This is the first article of a series that will be written with the guidance and expertise of Monika Mantilla, a prominent financier and investment management professional, President and CEO of Altura Capital.
The number of Hispanic-owned businesses in the United States increased by 43.7 percent to 2.3 million, more than twice the national rate of 18.0 percent between 2002 and 2007 according to the U.S. Census. That number is expected to grow by 4.3 million by the end of 2012. Sales of 345.2 billion as of 2007 are also expected to grow to $529 billion this year according to a study by HispaTelligence, the research arm of Santa Barbara-based Hispanic Business Inc.
While Hispanic businesses may be flourishing despite the recession and the growing loss of personal wealth among the nation’s largest minority group, are they tapping at a glass ceiling when it comes to their bottom lines and growth potential?
Possibly, says Monika Mantilla, President and CEO of Altura Capital, a New York based investment management firm with $5.2 billion in assets under supervision and who works for 16 of the largest institutional investors in th
e world. Altura Capital is the first Hispanic-owned firm of its kind and Mantilla knows that all businesses reach a point where, regardless of how great and relevant their products or services are they will not grow without the right financing.
“Good ideas will always sell but capital is everything. Having the right capital structure in place is paramount to positioning a company to reach its maximum potential.”
Finding Money that Makes Money
So what is the right “capital structure”? As Monika explains, there are two ways to fund a business and position it for growth: equity and debt. Equity and debt financing along with the appropriate strategic resources are what she refers to as the three fundamental pieces to creating the “financial capacity” necessary to strengthen, fuel and enable entrepreneurs.
Debt financing involves borrowing funds from a lending source with the promise to repay with (or even without) interest. For small businesses, loans typically come from banks, credit unions, cdfi’s, private lenders or friends and family. One of the most popular public resources for business loans is the Small Business Administration (SBA). The SBA does not actually make loans- they simply guarantee that the borrower will repay the lender which is typically a bank. For this reason, it is ideal for businesses looking for debt based financing to look for banks that are either SBA certified or preferred.
Equity financing refers to money that is raised by selling a share or shares of the business to investors. Investors can also be friends, family, institutional investors, venture or private equity funds or the business owner or owners themselves. Investments are different from loans because there is no promise to repay, but rather the opportunity to earn a return on the investment over a period of time. Equity financing often comes from angel investors and venture capitalists. Angel investors are individuals who are willing to invest their own money in new business ventures. Venture capitalists are usually companies that tend to look for larger investment opportunities than angel investors.
Disparities in Access to Capital
In theory this is a fairly simple concept. In reality, this poses a significant challenge for minority business owners and Hispanics in particular according to Mantilla. Access and absence of optimal capital suppliers is the primary barrier. The vast majority of institutional capital is only available to businesses with revenues north of 5, 10 or 15 million, while most Hispanic owned businesses have revenues below such ranges. According to Hispanic business, less than 500 of these firms posted revenues over $5 million in 2011.
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Data from the Minority Business Development Agency (MDBA), shows that there are 44,100 Hispanic owned firms that have more than 1 million in revenues. The aggregate revenues of these firms is $229 billion. These firms employ 1.2 million individuals. The study from MBDA shows a revealing an eye-opening statistic: based on parity analysis, these firms have the potential to be generating $1. 4 trillion (1.1 trillion more than the actual figure!), and could generate 4 times more employment. Studies have shown that Hispanic firms are also more likely to export.
‘Hundreds of thousands of Hispanic businesses are in a position to grow but who is providing a support system to maximize this potential?
This is the question that Monika Mantilla is urging the Hispanic business community to not only ask, but more importantly to help craft the answer by being “agents of change”.
“Our communities are entrepreneurial communities, in part because we don’t “fit the mold” and belong to established circles and networks of power and wealth. That’s the reason why we like to go out and “do our own thing”, as a way to shape our own future and be owners of our own destiny.”
“We must equip our community and its business owners with access to capital and create channels for bringing such financing to our community. The “crowdfunding” legislation recently approved by President Obama as part of the JOBS act [Jump Start Our Business Startups] is a promising and highly interesting vehicle for our firms to find capital. We are looking right now into this model to see how we can open some new capital doors for Hispanic entrepreneurs.”
The next article will talk in depth about Crowdfunding, what it is and what it means for Hispanic business.