In a survey of more than 5,000 business owners, a Stanford GSB study found that Latino business owners often face discrimination when it comes to securing financing. Stanford Business interviewed four of these business owners, and this is one of their stories.
Maria Ureña, owner of King Automotive Services in Moreno Valley, California, has learned the road to scaling can be blocked by uncertainty, conflicting financial priorities, and bias — even when you think you’ve done everything right.
A family nurse practitioner with two masters’ degrees, Ureña had no background in the automotive industry when she opened her business in 2001. Her husband had become disabled, and the couple were looking for a new business opportunity where he could be safely employed. They subleased a space in an uncle’s tire repair shop for a few hundred dollars a month, brought on her brother-in-law as their first employee, and opened a full-service auto repair company.
Now in a larger leased space, the company has six employees and had a revenue of $580,000 last year, Ureña says. For 18 years, all financing for the company has been personal investment; Ureña has never taken out a bank loan for the business.
“As we grew and needed to expand, we were able to save a little through the business and reinvest it,” she says. “Unfortunately, you don’t always have the opportunities of bank loans, small business financing, or small investors.”
In an effort to secure financing, Ureña developed a business plan, outsourced bookkeeping, changed from a tax preparer to a CPA, and incorporated the business.
“This all required hard financial costs that are difficult for a small business to absorb,” she says. “It’s hard to see the return on investment when there is only money going out and not coming in.”
Her attempt to secure a Small Business Administration loan through their long-term bank also failed.
“We were conditionally approved, but we were asked to come in with 15% of the purchase price, and we didn’t have it,” she says. “The seller offered to assist with the down payment, but the bank wouldn’t approve that. We had to go back to the drawing board.”
Although the business has several certifications, they have not yet produced contract work.
“Trying to get a government contract is very competitive,” Ureña says. “We’ve not had one opportunity to bid. We haven’t even been in the competition.”
Throughout her funding journey, Ureña has struggled with ongoing doubt — over both possible bias directed at her and her response to it. The local Bureau of Automotive Repair questioned her “role” with the company. A mortgage lender recently became argumentative immediately after discovering her ethnicity. She says she’s been denied the opportunity of local awards and participation in area programs over concerns her involvement in community business organizations will create “poor optics.”
Her options have always seemed limited, Ureña says.
“We are a small business, and trying to save 15% without a major contract that secures a monthly stream of funding is nearly impossible,” she says. “So we need to reduce our overhead. To do that we have attempted to relocate our shop for the last four years and have worked with local municipalities for support and assistance, but an auto repair shop is not very attractive to most cities. We could absolutely go with hard money lenders, but that would not be a smart decision due to the high interest rates.”
Ureña continues to network actively, serving as the chair for the Greater Riverside Hispanic Chamber of Commerce and as board chair for the California Hispanic Chambers of Commerce, Inland Empire Region. She’s gone back to work in nursing to avoid laying off employees, still hopes to purchase a building — possibly with an equity line of credit on her home — and has a dream of one day opening a vocational training program at King Automotive Services.
“I’ve learned about scaling, but it’s different when it comes to financing; it’s really not there,” she says. “I see others who scale and wonder what they’re doing differently than I am, and I don’t see anything different.
“I still have that dream,” she adds. “I have to take a leap of faith and hope I don’t lose my house in the process.”