money from a large number of people:

Pros: Crowdfunding is low risk, and you can tap into a larger audience via social media.

Cons: Marketing is imperative; you have to deliver what you’ve promised to backers and there is often a crowdfunding platform fee.

Angel investors

Individual financial backers who provide private capital for small or large businesses:

Pros: The money provided isn’t a loan; angel investors typically have lots of experience in your business of choice (they’re often established by entrepreneurs themselves).

Cons: Any equity you build will partially go to your angel investors; angel investors expect to make money and help make business decisions.

Venture Capitalists (VCs)

A person or firm that invests in small companies using money pooled from investment companies, large corporations and pension funds:

Pros: Venture capital can help your business grow quickly, offer business expertise and provide support with legal and tax matters, among other areas.

Cons: VCs expect to make money and often intend to make decisions about your business.

Small business grants

Money given to a person, business or corporation from federal, state, county or local governments, or private businesses or corporations:

Pros: Grants do not need to be repaid and they’re easy to find online.

Cons: Paperwork is time-consuming, there is tough competition, eligibility is strict and there are also specific rules you have to follow.

Specialty lenders,

Friends and family as some examples of specialty lenders:

Pros: Friends and family trust you and care about your success.

Cons: You could lose money and jeopardize a valuable relationship. Always be sure to document the family member or friend’s role in the business.

Credit cards

Business credit cards can help entrepreneurs keep expenses separate while allowing them to pay off larger purchases over time:

Pros: It’s easier and more convenient to qualify for a credit card, rewards are offered and you can build credit. Credit cards also give you a financial cushion when accounts receivables are behind.

Cons: Credit cards are more expensive, have higher (and fluctuating) interest rates, personal legal liability, security issues and offer less protection compared to consumer credit cards.

Credit unions and business loans

One demographic-specific possibility is to access a Latino credit union like Point West Credit Union in Portland. A Latino credit union allows applicants to provide foreign identification, offers English and Spanish materials, financial education services and is able to focus on serving local Latino communities.

“You don’t have to have a Social Security number to bank or get a loan with us. That’s the promise we’ve made to our community,” says Vasquez. “Everyone who comes to our door receives the same service or rates. It’s based on your credit.”

Many Latino credit unions offer the same promise, and here’s a complete guide to Latino credit unions across the United States:

State Latino credit unions California Community First Credit Union

Kern Federal Credit Union

Kinecta Federal Credit Union

Santa Cruz Community Credit Union

SCE Federal Credit Union

Self-Help Federal Credit Union

Travis Credit Union

Latino and minority business grants are another way to fund a business, and a local Hispanic chamber of commerce is one place to start. For example, the Hispanic Chamber of Commerce of Metropolitan St. Louis showcases a list of grants on its website. Business owners can also research grants online using the following links:

A business credit card could be a great way to boost the buying power of a business. A credit card gives business owners access to a revolving line of credit to withdraw cash and make purchases – as long as it’s used wisely.

Some tips for using business credit cards include setting spending limits, watching for any strange transactions, and to be careful with large expenditures – and to remember that interest rates are often higher for credit cards than many other sources of funding, including business loans.

Ramos never stops thinking about her someday-shop. “That’s my dream and I’m going to keep working hard to get to that point. In my situation, I’m the breadwinner. I’m the only one who’s making money right now. I don’t have the luxury to concentrate on doing this full time.”

Vazquez says that despite fledgling business and entrepreneurial numbers across the U.S., Latinos have more opportunities than ever before. Latinos continue to push past financial or other restrictions. According to Biz2Credit, the number of credit applications from Latino-owned businesses rose 22 percent over the past 12 months.

Vazquez will tell anyone that the door to Point West is always open, and Vazquez herself can often be found greeting anyone who comes through the credit union’s entrance. “Even if you aren’t a citizen, you’re all welcome to come here,” she said.

Other resources:

Society of Hispanic Professional Engineers: Empowers the Hispanic community to realize its fullest potential and impact the world through STEM awareness, access, support, and professional development.

Empowers the Hispanic community to realize its fullest potential and impact the world through STEM awareness, access, support, and professional development. United States Hispanic Chamber of Commerce (USHCC) : The United States Hispanic Chamber of Commerce (USHCC) actively promotes the economic growth, development and interests of Hispanic-owned businesses. The USHCC advocates on behalf of 260 major American corporations and serves as the umbrella organization for more than 200 local chambers and business associations nationwide.

: The United States Hispanic Chamber of Commerce (USHCC) actively promotes the economic growth, development and interests of Hispanic-owned businesses. The USHCC advocates on behalf of 260 major American corporations and serves as the umbrella organization for more than 200 local chambers and business associations nationwide. Prospanica : Prospanica offers annual career and professional development conferences, connects thousands of Hispanics to graduate programs, subject matter experts, corporations, and each other.

: Prospanica offers annual career and professional development conferences, connects thousands of Hispanics to graduate programs, subject matter experts, corporations, and each other. Association of Latino Professionals for America (ALPFA) : In addition to offering networking and professional leadership development opportunities, ALPFA aspires to be the business partner of choice for companies seeking to hire and develop Latino talent.

: In addition to offering networking and professional leadership development opportunities, ALPFA aspires to be the business partner of choice for companies seeking to hire and develop Latino talent. Dreamers Ventures: Dreamers Ventures is a platform and multi-city tour that brings knowledge, capital and access to opportunities to America’s fastest growing entrepreneurial segment to turn their dreams into reality.

Some resources for Latinas: