Immigration is always a hotly debated topic in the United States. When immigrants come to the United States lawfully, they do have the opportunity to contribute to the U.S. economy significantly, however. They also often become entrepreneurs.
The following is a guide to understanding the role of immigrant entrepreneurs in the U.S. economy and what to know if you’re interested in starting your own business as someone not born in America.
The Role of Immigrants in the Economy
The COVID-19 pandemic, in many ways, helped bring more attention to the essential role of immigrants in the U.S. economy, as many were in positions determined to be essential during shutdowns.
Immigrants in the U.S. make up around 1 in 7 residents and 1 in 6 workers. They start an estimated 1 in 4 businesses. Almost half are naturalized citizens, and 27% are lawful permanent residents. Five percent are temporary residents with legal status, and less than ¼ are undocumented.
Immigrants are more likely to be in their primary working years between 25 and 54, which does provide some balance to an otherwise aging native population.
In 2020, there were an estimated 19.8 million foreign-born workers in essential jobs across all sectors and skill levels. Some of the sectors where immigrants work in the highest percentages include manufacturing, transportation and utilities, professional and business services, leisure and hospitality, and construction.
Foreign-born workers comprise more than 1 in 5 of all the workers who make up the United States’ food chain. This includes every step of the process, from growing crops to retail sales.
As well as contributing to the economy as workers and producers, immigrants are also consumers. An analysis in 2019 found that immigrants contribute $1.3 trillion in spending power in the U.S.
According to research, as far as long-term growth, immigrants could contribute increasingly to the STEM field in the future. U.S. universities aren’t producing enough graduates with STEM degrees, so companies need immigrants to fill skills gaps.
Immigrants are more likely than the native-born U.S. population to start a business or pursue different means of self-employment. That means that immigration will be a key driver of long-term economic growth and innovation.
According to data from the Survey of Business Owners, first-generation immigrants in America create around 25% of new businesses.
Research from the Sloan School at MIT indicates immigrants are 80% more likely to start a business than someone born in the U.S. The number of jobs created by these immigrant-founded businesses is 42% higher than firms founded by native-born entrepreneurs.
Some research shows that refugees have an especially high rate of entrepreneurship. Thirteen percent of refugees own businesses, compared to 11.5% of non-refugee immigrants.
So why are immigrants so likely to start a business?
There are likely a lot of reasons.
First, if you’re willing to voluntarily immigrate to a new country, you might have a personality that’s more geared toward risk. Starting and running a business is highly risky. Entrepreneurs from all backgrounds face high failure rates.
A study of startups found that slightly above 60% will make it to their third birthday. Only an estimated 40% make it to the seven-year mark.
Starting a Business as An Immigrant
Starting a business is challenging, but immigrants undoubtedly face some additional hurdles no matter who they are.
The U.S. is known for strict immigration policies, but it is possible to get to America and begin a business legally.
Getting a Visa
One of the first things you have to do if your goal is entrepreneurship in America is to get a visa.
Visas in the U.S. are extended to businesspeople, tourists, students, and family members.
Some of the visas you can apply for include:
- H-1B is a visa for temporary workers. This is usually reserved for very technical work, and you need a minimum of a bachelor’s degree to qualify in some cases.
- L-1A and L-1B visas are for special skills employees and executives.
- E-1 and E-2 visas are for people from countries that have special agreements with the U.S. You can use these visas if you want to come to the United States to start a business or join an existing one.
- EB-1 is the hardest visa to get, and it’s reserved for people who are able to demonstrate extraordinary ability in their field. The visa is challenging to obtain because it allows you to live and work indefinitely in the United States as a permanent resident. There’s a point system used by U.S. Citizenship and Immigration Services (USCIS) that determine if an applicant meets the standards. With this visa, you can bypass the labor certification when you apply for work and get a green card faster than other visa holders.
It’s worth noting that you don’t actually have to be a U.S. citizen or green card holder to start a business in the U.S.
If you’d like to become an entrepreneur in America, one of the first things you’ll do is choose a structure once you’re in the country. For immigrants, you can be a C-corporation or a limited liability company.
Both structures have advantages for foreign business owners because you can run them outside of the U.S. They don’t require citizenship or residency.
A c-corporation has tax and legal benefits.
The benefits of a C-corporation are the fact that you have a separate legal identity from your business. The company has its own set of rights and responsibilities as far as the law is concerned.
If you’re a shareholder, a C-corporation affords you limited liability, meaning you can’t be held liable or sued for your company’s debts or obligations.
A disadvantage of the C-corporation is double-taxation. When you’re a shareholder, you have to pay a corporate level tax for owning a profitable company. You also have to pay income tax on your dividend earnings. You’d have to talk to a financial or tax advisor to identify ways to avoid double taxation.
The benefits of an LLC include pass-through taxation and flexibility.
When you’re the owner of an LLC, the profits go directly to you, and you pay the business taxes with your personal return.
LLCs don’t require a lot of paperwork or administrative hassle.
Choosing a State for Registration
After you decide on the structure that’s best for your business, you’ll then determine where you’ll locate it as far as the state.
Many immigrant entrepreneurs look for states with minimal regulations and simple policies for business owners.
You might want a place where there are no state taxes and a low franchise or LLC tax.
Registering a Business
Once you find a state for your business, you’ll choose a name. You’ll need to research to make sure you’re not using something that’s trademarked.
Every business requires a taxpayer number. If you’re an immigrant, you’ll need to get an individual taxpayer identification number or ITIN. The IRS issues these to anyone required to pay taxes in the United States but doesn’t have a Social Security number. To get an ITIN, you have to complete the W-7 Form.
Once you get an ITIN number, you apply for an employer identification number or EIN. An EIN helps identify your business for the purposes of your taxes. You need an EIN to open a bank account, file tax returns, and apply for any licenses for your business. You can apply to get an EIN online.
Getting funding for a business if you’re an immigrant can be a little harder than it is for citizens. If you can’t legally work in the U.S., you’re unlikely to be able to get funding.
You have funding options if you’re in the U.S. on a visa that allows you to work or are a green cardholder.
SBA loans are a popular choice for immigrant entrepreneurs. The Small Business Administration or SBA is a government agency providing support to the nation’s small businesses.
You can apply for SBA-backed loans if you’re a naturalized citizen, lawful permanent resident, or lawful non-permanent citizen.
A term loan is another option. These are lump sums of funding that a lender gives you. You agree to pay back a term loan over a set amount of time. Approval if you’re an immigrant is more stringent.
To try and improve the likelihood of getting a term loan to start a business, you might want to work with an online bank.
Short-term loans have 18 months or fewer repayment periods, and you may not need as high of a credit score for approval.
What If You’re Not in the U.S. Legally?
Finally, one of the big questions some immigrants have is whether they can start a business if they’re not legally.
In the U.S., no law says an undocumented immigrant can’t own a business. The law does say that being in the U.S. without having permission is against the law, however, and is punishable by deportation.
It is also explicitly illegal to hire an undocumented worker.
If you start a business as someone without documentation, you should follow all other laws that govern small businesses in the U.S. It’s best to talk to a lawyer in this situation.