By Andres Matos, Public Policy Analyst

Latino-owned businesses (LOBs) are one of the fastest growing segments of the economy, but this sheer increase in the number of businesses masks a more complex reality. A new report from Third Way’s Center for Entrepreneurial Opportunity (CEO), the State of Hispanic Business, offers a comprehensive look at this trend, revealing a picture more complicated than topline figures may suggest. 

From 2017-2023, Latino entrepreneurs started 173,000 new employer firms, a 54% increase, compared to just 48,000 new non-Latino owned employer firms over the same period.¹ This wave of new businesses created 976,000 jobs and increased aggregate revenue by 68% to $832 billion.² However, these headline numbers paper over a much more complicated reality. In fact, at the individual firm level, revenues and employment have remained relatively stagnant, and nearly 9 in 10 LOBs remain solo operations with no employees.³ That pattern is compounded by concentration in sectors more vulnerable to economic downturns and policy shifts, including construction, accommodation, and administrative services.⁴ 

Industry concentration alone does not fully explain the scaling gap. The State of Hispanic Business report’s original “Scaling Gap” analysis, which compares Hispanic representation among employer and non-employer firms within each industry, finds that most sectors where Latino entrepreneurs are well represented, including construction and accommodation, show limited movement from solo operation to employer firm.⁵ Transportation and warehousing stands out as a notable exception, where Latino-owned businesses are both heavily represented and more likely to scale, suggesting that the barrier is not industry presence itself, but what happens within a given industry once a business is established. Taken together, these figures suggest that Latino entrepreneurship is expanding in scale but not yet in stability. 

The State of Hispanic Business report diagnoses the primary mechanism behind this: unequal access to affordable financing, which makes it difficult for Latino-owned businesses to obtain the capital needed to grow beyond the startup stage. The Federal Reserve’s 2025 Small Business Credit Survey documents this disparity at every stage of the lending process. It begins with demand: Hispanic-owned firms apply for financing at the highest rate of any group, 68%, but tend to request smaller amounts: 28% sought $25,000 or under, while only 8% sought between $250,000 and $1 million.⁶ The disparity then begins to compound.  Hispanic-owned firms are denied outright 31% of the time, and even when approved, 36% received less financing than requested.⁷ These gaps persist even when accounting for firm characteristics: The Stanford State of Latino Entrepreneurship Report finds that even when controlling for revenue, industry, and profitability, loan applications by Latino-owned firms are still less likely to be approved.⁸ 

 Informality Deepens the Financing Gap 

These lending disparities are compounded by a structural barrier that precedes the loan application altogether: informality. Roughly a third of all Latino-owned businesses operate informally, without registering as a legal entity, which bars them from accessing business banking services and financing.⁹ Even among those who have registered, many struggle to keep up with the financial reporting necessary to qualify for traditional financing. As a result, many Latino-owned businesses remain reliant on the owner’s personal savings and credit, resources that often proves inadequate when the business needs to grow or absorb an unanticipated financial shock. This creates a self-reinforcing cycle: owners do not qualify for a business loan because they lack business credit history, yet they cannot build that history without first accessing financing. Faced with this dilemma, many turn to predatory lenders offering high-cost products, such as Merchant Cash Advances (MCAs). While these products are often marketed as a way around the credit history problem, they frequently function as debt traps that undermine profitability and threaten the long-term stability of the business. 

These financing constraints help explain why Latino-owned businesses are disproportionately concentrated at the solo-business stage. LOBs represent 17.1% of all non-employer firms but generate just $253.7 billion in receipts, or about $46,215 per firm.¹⁰ After expenses, little remains to reinvest in growth, making it difficult to expand operations or hire employees. The contrast with employer firms is stark: Latino-owned employer firms account for just 7.9% of employer businesses, yet generate $653.5 billion in receipts. This equates to an average of roughly $1.4 million per firm, nearly thirty times the revenue of a solo operation. ¹¹  

Scaling Is Essential to Building Wealth Through Business Ownership 

Small business ownership can be a key vehicle for wealth building and financial stability. fFor Latino entrepreneurs to fully reap those benefits, however, more must be done to help their business scale from solo operations to employer firms. Without employees, businesses are fully dependent on the owner’s labor, which makes it difficult for that business to function as an income-generating assets that can be passed down or sold. This limitation is clearly reflected in the data: because solo operations make up the majority of Latino-owned businesses, a JP Morgan Chase study found that Latino business owners’ liquid wealth increased by only about $3,000 over the four years of the study.¹² 

In contrast, employer firms can become the bedrock for intergenerational wealth for Latino entrepreneurs. Business ownership is critical element of wealth building more broadly: according to NAHREP’s State of Hispanic Wealth Report, Latino business owners’ net worth is, on average, 2.2 times greater than their wage-earning peers.¹³  

Yet too few Latino-owned businesses reach that point. An analysis by Brookings of the Federal Reserve’s Survey of Consumer Finances (SCF) shows that between 2019 and 2022, equity in active employer businesses contributed almost nothing to the change in average Latino net worth. ¹⁴ This finding can be partly attributed to the rapid growth of Latino-owned businesses during that period – —many of these firms are simply too young to have built substantial equity – but it also reveals a deeper barrier: a persistent lack of capital. Without the breathing room affordable and accessible financing provides, new firms cannot scale, let alone build lasting equity.  

Scaling matters for communities, not just for the owners who build the businesses. An employer firm can hire locally, keep profits closer to the neighborhood, and anchor a commercial corridor in ways a solo operation cannot. According to the SBA Office of Advocacy, Hispanic-owned small businesses already employ 2.9 million workers nationwide.¹⁵  These businesses give neighborhoods distinct identities and draw investment that reflectss the communities that already live there. .  

Closing the Capital Gap: The Role of CDFIs and What Policy Can Do 

CDFIs and community lenders are already working to close this gap. By pairing affordable capital with hands-on coaching, they help entrepreneurs formalize their businesses, strengthen their financial footing, and build the track record needed to access future financing. This support that is especially valuable at the moment a business is ready to grow but cannot yet absorb the upfront costs of hiring and expansion. In this way, CDFIs help transform financing from a barrier to growth into a runway toward more resilient, scalable businesses. 

NALCAB works to close this gap by strengthening the community-based organizations that serve Latino entrepreneurs directly. Through a national network of more than 200 nonprofits and Community Development Financial Institutions (CDFIs), NALCAB provides capital, technical assistance, training, and connections to external funding opportunities. This support helps local organizations expand entrepreneurs’ access to affordable financing and the resources needed to start, sustain, and grow their businesses. 

But community lenders cannot close this gap on their own; federal policy also has a role to play. 

Fund programs that expand access to affordable capital. Two constraints keep small businesses from obtaining financing: too few lenders willing to underwrite them, and too little of the groundwork that underwriting assumes is already in place. The CDFI Fund and SBA’s lending programs address the first by capitalizing community lenders that extend credit conventional banks decline. SBA’s entrepreneurial development programs address the second, funding the counseling that walks owners through registering the business, securing licenses and permits, setting up bookkeeping and taxes, building credit, and packaging a loan application. Funded together, they finance a business at the point when it is ready to expand but cannot yet absorb the upfront costs. 

Extend truth-in-lending disclosure to small business financing. Predatory lenders build their business on the credit gap, targeting owners that banks have turned away and who still need capital. Merchant cash advances (MCAs) are the sharpest example. Because an MCA is structured as a purchase of future receivables rather than a loan, providers do not need to state an APR, so owners only see a factor rate and a daily payment they cannot compare to anything. Repayment is drawn directly from daily receipts, so capital that should fund a first hire services debt instead. Congress should require providers to state an APR, total cost, and payment terms in a standard format before an owner signs. 

As the State of Hispanic Business makes clear, the story of Latino entrepreneurship is not one of failure to launch – it is a story of remarkable momentum meeting structural headwinds. Latino entrepreneurs are starting businesses at a pace that outstrips the rest of the economy, but too many remain solo operations, concentrated in industries exposed to economic and policy volatility, and locked out of the affordable capital needed to grow. Closing that gap is not a matter of encouraging more entrepreneurship, but of ensuring existing businesses can scale: through financing free of predatory terms, support in formalizing operations and building credit history, and policy that protects rather than restricts the capital sources they already rely on. CDFIs and community lenders are proving this pathway works. The task now is to fund and protect it at scale.