Sunday, November 23, 2014
   
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Integration Institute: Entrepreneurial Facts

Entrepreneurial Facts

Massachusetts is home to thousands of foreign born entrepreneurs across all sectors of the economy--though many did not come here with the expectation of starting a business. Some came to study, others looking for work, still others as refugees from political turmoil. Yet they have stayed, brought their families, and put down roots in their communities. These roots, importantly, are not just economic and social but civic ones. While more than half of all the state's foreign born residents have become United States citizens, in one analysis 77 percent of the immigrant founders of firms sampled had obtained their US citizenship. Massachusetts foreign born entrepreneurs also tend to have higher levels of education compared to the immigrant population at large (though lower, on average, than those of native-born entrepreneurs) and can certainly boast above average creativity and adaptability!

Read the Institute's research memo on immigrant entrepreneurs here.

Non-traditional Paths to Capital

Due to the various and frequent barriers to lending faced by the immigrant community, many Massachusetts foreign born entrepreneurs have sought out and developed non-traditional paths to capital when starting a business.

For the average new company, 64 percent of start-up financing is internal equity (chiefly the entrepreneur's own resources), 30 percent comes from external loans (both bank and credit card), and the rest is made up of loans from friends, family and sought-after external equity (i.e., angel investors or venture capitalists). Immigrant-founded businesses are more likely to be deficient in access to both external loans and external equity and must find creative ways to make up this additional 36 percent of financing at inception.

In order to secure adequate capital and business assets, foreign born entrepreneurs have relied on non-traditional funding sources, namely their local credit union or community bank and their social networks.

Read the Institute's research memo on non-traditional paths to capital here.

Barriers to Lending

Common barriers to lending faced by foreign born entrepreneurs include lack of initial capital, inadequate credit history, limited access to information, training, or resources, a lack of institutional support for immigrant needs (in both the public and private policy and financial sectors) and predatory practices aimed at people who are foreign born.

Lack of initial capital may account for the fact that Massachusetts immigrant entrepreneurs generally start their businesses after they have lived in the United States for about a decade. At that point, the entrepreneurs' asset base is drawn from funds that they have saved and/or borrowed from friends and family. Foreign-born entrepreneurs may use real property ownership and management as a means to build equity, which can then be used in their business. Developing and maintaining these assets clearly takes several years and much effort.

Read the Institute's research memo on barriers to lending here.