COVER STORY : ‘By the Sweat of Their Brow’ : Latino Companies Have Increased in the County Over the Past Decade to Make Up One-Third of All Businesses. But Experts Say That Without Loans or Training in Basic Skills, Many Won’t Survive.
In an old building in South-Central, Trinidad Dumas and his employees piece together fabric in his clothing manufacturing company. And in their way, they also add pieces to the fast-growing fabric of Latino-owned businesses in Los Angeles County.
Dumas has struggled to keep his small company afloat on sheer entrepreneurial instinct, with no formal business training and little help from city government or financial institutions. Unable to qualify for bank loans, he has relied on friends from his native village in Mexico for business loans.
Despite these obstacles, Dumas and tens of thousands of entrepreneurs like him have helped the number of Latino-owned businesses increase more than threefold in the last decade, faster than those of other ethnic groups in Los Angeles County.
As their European counterparts did in Eastern cities at the turn of the century, Latinos throughout the Los Angeles area are quickly establishing a variety of small businesses in their quest for a better life. Indeed, some experts say, as those businesses go, so goes the future of the county’s economy.
For now, the future looks cloudy.
Without loans or training in marketing, bookkeeping and other basic business skills, many of these companies will not be able to grow or create jobs, the experts say.
“These small enterprises are the backbone of the business community,” said Jon Goodman, a jobs creation expert and head of the USC Business School’s entrepreneur program. “(But) without technical skills and access to capital, they’re going to fail.”
From 1982 to 1992, the number of licensed Latino-owned companies in the county grew from 29,900 to an estimated 103,000, or about one-third of the county’s businesses. The number of these companies grew at three times the rate of the county’s Latino population, according to a recent analysis of 1990 U.S. Census data by the Latino Futures Research Group, a Los Angeles think tank that studies Latino policy issues nationwide.
In contrast, the number of Asian-owned businesses swelled from 38,300 to about 117,900 during the same period, while Anglo companies increased from about 68,000 to an estimated 72,000. Black-owned businesses increased slightly, from 23,500 to about 23,900, according to the analysis.
“People don’t realize how entrepreneurial the Hispanic community is,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles. “They create businesses literally by the sweat of their brow.”
However, an overwhelming majority of those businesses are small and struggling. In 1987, the most recent year for which figures are available, 84% of Latino businesses had no paid workers, with most relying on family members for help, according to the data from the Latino think tank.
Those with paid staff employed an average of just 3.5 people, down from 5.7 five years earlier. They accounted for only $6.6 billion in county revenues last year, or just 3% of the county’s $220-billion gross product. These figures reflect only licensed business. Unlicensed companies run by owners of any ethnicity are estimated to account for an additional $10 billion to $15 billion in revenues annually in Los Angeles County.
For every two licensed Latino-owned firms, there is at least one operating without a license, according to UCLA Prof. David Hayes-Bautista, head of the Latino Futures Research Group and a leading expert on Latino demographics. That estimate was made from observations by research teams.
Hayes-Bautista’s findings were published in a recent report by the nonprofit Latino Coalition for a New Los Angeles. Members of the coalition, made up of more than 30 business and social service organizations, believe Latino businesses are a key to the region’s economic development.
But skeptics question whether small Latino businesses can create sufficient job growth. Given the sweeping poverty in the Latino community, they say, larger companies that pay higher wages and provide greater benefits could prove more attractive to job-seekers. In Central Los Angeles, the annual per-capita income of Latinos was about $4,400, compared to the citywide average of $22,191 for Anglos, the 1990 Census showed. The citywide figure for blacks was $11,257 and $13,875 for Asians.
“I think if you look to these small businesses to solve the economic problem, you’re not going to get anywhere because they do not have that great of a potential,” said Mary Salinas Duron, a vice president and manager of community reinvestment at First Interstate Bank.
Others question whether many Latino-owned businesses can survive long enough to create jobs. In 1992, the number of businesses that failed in the city of Los Angeles increased by 73% over the previous year, according to data by Dun & Bradstreet Corp., a business information company. Experts said the decline in business failures should moderate by year’s end.
Still, with the odds seemingly stacked against them, Latino entrepreneurs are determined to succeed.
“We want to create a better life for us and our children,” said Dumas, the South-Central clothing maker. He and his wife started their business seven years ago with about $6,000 they earned working in a garment shop. Today, their company, DDO Fashions, employs eight other workers.
Like many Latinos who started companies in the past decade, Dumas emigrated from Mexico with the goal of opening a business. And despite language and cultural barriers, and a lack of access to banks, he has survived.
Dumas said he has been unable to obtain conventional loans because he lacks collateral. So during the past seven years, he has borrowed about $30,000 from friends and other garment shop owners from his village of Coatzingo in the state of Puebla in central Mexico.
Dumas borrowed about $3,000 through a cundina , a communal lending pool common among small business owners in Central America. Each person contributes an equal amount into the pool on a regular basis, with participants drawing straws to determine the order in which they will receive the money. The cundinas are popular among smaller Latino entrepreneurs, especially those at swap-meet operations.
“What it does is allow them to have access to money they wouldn’t otherwise have. It’s like a credit union,” said UCLA Prof. Jorge Mancillas, who advises local Latino business owners.
Like Dumas, Alfonso Castro lacked collateral and was turned down by a bank for a business-expansion loan three years ago. Castro, who was an economist in his native Guatemala, said he financed the expansion of his variety store with two credit cards and ended up $32,000 in debt at a 19% interest rate.
“It’s the same for all us business owners--we have no access to reasonable financing,” said Castro, who employs his wife and another person at the Pico-Union store, which sells everything from shampoo to clothing imported from Central America.
Business owners Marta Nunez and Margarito Juarez did not even bother to go to a bank.
“They (banks) won’t help people like me,” said Nunez, who owns a clothing store in East Los Angeles. Seven years ago, Nunez started her business with $15,000 she received from selling property in her native El Salvador.
Juarez saved $20,000 with his five brothers to start a VCR repair shop in South-Central, which they opened two days before the verdicts were handed down in the state trial of the four police officers involved in the beating Rodney G. King. It burned down the first night of the unrest.
The brothers have not received federal aid and are unable to get a bank loan because they have no credit history, Juarez said.
“No one wants to help,” he said.
To help Latino small-business owners, the government and the private sector need to start more community-funding programs and bilingual training classes in such basic business skills as marketing strategies and bookkeeping, said Manuel Pastor, chairman of the economics department at Occidental College.
Since last spring’s riots, a number of community-funding programs have started. The most recent is a $1.2-million program that began last month and will be administered out of the new Community Financial Resource Center in South-Central. The center is a collaboration among the city’s Community Development Department, the nonprofit Coalition for Women’s Economic Development and Bank of America, First Interstate Bank and Union Bank, among other agencies and financial institutions.
The center, which will be available for South-Central business owners, will provide technical training and loans from $500 to $250,000 for new businesses and for business expansions, said Roberto Barragan, the center’s executive director.
In addition, Rebuild L.A. plans to start a multimillion-dollar small-business loan program later this month that will target areas hit in the riots, said Rebuild L.A. Co-Chairman Tony Salazar.
Community leaders applaud the good intentions of the center and Rebuild L.A. However, they question whether the two organizations can run the extensive community-based campaign that is needed to reach the area’s Latino business owners. They point out that many immigrant business owners are suspicious of government and are further isolated by language barriers.
Barragan said the Financial Resource Center “is very sensitive to the diversity of the community” and has bilingual employees and brochures. Salazar, meanwhile, said Rebuild L.A. will work with community groups and rely on “newspapers, ads, articles--whatever it takes to get the word out.”
Part of the responsibility for helping business owners lies with the Latino community itself, which has been divided politically and culturally among established Mexican-American groups on the Eastside and the newer but fast-growing immigrant communities in South-Central and the neighborhoods just west of Downtown.
Those divisions have hindered efforts to organize the Latino business community, said Mancillas, who advises La Union de Comerciantes Latinas y Afiliadas, an association of predominantly immigrant small-business owners.
The lack of unity is glaring in South-Central, where only a few Latino organizations serve a population that is 48% Latino. For instance, there was not a single Latino organization represented at a special Los Angeles City Council hearing last month in South-Central, where community groups provided input for economic development in the area.
Esther Valadez, a Rebuild L.A. board member who owns a business that develops affordable housing, said community leaders have been slow to recognize the exploding immigrant population in South-Central. “It’s a very serious problem that Latinos in this city have to do something about,” she said.
Community leaders say efforts to organize are under way and cite the Latino Coalition for a New Los Angeles as an example.
CHARO, an Eastside nonprofit human services organization and a member of the coalition, has acquired property and a building in Lincoln Heights for an entrepreneur-training facility, which is scheduled to open in September. The center, which will be geared toward helping Latinos, plans to provide advice on business start-ups, contract procurement and accounting, marketing and business law, said Richard Amador, CHARO president and chief executive officer.
With training, he said, business owners such as Dumas could increase their profits and expand their operations. “The Latino entrepreneur has the ganas (desire) to be successful, but not enough of them have the training and management exposure,” Amador said.
Latino community leaders and others say one of the main players in economic development should be city government, but they note that the city has no overall development strategy, let alone a specific plan to help Latino-owned businesses. Economic programs are scattered among several agencies, the critics say, and there is no coordinated effort to develop a partnership with private enterprises.
City officials do not dispute charges that there is no overall development plan, but say they are working on one. Parker Anderson, general manager of the Community Development Department, which runs the city’s enterprise zone programs and provides assistance to small businesses, said development policy is divided among several agencies, each with its own agenda and funding.
Anderson said the main city agencies involved with economic development--the CDD, Community Redevelopment Agency, and the Housing and Planning departments--have been meeting for about two months to formulate an overall strategy. They plan to issue a report by early summer.
City Councilman Mark Ridley-Thomas has also been holding public hearings throughout the city to gather testimony from activists and policy experts that will be used to draft an economic development plan. He said such a plan is “long overdue.”
For the city’s struggling Latino business owners, any plan that will benefit them cannot happen soon enough. “We need help now to survive,” said Dumas, the clothing maker. “We cannot do it all by ourselves.”
Latino Businesses in L.A. County
The number of Latino-owned businesses has more than tripled in the past decade. Most are small, struggling enterprises that have no paid staff. Experts say the businesses need training and capital to survive.
* Estimated Ethnic Distribution of Companies, 1992
Asian: 37%
Anglo: 23%
Latino: 33%
Black: 8%
* Latino-Owned Companies by Industry
Agricultural services: 4%
Construction: 11%
Manufacturing: 4%
Transportation: 6%
Wholesale trade: 2%
Retail trade: 18%
Finance, insurance: 6%
Services: 43%
Not classified: 7%
Source: Survey of Minority-Owned Businesses, Latino Futures Research Group, 1992.
On the Cover
Linda Miranda, owner of Perfect Engine Inc., knows firsthand the difficulties of running a successful business.
For 17 years, Miranda and 25 employees have operated the engine-rebuilding company in South-Central, surviving the recession, the riots and other problems.
But she fears many other small Latino-owned businesses will not be so lucky if they do not receive more technical training and access to badly needed capital.
“Otherwise, they’re not going to make it,” she says.
