Entrepreneurship and business creation are fundamental to a dynamic economy. Companies less than five years old create an average of 1.5 million new jobs each year. Hispanic Americans are helping to drive this engine of job creation. Nearly 1 in 4 new businesses—which provide critical sources of new jobs—are Hispanic-owned, and the nearly 5 million Hispanic-owned businesses contribute over $800 billion to the American economy annually. In the decade preceding the pandemic, the number of Hispanic business owners increased 34% compared to an increase of just 1% among non-Hispanic business owners.
There are more than 300,000 Hispanic-owned, employer businesses located across all 50 states and the District of Columbia. These enterprises employ at least one employee, other than the owner. Hispanic employer businesses employ about 3 million workers, with more than $100 billion in annual payroll. The number of Hispanic-owned businesses that employ at least one employee, other than the owner, increased by 14% between 2012 and 2017—over twice as fast as the national average.
Although the economic contributions of Hispanic businesses are extensive, Hispanic entrepreneurs and small business owners face limited access to capital and structural inequalities that hinder these individuals and firms relative to their competitors. On the eve of the coronavirus pandemic, Hispanic small businesses and other minority-owned enterprises were more likely than their white counterparts to show signs of financial vulnerability. These vulnerabilities are influenced by the disparate treatment Hispanic entrepreneurs face; notably, Hispanic-owned businesses are less likely than white-owned businesses to be approved for large loans by national banks.
These financial constraints have left Hispanic-owned businesses vulnerable to the adverse effects of economic shocks. As a result of the coronavirus recession, the number of active business owners declined across the board, but the decline of Hispanic business owners was more pronounced. In March 2020, more than 4 out of 5 Hispanic-owned businesses reported a large negative impact from the pandemic and its economic effects, yet Hispanic-owned businesses faced barriers to adequate relief in the immediate fallout.
Support for small businesses and working families—like tax cuts for low- and middle-income workers, a federal paid leave program and increased access to lending and investment capital—would help unleash the full potential of Hispanic entrepreneurs and their businesses. For example, cutting taxes for small business owners with children will provide relief to Hispanic entrepreneurs. The Department of the Treasury estimates that more than 3 million small business owners with children will benefit from these tax cuts. Strengthening the Affordable Care Act (ACA) by reducing health insurance premiums can also help Hispanic and other small business owners who still struggle to access quality healthcare for themselves and their employees. Broad tax reform and a universal paid leave program would also improve the competitiveness of small, Hispanic-owned businesses who are unfairly harmed by the concentration of corporate power.
Combining these investments in families with increased federal spending on minority-owned businesses can help narrow wealth and financing disparities that limit the reach of Hispanic entrepreneurs. In 2019, the gap in business ownership between Hispanic and Black households, relative to white households, accounted for about one-quarter of the overall racial wealth gap between these groups. Current proposals in the U.S. Congress that call for investments in new Small Business Administration (SBA) initiatives that reduce barriers to business ownership and growth would provide a direct lifeline to Hispanic entrepreneurs and small businesses. Initiatives like increasing the share of federal contracts going to small disadvantaged businesses would help Hispanic entrepreneurs acquire capital and grow their enterprise. Investing in Hispanic-owned businesses is a direct investment in the dynamism of the American economy.
Read the full brief here.