Latino-Owned businesses help drive California’s economy – we need to help them succeed

By Julian Cañete

California is the fifth largest economy in the world, and powering that economy are the 4 million small businesses statewide. Governor Gavin Newsom has credited California’s economic success in part to the diversity of the state’s hardworking workforce. Yet to maintain and grow California’s economy, the state must do more to further support its Latino community, who represent a significant part of California’s diverse community – comprising nearly 40% of our state’s population. Despite Latinos being the largest ethnic community in the state – Latino-owned businesses represent just 11% of employer businesses of the more than 4 million small businesses in the state.

The disparity between Latino-owned businesses and white-owned businesses in California becomes even wider when broken down by gender. Latino male-owned businesses number 56,000 compared to 295,000 white male-owned businesses, while there are just 21,000 Latina-owned businesses to 98,000 white female-owned businesses.

Although their number is small, the role of minority-owned businesses in California’s economy is not: they contribute over $190 billion in economic output, generate $28.7 million in tax revenue, and support more than 2 million jobs in the state. However, one can’t help but wonder what more could be achieved if we actively championed these businesses, creating an environment that allows them to thrive, rather than merely survive.

However, Latino small businesses encounter a variety of systemic barriers that stifle their growth, from difficulties in accessing capital to navigating complex state regulations and obtaining the financial resources necessary for success. Securing capital is a challenge for all small businesses, but for Latino owners, the challenge is even greater. In the first half of 2023, funding for Latino owners represented less than 1.5 percent of all VC investments in the U.S., and only two out of every ten Latinos who sought national bank loans exceeding $100,000 were able to get approved.

Navigating California’s complex regulatory environment presents yet another challenge. While regulations are designed to protect workers and promote fairness, they also impose significant burdens on small businesses. Legislation such as Assembly Bill 5 (AB 5), which reclassifies many independent contractors as employees, and Senate Bill 1383, which expands job-protected leave to smaller employers, adds layers of complexity that strain these businesses and discourage potential business-owners further.

Given these obstacles, it’s clear that many Latino small business owners become overwhelmed, simply because they lack the resources and tools to navigate our state’s system effectively, including financial literacy. Only 28 percent of Hispanic Americans have “high financial literacy,” and many Latino small business owners have never opened a bank account due to mistrust in financial institutions.

California has made some strides in addressing these disparities, but without properly educating Latino owners on how to leverage these initiatives, we risk widening the gap we aim to close. Programs like Cal State Fullerton’s Center for Entrepreneurship and the Social Entrepreneurs for Economic Development (SEED) offer valuable support, but they are underfunded and lack the scale necessary for a significant impact.

To truly support Latino small business owners, California’s policymakers must introduce legislation that increases investment in targeted programs, provides resources for accessing capital, and enhances financial literacy. Without these efforts, the economic potential of Latino businesses will remain untapped, and California’s broader economy will suffer.

To honor National Hispanic Heritage Month, let’s commit to ensuring that California remains a place where all small business owners, regardless of background, have the opportunity to succeed.

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