“…Disparities in Small Business”

Capital access remains the most important factor limiting the establishment, expansion and growth of minority-owned businesses. Given this well established constraint, the current financial environment has placed a greater burden on minority entrepreneurs who are trying to keep their businesses thriving in today’s economy.

Minority-owned businesses have been growing in number of firms, gross receipts, and paid employment, at a faster pace than non-minority firms. If it were not for the employment growth created by minority firms, American firms, excluding publicly-held firms, would have experienced a greater job loss between 1997 and 2002. While paid employment grew by 4 percent among minority-owned firms, it declined by 7 percent among non-minority firms during this period.

Minority-owned businesses continue to be the engine of employment in emerging and minority communities. Their business growth depends on a variety of capital, from seed funding to establish new firms, to working capital and business loans to expand their businesses, to private equity for acquiring and merging with other firms.

Without adequate capital minority-owned firms will fail to realize their full potential.

Minority-owned firms are an engine of employment, with young firms creating jobs at similar rates as young non-minority firms. Greater capital access for minority-owned firms is essential to sustain their growth, reduce national unemployment levels, and in particular the high rate of unemployment in minority communities.

At the very time that broad economic productivity is critical to strengthening the economic foundation of the nation, the growth potential of minority-owned businesses is being severely hampered. Across the nation minority-owned businesses face the obstacles of access to capital, access to markets and access to social networks, all of which are essential for any business to increase in size and scale.

A review of national and regional studies over several decades indicates that limited financial, human, and social capital as well as racial discrimination are primarily responsible for the disparities in minority business performance. Inadequate access to financial capital continues to be a particularly important constraint limiting the growth of minority-owned businesses. The latest nationally representative data on the financing of minority firms indicates large disparities in access to financial capital. Minority-owned businesses are found to pay higher interest rates on loans. They are also more likely to be denied credit, and are less likely to apply for loans because they fear their applications will be denied. Further, minority-owned firms are found to have less than half the average amount of recent equity investments and loans than non-minority firms even among firms with $500,000 or more in annual gross receipts, and also invest substantially less capital at startup and in the first few years of existence than non-minority firms.

The current economic crisis is posing severe challenges for minority businesses to meet their potential of creating 16.1 million jobs and generating $2.5 trillion in annual gross receipts. Existing obstacles to greater minority business success challenge the realization of the American Dream of ownership and wealth creation. Unless immediate action is taken, minority communities will continue to lag behind their non-minority counterparts undermining the ability of the nation to quickly regain its economic footing.

Tell us your story of being denied access to small business education, loans, or lines of credit. We need to hear from you. Be sure to name names!

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