Research has identified a "lending gap" between minority-owned and mainstream companies in their ability to secure capital from banks. "The Minority Business Challenge," a report compiled by the Minority Business Development Agency and the nonprofit Milken Institute, found that "Hispanics paid nearly 70 percent more for lines of credit in heavily concentrated markets." A study by the Federal Reserve Bank titled "Competition, Small Business Financing, and Discrimination" showed that Hispanics have a rate of acceptance similar to that of Anglos, but that "African-American and Hispanic owners were more likely than white owners to have avoided applying for credit at least once in the last three years." The reason, according to survey respondents, was fear of being turned down.
"Whether these lending gaps exist because of discrimination or lender market structure remains a subject of debate," the Milken study concludes, "but the credit gap remains nonetheless." Mr. Garza calls the gap a regional phenomenon for the most part; Hispanic entrepreneurs in San Antonio, for instance, probably wouldn't face much discrimination, but that might not hold in other, less integrated areas of the country. He emphasizes the need for Hispanics to educate themselves on banks' inner workings and develop the knack for recruiting investors – skills that aren't taught in the classroom.
Even in government capital-access programs, Hispanics face shortfalls. Although Hispanics constitute about 13 percent of the U.S. population, only 5.13 percent of funds disbursed under the SBA's 7(a) loan program went to Hispanic firms in the 1990–2000 decade. According to American Banker, four of the five largest SBA lenders in the nation – Bank of America, Citizens Financial, Fleet Bank, and CIT – made on average only 6 percent of their SBA-backed loans to Hispanics in 2002. Among the top five lenders, the bank with the highest percentage – and the only lender to approach parity – was Bank of America, at 11.3 percent, followed by Wells Fargo at 6 percent. According to data provided to Hispanic Business by the SBA, Hispanic firms fare better at banks with Hispanic roots, such as Puerto Rico–based Popular Inc. (parent company of Banco Popular) and Spain's Santander Bancorp (see table, "Top SBA Lenders to Hispanics").
The SBA's other finance program – Small Business Investment Companies (SBICs) – also skews non-Hispanic. Of the 4,004 companies that received SBIC funding in fiscal year 2002, only 34 were Hispanic-owned firms (see table, "SBIC Minority Financing"). In dollar terms, Hispanic CEOs landed only $8.2 million of the $2.65 billion in SBIC financing, a mere 0.3 percent of the pie. Even among "specialized SBICs" (formerly called Minority Enterprise SBICs, or MESBICs), which focus on loans to socially and economically disadvantaged entrepreneurs, Hispanics received only 10.9 percent of the funds last year.
Trade groups have taken notice of the capital issue by staging events ranging from the New America Alliance's Wall Street Summit, held annually in October, to local Hispanic chamber matchmaker breakfasts. In January, the Florida State Hispanic Chamber (FSHC) sponsored a "Billion-Dollar Roundtable" to introduce venture capitalists to the Hispanic market. At the FSHC convention, the U.S. Chamber of Commerce signed an agreement to promote a 15-city seminar tour among Hispanic firms. The seminars will focus on procurement opportunities, financial management, and access to capital (see "Sunshine State Summit" in this issue).
Besides ethnic and historical barriers, Hispanic CEOs face another hurdle in today's battle for investment funds. The current U.S. economy and war worries have put a damper on business investment for all groups. "Minority businesses are usually LIFO (last in, first out) when private capital availability tightens because of economic downturns," wrote J. Antonio Villamil, CEO of The Washington Economics Group and former Undersecretary of Commerce, in a presentation for last October's Hispanic Business Magazine Board of Economists Summit.
"A lot of [angel investors] have lost a lot of money, so they're more reserved when it comes to taking risks," says Mr. Garza. "On the other hand, you're talking about people who have excess capital, and they're the kind of people who are used to taking risks. So if they see a well-thought-out business plan in a viable market, they're going to pay attention."
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