Latino entrepreneurs can face large roadblocks when trying to launch or expand a business, and studies suggest as many as three out of four will face funding shortfalls. In response, New Jersey’s Hispanic Chamber of Commerce is working with a financial firm to create a business-investment fund for Latinos to help improve their chances of accessing capital.
The fund is meant to fill a financing gap, giving members of the chamber an opportunity to get low-cost loans and other services when they start a business or expand one.
The chamber is working with Jersey City’s World Business Lenders, a 200-employee financial firm that was founded in 2011, to administer the Hispanic Chamber Fund.
A national model
The fund could be adopted by other communities of color in New Jersey. It’s already being viewed as a potential national model that could be used in Latino communities in other parts of the country. It’s also drawing praise from many of New Jersey’s Latino politicians.
The fund’s launch also comes as Gov. Phil Murphy has been reworking the state’s economic development strategies to put more overall emphasis on small-business growth, including with new loan programs and other incentives.
Small businesses in New Jersey employ about half of the state’s overall private-sector workforce, and Latino entrepreneurs account for some 120,000 businesses across the state. And they contribute an estimated $20 billion annually to the state economy, according to the Hispanic chamber. But their success has come despite many Latino small-business owners saying they face challenges getting access to capital at reasonable terms that’s needed to launch or grow their businesses.
A recent national study released by the New York Federal Reserve Bank looked deeper into the specific challenges that can be faced by Latino entrepreneurs, particularly as the number of community-based banks that used to be relied on for such lending has dropped. For example, the study found Latino entrepreneurs apply for funds at slightly higher rates than whites, but were more likely to face shortfalls, with only 28 percent getting full funding.
Relying on personal savings
Latino entrepreneurs tend to rely more heavily on personal savings or loans from friends and family to seed their new businesses, according to the study. Further, growth among Latino-owned businesses often lags their white-owned counterparts despite comparable profitability, according to the study. The financing challenges that can impede their growth are often faced by even the most successful Latino-owned businesses, the study said.
Carlos Medina, the chair of the state Hispanic chamber, said in a news release announcing the fund that Latino entrepreneurs often believe that getting financing at acceptable terms is simply unavailable to them. The new lending program offers a “meaningful step in providing Latino entrepreneurs with the capital they need to grow or expand their businesses,” Medina said.
To help administer the fund, World Business Lenders is providing a range of services to the members of the Hispanic chamber, including some of the startup financing. It’s also contributing general advising, cosponsoring, and loan servicing.
But the fund is also hoping to attract capital from other sponsors who would be willing to participate in the broader effort.
Hoping for ‘deep pockets’
“We want deep pockets and big banks to join us,” said Doug Naidus, the firm’s chief executive officer, during an interview yesterday in his Jersey City office.
The fund’s first loan worth $50,000 was recently provided to Passaic-based food wholesaler Nicomex, with World Business Lenders providing the funding at no cost. The interest rate was 9 percent, Nadius said. By contrast, he said many alternative-business lenders charge rates starting 40 percent that can run as high as 300 percent.
In addition to getting more attractive interest rates than the chamber members would typically get from other alternative lenders, the fund could also help shield them from predatory lenders who may be offering them other onerous terms, like not providing amortization, Naidus said.
“There’s a problem there and the Hispanic Chamber Fund is one small step towards a solution,” he said.
Naidus believes the fund could be replicated to help entrepreneurs in other communities of color in New Jersey and said he is already in talks with officials from business groups representing veterans and the African-American community. His firm also already abides by established best practices for the alternative-lending community and is leading an effort to see them codified in state law under a bill sponsored by state Sen. Nellie Pou (D-Passaic).
“I applaud World Business Lender’s partnership with (the chamber) to provide these opportunities to minority-owned businesses in our cities and across our state,” said Pou, who chairs the state Senate Commerce Committee.
The fund’s launch has also drawn praise from U.S. Sen Robert Menendez, a Democrat who serves on the Senate’s Banking and Finance Committee.
“Latino-owned small businesses are incubators of innovation and embody the entrepreneurial spirit,” Menendez said. “I applaud (the chamber) and World Business Lenders for investing in Latino economic growth.”