(Bloomberg) — Laura Jimenez knew she was worth more than she was making, so she started her own business to prove it.
The Texas native opened Rockville, Maryland-based FireClean, an emergency cleaning and restoration service, in 1996 at the age of 27 after doing similar jobs for others. Jimenez took pride in the quality of her work and thought becoming her own boss would strengthen her family’s finances and allow more time with the children.
Employers “were not paying me what I was supposed to get paid,” Jimenez said. Even though the work is difficult and the hours long — her current crew of six is on-call nights and weekends — Jimenez says, “I love what I do.”
While the U.S. Hispanic Chamber of Commerce projects the number of Latino-owned firms like Jimenez’s will top 4 million this year and funnel $661 billion dollars into the economy, they lag behind in average number of employees and annual revenue, and suffer from a higher failure rate. Boosting their sales to match the U.S. average for non-Latino businesses would have added $1.38 trillion, or 8.5 percent, to gross domestic product in 2012, according to research issued Wednesday by Stanford University in Palo Alto, California.
Hispanics are the fastest growing portion of the workforce and are 1.5 times more likely than the general population to start a new business, according to the Kauffman Index of Entrepreneurial Activity. This difference between a willingness to venture out on one’s own and the ability to grow a business represents an “opportunity gap” that needs to be closed to boost the American economy, said Remy Arteaga, executive director of the Palo Alto-based nonprofit Latino Business Action Network.
One reason more Hispanics resort to starting businesses is that the population has struggled to overcome differences with other groups in educational attainment and employment. Hispanic students are the least likely to complete the 12th grade, and 84 percent of 24 to 29 year-olds do not have a college degree. For the few that do earn a bachelor’s degree, their unemployment rate is still above that of whites with a similar education.
There is a “push-pull” driving up self-employment among Latinos, said Marie Mora, a labor economics professor at the University of Texas Pan-American in Edinburg. They see opportunities for growth and financial security in working for themselves, while simultaneously weak labor-market conditions force them into self-employment, she said.
”What is the happening within the Hispanic population will continue to become an increasingly important determinant of the U.S. in general,” said Mora, whose research focuses on Hispanic labor markets and entrepreneurship. “The success of these businesses is going to become increasingly important.”
That’s where groups like Latino Business Action Network can help. Through education and mentoring, the goal is to encourage young Latinos “to have a more entrepreneurial mindset, so they can leverage that wherever they go,” said Arteaga. There should be less focus on those who “launch a business because they couldn’t get a job.”
His group partnered with the university to form the Stanford Latino Entrepreneurship Initiative, which has constructed a database of over 1 million Latino-owned businesses. They aim to reach as close to 100 percent of Latino-run firms as possible.
Wednesday’s report was the first in what will be a series of quarterly surveys of over 1,800 businesses.
Growth constraints are the critical focus. Currently, 98 percent of Latino-owned businesses bring in less than $1 million in annual revenue, a number that Arteaga and his colleagues at Stanford would like to increase. Their goals are to double the number of $10 million, $100 million and $1 billion Latino-owned businesses by 2020.
Jimenez’s cleaning business had as many as 20 employees six years ago, but the desire to spend more time with her children prompted her to cut back.
While Jimenez chose to downsize, other Hispanic-owned firms are struggling to grow.
Lack of credit is a major hurdle for most as Latino entrepreneurs are more likely to rely on credit cards to fund their ventures as opposed to opting for conventional bank loans, according to the Stanford research. The majority of business owners surveyed were unaware of government funds and programs, such as the U.S. Small Business Administration and the Small Business Innovation Research. A third of respondents had been turned down for funding.
Credit availability is a linchpin. Researchers like Arteaga believe their work can impact government policy and spur economic growth. That’s a priority as Hispanic-Americans are projected to account for 30 percent of the population in 2060 from 17 percent today, according to the Census Bureau.
“Right now, the economy is able to absorb a population of 17 percent that’s underperforming and still have modest growth,” said Arteaga. “It’s not going to be able to absorb a third of its population underperforming. It just won’t be able to do it.”