The Attack on California’s Hispanic Entrepreneurs: S.B. 33 Puts State’s Economy at Risk

by | Jun 9, 2023

The California legislature is currently reviewing S.B. 33, introduced by Democrat Senator Steve Glazer, which effectively eliminates revenue-based lending for businesses and undermines the progress entrepreneurs have made in the state. This regressive policy attacks the principles of economic inclusivity and access to capital, which ultimately threatens the overall prosperity of California.

Revenue-based lending has emerged as a lifeline for many small businesses, particularly those owned by Hispanics, which are now the largest single ethnic group in the state. Revenue-based lending, unlike traditional lending, considers a company’s revenue when assessing its financial health. This is important because while Hispanic businesses tend to outperform their general market peers, their funding requests are still approved at a much lower rate in mainstream lending models.

Hispanic entrepreneurs often face barriers that hinder their access to traditional loans. For example, Hispanic-owned businesses that applied for loans at traditional banks had three times the revenue of White-owned businesses, less debt and similar credit scores. However, only 20% of Hispanic-owned businesses that applied for loans over $100,000 were approved, compared to 50% of White-owned businesses.

For these entrepreneurs, a revenue-based lending model offers a pragmatic solution, since it allows them to access essential funding, foster economic growth, and create jobs; all of which are essential for long-term success. The removal of revenue based lending disproportionately affects the Hispanic entrepreneurs that are unjustly declined credit-based financing.

The Hispanic community in California, like that of the nation, is characterized by a strong sense of entrepreneurship which ultimately drives economic growth. It’s important to note that the over 900,000 Hispanic businesses in California generate over $100 billion in revenue each year. The removal of revenue-based lending stifles innovation and progress within the small business ecosystem, ultimately undermining the state’s overall economic health. Instead, if we prioritize policies that ensure equitable access to capital, we can create an environment where all entrepreneurs can pursue their dreams and contribute to the state’s economic well-being.

There is a place for each lending model in the diverse and growing American economy. Hispanic communities have historically been ignored, or abandoned, by the largest banking companies. These models provide a lifeline for Hispanic entrepreneurs who employ Americans, pay taxes, and fuel our economy. It is disingenuous to think otherwise.

While some are rightfully skeptical about alternative lending methods, models such as revenue-based lending have provided much-needed benefits to small businesses throughout the nation. For example, a small segment of 50 revenue-based lenders helped provide over $3.3 billion in funding to various start-ups in just one year. Furthermore, the market of revenue-based lending is projected to grow an average of 60% a year, reaching $154 billion by 2030. Suffice it to say, the livelihood of small business owners, especially those of Hispanic descent, is showing a growing dependence on this model of lending. As the leading advocate for America’s Hispanic business community, the USHBC believes California’s legislature ought to consider that when voting on S.B. 33.

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