Legal Structure for Hispanic Businesses
U.S. Hispanic businesses are true drivers of the economy. Before COVID-19, the impact of the estimated 400,000 Hispanic-owned employer companies in the U.S. generated around $500 billion for the economy, employing roughly 3.4 million people. What’s also true, however, is that for a host of different reasons, only 20% of Hispanic-owned businesses receive $100,000 in loans from traditional banks, as opposed to 50% for non-Hispanic-owned companies. In 2020, many small and minority-owned businesses also struggled with federal aid programs like PPP and EIDL because they lacked, among other things, business credit histories, payroll documents and Profit and Loss statements to document their revenue, payment histories and employee overhead.
Many reasons point to the differences in access to funding between Hispanic- and non-Hispanic-owned companies. Most Hispanic business owners use their own savings (or their families’) to fund their businesses. They also typically rely on risky funding vehicles with high fees that cut into margins, like personal credit cards or personal or business lines of credit.
While the road to entrepreneurship can be harder for some, many Hispanic business owners are behind on access to resources and tools that make other business owners more successful. Some of these resources, like mentors, consultants and peer networks are easily found in community or Hispanic chambers of commerce, and in volunteer and government organizations like SCORE. SCORE is an educational and resource partner to the Small Business Administration (SBA) that has connected over 13,000 volunteer business experts (many of them bilingual) with small and minority business owners for over 50 years, for free.
Starting up and scaling a business can be challenging for anyone. Many new entrepreneurs don’t know the steps to incorporate their companies, get a tax ID, or open a business bank account. Financial literacy is another critical aspect of formalizing a business. Understanding payrolls, payment terms and cash flow make a business more sound by demonstrating its performance; debt; income, and access to cash.
Whether you’re considering starting a business or want to streamline your existing business structure, working with a business mentor accelerates your time to market. Working with a mentor also gives your company a better chance to have the proper financial and legal structures that bankers, investors and potential business partners look for when considering your company for funding.
Additionally, small, Hispanic- and minority-owned companies fare better at sustainability, growth and access to corporate and public-sector supply chains when they have documentation and structures that create trust with larger customers. Larger companies and organizations look at the risks that a small supplier can pose – staffing levels; the ability to deliver on time based on their capabilities; permits and licenses; less dependence on short payment terms – and weigh them against a solid structure and a superior service delivery history.
As you consider presenting your products and services to government and corporate supply chains, review some of the documents and items that procurement and purchasing departments will look for:
- Your company’s Tax ID or EIN. Get one at IRS.gov
- Your articles of incorporation. Visit the Division of Corporations side of your state website and register/update your registration
- How will your clients pay you? Download and fill out your W9 form
- Small business owners should establish business credit. Understand why you need a DUNS number to start tracking your business’ credit
- Do you have a Profit and Loss Statement? Work with your SCORE mentor or accountant to understand and create one
Entrepreneurship doesn’t have to be a dark and solitary road. A volunteer mentor from SCORE can help – in Spanish, free of charge. Stronger small businesses hire more employees; fuel their local communities and make larger contributions to the U.S. and global economy. A solid small company can be the legacy you leave behind, creating generational wealth for the next line of U.S. Hispanic entrepreneurs. Consider reaching out to SCORE today.