Empowering Latinx Entrepreneurs: Tackling Funding Challenges

Stef: 0:10

Welcome to the Fundid Podcast, where we dive into the details of how businesses really start, grow and operate. We'll hear from experts that can guide us to make smart business decisions in finance, marketing, managing people and everything in between. I'm your host, stephanie, the CEO of Fundid, where we're on a mission to simplify how the smallest businesses understand and access capital. Today I'm with Alexandra, the CEO of Porre Capital, and we're going to be talking about the state of business for the Latinx community in the US. Let's dive in. So first question I'm just wanting to hear from you, like what is the current state of funding for the Latinx business community?

Alexandra: 0:54

Well, it is a really tough environment, but it always has been. I think, as a CEO of a company that's specifically looking to break the barriers for funding, there are trends that for us do not make sense, which is why we think that we need a different type of product in the market. So to go into those trends, I think you already know that Latino-owned businesses are growing at a faster rate than other demographics. Latino-owned businesses are also seeking funding at a higher rate than other demographics and in spite of having high revenue, having similar to higher business credit and also having very little debt, latino business owners are getting denied war loans of $50,000 or more at a faster rate. So clearly there is a systemic problem when we look at why that is happening, I think one of the biggest challenges that Latino business owners face today is the underwriting processes that banks are using specifically to make capital accessible. And when we dig into the underwriting process, a big challenge for Latinos and, honestly, just businesses of color as a whole, is two big things. The first one is that banks have an expectation around collateral. When you look at the history of the country and how hard it has already been for communities of color, the expectation of collateral is already unequal, because if you come here as an immigrant and you're doing great in your business but do not have credit history and or do not have assets personal assets yet it's already putting you at a disadvantage. Or if you're someone who comes from a lower income background and you yourself are the one in your family that are sort of the pioneers of establishing wealth, you're just not going to have the type of collateral that white business owners are going to have, who have had a history in this country of building wealth, and so that's a huge challenge that is presented in the ways that banks make and approve loans.

Stef: 2:55

It's so interesting. As you know, I'm really passionate about this topic as it relates to women-owned businesses, and it's like the exact same thing I would have said if I were you and we were talking about women, and so it's like the majority of these business owners out there have the same situation, the same problem. Here we are in the same system. One of the funny things about what you just said to me I mean it's not funny at all, but that stuck out was about the lack of credit and how people don't want to loan based on that, even though everything else is there, and it almost like makes me laugh out loud, thinking like you and I are in the venture backed world where, like, literally, the narrative is like handing millions of dollars to like 23 year old white dudes and then saying, like this is actually the best time to give them that money, and I'm just like what is happening? Like how are we here? That's a really interesting collateral. Specifically, before I ask some other questions around that, I'm curious about your background and what led you to be interested in this topic.

Alexandra: 4:00

Yeah, personally. So I'm an immigrant. I was born in the MacArthur public and immigrated to the US in the 90s, and my family and I weren't documented for the first 10 years in this country, and so as a child I've seen sort of what it looks like to not have access to capital as an individual. One of the things that I remember very vividly is going to get a money order, like we just never went to the bank because we were not payable. Another thing that I remember very vividly is my parents were very adamant about investing in our education. Having an education, particularly a private one, is expensive. The reason why that was important to them is because of our education system and how unequitable it was. So my mom, very early on, found that if we stayed within the school system that we had access to, we would just never get to where she thought we could go, and so in order to pay for tuition, my mom would often participate in what was called a tanda, so in these lending circles that would allow her to make those payments. So I have a lot like vivid memories of the challenges that Latinx people and Latinx immigrants specifically experience when they're trying to leverage money to build wealth or to get their families to the next stage, and so all of my career I've spent it really working in the government and the nonprofit sectors and I would say the through line of the work that I have done has definitely been around making resources accessible to communities of color, especially Latinx people. My last role was working for the city of New York. I worked at the Department of Small Business Services, so very much got introduced to some of the challenges that business owners face, but was also in city government during the pandemic and I don't know if you visited New York I'm sure you have no, not during the pandemic yeah, I wouldn't either. So I live in Jackson Heights, which was the epicenter of the epicenter. So just looking at the devastation and the impact on people first and foremost especially front line workers, but then businesses was something that really sort of like stuck with me, and so I knew that, once we were able to overcome the pandemic, that I would focus my energy on helping communities of color and helping Latinx people build wealth. Entrepreneurship is a huge source of building wealth and has often been attributed to like helping build generational wealth, especially communities of color, and so I feel very, very passionate about ensuring that this is a sustainable path for people of color and especially Latinx people.

Stef: 6:49

Awesome. Oh, you're like the perfect person to be solving this problem. I can't I mean, I don't think most of us in the US can even wrap our heads around the idea of being undocumented in the US for 10 years and the system that probably exists within that, and I mean your parents really forged a pathway. That's amazing. You talked about the Latinx small business community being the fastest grown segment in the US. I'm assuming a business owners. Can you tell me more about that? Like I, that is not something I knew and I would love to like learn more about what's going on there that's making that happen.

Alexandra: 7:24

Yeah, I think there's about 5 million formal businesses. So I just want to say the caveat that a lot of the data that exists is heavily focused on formal businesses that exist. When you think about entrepreneurship as a whole, it's often like the only way that people of mixed statuses could actually establish a livelihood for themselves. So I would say, as a whole, there's probably more than 5000. And I think that there's a few things happening, including the grit and the motivation of what we call necessity entrepreneurs, so individuals who are locked out of the workforce and see entrepreneurship as a way to create a lives for themselves and a lives for their children. I generally think that there's also something happening here when it comes to immigrants. I think immigrants as a whole are seen as having sort of a greater sense of risk, so they're more likely to take risks, and I think that there's an element of that in terms of what inspires people to go into entrepreneurship. I think there's a mix of things. I think there's an element of necessity, there's an element of risk taking, and then there's an element of seeing this as the most sustainable path in a world where the workforce within itself is seeing all kinds of challenges.

Stef: 8:52

Sure, yeah, that makes sense. The topic of necessity entrepreneurship is a big one in our world right now. I think it's really interesting and, just like I said before, it's true for moms, right. Necessity entrepreneurship happens to a lot of young moms because the workforce isn't accommodating them, they have a child to take care of, and so they end up becoming entrepreneurs. Not because we talk a lot about entrepreneurship, but there's this whole population out there that wasn't like 8 years old going one day, I want to be a business owner. They just like had a problem, they needed to solve it and the best solution was to work for themselves. Okay, so in the Latinx community, you talked about collateral, but I'm curious do you see that as the biggest barrier in funding the community, or what are you seeing as the main barriers that we should all be aware of?

Alexandra: 9:40

I think it's important to highlight as a main one, because when we're trying to understand the problem, we have to see, like, what's really going on, and I think the hard part of that is that even when you take a sample of individuals that have the same characteristics, in some cases, and most cases even more favorable, and they're still not getting the funding that they need. I think it's like important to call that out. I think when we unpack, well, why may that be? I think obviously there's a lot of systemic isms happening in the system. I think in terms of, like, how do you approach that as a business owner and what does that mean? In supporting Latinx, business owners break that barrier. I think there's an element of relationship building and trying to really understand. How do you break through or how do you get to the point where your bank is able to see you in a different way? This goes back to the five C's, with character being one of them. What we are seeing is that when a business owner has a relationship with their bank, they're more likely to get funding. We're also seeing that when they are part of networks that have a deeper understanding of the way that a particular financial institution works, they're more likely to get funding. And so there's the system, which we wish that it worked the way we want it to work, but when it doesn't I think there's an element of that how do we equip and how do we break through in a world where it's going to take a lot of time to overcome the systemic isms that we know are already within the financial sector, so to speak?

Stef: 11:16

Okay, that's really interesting and super helpful. I was thinking about what is currently out there helping this community of people. So, in your view and what you know, your knowledge, what initiatives or support networks exist to mentor and empower the Latinx entrepreneurs in starting and growing their small businesses today?

Alexandra: 11:38

Yeah. So I'll start by saying that I don't know where your audience is located, but I'm going to approach this in a national way. I'm in New York and so I think I can go very deep in New York. But I would say, as a business owner, whether you're starting or you're scaling, you should always tap your local Chamber of Commerce. You should always identify who the community development financial institutions are. I think when we think about the trajectory of business, particularly Latinx or BIPOC businesses, it's important to understand where, in a world where it's really hard to get a bank loan, what is the path? And part of that path is going to CDFIs or community-based institutions. So those institutions are not just there to lend, maybe at a smaller amount, but they also have themselves resources. To call out some specific names, I think the Hispanic Chamber of Commerce is like an example of a network, a national network that Latinx people can tap into. There is the Latino business network, which is another network that people can tap into. But I would say that, as a local Latinx business, you should absolutely know who your local Chamber of Commerce are, what technical assistance or nonprofit providers there are, because there are so many nonprofits that offer a lot of mentoring and they also help you prepare. So, to go back to what are the barriers to accessing capital there's the system, but in preparing to access capital, there's an aspect of managing your finances, there's an aspect of having a level of organization in your business that puts you in the best possible position to get funding and things of that nature, and that's where nonprofits and technical assistance providers are so, so, so, so, so important. And so I would say those are some examples. And then, finally, it's important to call out that, as an immigrant, like as a Latina immigrant, I'm not always eager to engage with government, and I know a lot of people that are not either. But it's important to call out that SBA the small business agency for the US does offer a lot of important resources. And then the local agencies that support small businesses it's really, really important to establish a relationship with them. They are also the ones that educate you on how to access contracts for governments and have a lot of important resources. So when it comes to building revenue, it is so critical to have those relationships. And so I would say those buckets right Chambers of commerce, local nonprofits, technical assistance providers and then those agencies, and then, depending on the industry, and I'll just use myself as an example. Who are the corporations that are investing in the ecosystem? So, for me, in technology, I need capital. So I'm looking at Google, I'm looking at all of these tech companies that are curious about the products that are entering the market. They're often making grants which is great because they don't dilute you or providing technical resources because they have an interest in ensuring that these ecosystems of small businesses grows I would say that and often they're tailored to a particular community.

Stef: 14:52

Awesome, okay, that makes a lot of sense. I want to talk a little bit about the role of capital and small business in the Latinx community. I know oftentimes they go hand in hand. We talked a little bit about how these businesses a lot of times are incest-y entrepreneurs, and so I'm thinking sole props right, and is that right? So actually my first question before we talk about capital what type of businesses are we seeing? I'm making some assumptions here.

Alexandra: 15:18

Yeah.

Stef: 15:18

Are they sole props? Are they like services, businesses?

Alexandra: 15:23

In terms of the data, the majority of businesses Latinx businesses are sole proprietorships or one employee corporations, right? So it means that the technicality of it so we have more businesses with just one employee than not, and then a smaller percentage of businesses that have multiple employees I just want to. The caveat when it comes to the one single business owner corporations, I think, is that that's what the data shows, but I don't necessarily know if that's in fact the reality, because there are just challenges with classification that business owners face, where it's a lot easier to classify someone as an independent consultant. And so that's the data, but I think there's more nuance there to be explored. So I'll just say that and I'll leave it there.

Stef: 16:15

Talking about access to capital, then what kind of capital are the businesses you're serving Looking for? Like kind of amounts, things like? Can you tell us a little bit about that?

Alexandra: 16:26

It's very interesting because we definitely have businesses that the majority of businesses that are coming through our pipeline and I think this is very much a reflection of who we want to serve are businesses that are employer-based businesses. That said, the revenue that they're making is significantly lower than the capital that they're seeking, and so we see businesses that are making less than 100,000 but are requesting 100,000. And so I think, like the note here, for business owners, and Latinx business owners specifically is it's so important to understand, like, where you're at as a business and how much money you can realistically absorb through a loan and what that actually means for what the repayment looks like and things of that nature. Most of the businesses we serve are specifically looking for capital to grow, and I think one of the questions that you had is like well you know. Like why is financing important? And like why are businesses seeking financing? We're speaking in very general terms. Right now it looks different for different industries. Right To continue on with. Like the difference between launching a bakery and a consulting company is very very different. For a consulting company Maybe you don't need a huge lump of capital to do that, Whereas for a bakery, unless you've saved enough money to start, you're going to need some capital that's going to help you buy the equipment, for example, to make the cupcakes or whatever. And so the startup component, the financing for startup, is huge. But people are overcoming that in different ways, often relying on their community, on their family saving, etc. But then the growth element is huge because often a lot of these small businesses are competing with corporations. I think one of the stories that I love to share is we have a business owner who owns a bakery in Harlem and she is making close to a million dollars in sales in her business and she cannot get a loan of $20,000. She wants to expand her business, not necessarily to introduce a new product, but to wholesale her product to different stores, and she's unable to do that but has all of the characteristics. So getting that capital to grow and then to be able to compete with these big corporations that are being able to sort of put products in supermarkets and do the business to business transaction is another example of why some of the businesses that are coming to us are seeking financing. And then the other piece is that a lot of businesses, once they do get contracts from government or maybe this is just the way their business operates they need that money to operate, just because the influx of cash is not coming in on a consistent basis. So if you're a business that heavily relies on contracting, you're not going to have your cash come in on a daily basis in the same way that you would if you have a retail store. So this is huge. This just generally causes a lot of challenges for business owners when they're invoicing and they're not getting the influx of cash that they need. So they need that working capital to be able to continue and sustain operations until they are paid. And then so startup working and then growth would be to introduce a new product into the market and things of that nature. So I would say we're seeing a mix of all, but specifically businesses that have already started and are looking ahead to grow their business, whether it's vis-a-vis a new business product, a new business line, etc.

Stef: 20:04

Yeah, great, and that's such a good segue too into what you all are doing and your company. So, poteir Capital, you're supporting the Latinx small business community. Tell us more. What does your company do? How does it work? We want to know everything about it.

Alexandra: 20:19

So I'm going to start with I love what I'm speaking to you because, again, we're in the startup sector. So it does, from a financing perspective, operate really differently. This particular sector, the financial sector, has a huge barrier to entry when it comes to cash, the cash that is needed to actually launch. So Poteir Capital is very much focused on closing the lending gap that exists in the market for Latinx businesses, and we already talked about it. But I think for us it's crazy that you can make a million dollars, not get more than 20,000 to run your business. We think it's ridiculous. So we think that there's a lot of business owners Latinx business owners that should be getting capital and do have the characteristics that a bank would see as the right characteristics to get funding. Except for these systemic reasons, they're not getting it. So we want to serve those business owners and so, in the short term, as we build our products so we're in the process of building our products we're wanting to add value to Latinx community by providing information not just in English but in Spanish. So, as a Spanish speaker, to me this is like a huge problem across the board. It's not just financial products. You see it in every aspect of this. So I said that I worked in government during the pandemic Translation of information. I mean, it's huge. So all that to say is that we pride ourselves in being a Spanish first platform, which means that all of the information that we put out is in Spanish, because we know that there's a huge gap there, and so we're offering specific information on how to access capital in English and Spanish. We launched a capital access resource guide that's available on our website, and we use that as a way not just to talk about how to get funding from banks, but here are all of the different ways you can get funding while you prepare yourself to get capital from a bank, and also while we put forth our product. We also have a WhatsApp group where any business that is either going through a process for accessing capital or thinking about it, and if you have any questions, we host and ask me anything weekly session where Latinx business owners can ask whatever questions they have, and then we also share resources. I think one of the biggest things that I pride myself on is free money, so we're constantly sharing information of how to get access to free money, which means grants from different organizations, so we're doing that while we work on our lending product, and so our lending product that we're going to bring to market is going to be a lending product where business owners raise 5% of the total of their loan and that looks different depending on the amount. But we're looking to make loans between 50 to 500,000. This is where there's the biggest gap. If you're a business that is making a million dollars, a bank is probably not going to give you a loan for all the reasons that we describe, but also because banks love making bigger loans as well, and then the other sources of lending that exist they're really not making loans above 50,000. So we want to be able to make larger loans. The raise is important because this is very much how Latinx businesses are thriving, like we're tapping our community is very much the way that we operate to do the things that we need to do to grow our businesses. So we believe that this is just a small aspect that, within the context of our underwriting model, validates the trust that the community has in this business owner and also provides important data point for the overall underwriting process. We're going to look at business metrics as well, but the piece the community piece is really important validator for us as part of our overall process of approving a loan. So we're working on that product and we're hoping to have that product very soon. But in the meantime we have a waiting list that anyone can sign up for at this moment in time.

Stef: 24:22

Amazing. Thank you so much for sharing. Tell us where do people find your company? You can tell us a little bit more?

Alexandra: 24:30

Yeah, so everyone can go to wwwpoder-capitalcom and if you don't speak Spanish because there are people, whether you're Latino or not, depending on the generation that you're part of, you may not, but if you don't, it's P O D E R dash capitalcom, and I think there you can access not just resources, but you can also access our Instagram page and our Facebook page, which is where we also share a lot of resources as well.

Stef: 24:58

Great. Thank you. We'll put those in the show notes also for everyone listening so that you could easily go and find them, join their wait list and access their content. Well, I just want to thank everyone for tuning in to the Fundid Podcast this week. I hope you found this episode informative and helpful on your business journey. Don't forget to subscribe to our podcast, follow us on social for more great content like this, and if you're looking for funding to help grow your business, our site Fundid has a ton of resources to help you, including Poder Capital. We are just a connector that points you in all the right directions, and so until next time, we will see you in a couple weeks and, alexandra, thank you so much for being here. I learned so much and I'm just so happy you exist in the world and you're out there solving this problem. Thank you so much.