Capital Access is a Significant Barrier for Minority-Owned Businesses

By: Kristina Busch

Capital access is known to be a key aspect that limits the establishment and growth of minority-owned businesses. In today’s economy, the current financial environment also places a burden on minority business owners. Minority-owned businesses outpace the growth of non-minority owned businesses. In fact, according to the Minority Business Development Agency, between 1997 and 2002, minority-owned businesses far outpaced non-minority-owned businesses in terms of growth in number of business total growth receipts, number of employees, and total annual payroll.

Although minority-owned businesses outpace the growth of minority-owned businesses, they tend to lag behind in size. The average employment size of minority-owned businesses was 7.4 employees, compared to 11.2 employees for non-minority owned businesses.

Drs. Robert Fairle and Alicia M. Robb conducted an in-depth study and analysis of the barriers to capital access that minority entrepreneurs face, as well as the consequences that result. In terms of loans, there are several disparities that minority-owned businesses face. They are less likely to receive loans. If they do receive loans, they are more likely to receive lower loan amounts and even pay higher interest rates on business loans. They are also more likely not to apply for loans due to rejection fears.

In terms of equity, minority-owned businesses receive smaller equity investments than non-minority firms. Their average amount of new equity investments was $3,379, which is 43 percent of the non-minority level.

When looking at financial investment, there are also are several disparities faced by minority-owned businesses. They have lower loan and equity investments. The disparities between minority and non-minority owned businesses are larger for external debts, such as bank loans and credit cards. There also are disparities in access to financial capital growth after the first year of operations. Non-minority owned businesses invested an average of $45,000 annually into their firms, while minority-owned businesses invested less than $30,000 on average after the first year of operations.

In addition, lower wealth levels are a barrier to entry for minority entrepreneurs. Estimates from the U.S. Census Bureau  say that half of all Hispanic families have less than $7,950 in wealth, and half of all African American families have less than $5,446. Wealth levels among whites are 11 to 16 times higher.

It is crucial that minority-owned businesses are able to utilize resources to help ensure access to capital in order for them to grow. These types of businesses contribute tremendously to the U.S. economy, as they are growing at a faster rate than non-minority owned businesses. It’s time to change the equation for minority-owned businesses. Limited access to financial resources restricts their ability achieve viability, generate new jobs, and to fulfill their ability to contribute to the development of our communities.

In order for the potential of our minority business community to be fully realized, capital access barriers will need to be overcome. Only with a level playing field can business owners, regardless of race, compete fairly based on the skills, innovation, and insight they bring to the table.

Immigrants Are Changing The Landscape of Small Businesses




By: Kristina Busch

Entrepreneurial immigrants are bringing new ideas to the table. Leaving a home country to start a new life is a daring act in itself, and starting a new business is even more admirable.

We depend greatly on immigrant entrepreneurs, and previous research proves it. According to The Partnership For a New American Economy, immigrants or their children founded more than 40 percent of America’s Fortune 500 companies. The Fiscal Policy Institute reported that immigrants now own more than 18 percent of all incorporated businesses in the United States. Knowing this, there’s no doubt that immigrants are continuing to change the game in the business world.

Why is this important? The prevalence of immigrant entrepreneurs and their roles in the U.S. economy is only growing. Immigrants are now more than 2 times more likely to start a business than those born in the United States. They are also responsible for more than one in every four (28 percent) of U.S. businesses founded in 2011, according to The Partnership For a New American Economy.

Immigrants who start new businesses are filling the gap, as our country attempts to grow its way out of a recession. They are starting more businesses, which creates more jobs, and then brings more revenue to the economy. These facts should be vital to policymakers looking for ways to promote economic recovery.

This growth does not come without challenges, however. Policies to support immigrant entrepreneurship are vital. According to the Transatlantic Council on Migration, a project of the Migration Policy Institute, some challenges include: difficulties accessing credit from financial institutions, a lack of familiarity with the local markets and business environment, difficulties dealing with administrative burdens, and immigration and visa policies. Policies to support immigrant entrepreneurship, such as business-support programs and structural policies promoting an entrepreneurship-friendly environment will continue to be important for these populations.

The goal is that business-support programs (like the Prosperity Initiative) will empower minority entrepreneurs by fostering human, social, and financial capital. They will be able to access favorable conditions in order to establish and grow their businesses. Knowledge-based services, such as multilingual financial literacy and entrepreneurship training help develop country-specific human capital and business skills. Mentoring and network-building events are crucial as well.

The Prosperity Initiative is offering knowledge-based services to our clients, one being Start-Up Essentials. Start-Up Essentials is a once-a-month workshop held in both Rochester and Mankato. The event is filled with helpful information on how to start a new business. During the workshop, there is a guided discussion on these topics: feasibility of ideas, products, and services, why a written business plan is so important, supports and resources available, legal aspects of starting a business, and financial literacy. Followed by Start-Up Essentials is also a co-working event, where attendees can ask additional questions and put into practice what they’ve learned at the previous workshops.

Minority-Owned Businesses Are on The Rise

Pictured: Ibrahim Hussein started the Somali American Cultural Society of Owatonna (SACSO) with a $5,000 grant from SMIF and the desire to help other refugees overcome cultural barriers within the educational system.

By: Kristina Busch

Statistics say that minorities will be the new majority in the next 30 years. In an ever-growing diverse nation, it’s important that we place attention on the growth and sustainability of a multiracial population, as they become the foundation of the American economy. Minority-owned businesses contribute $1.6 trillion in annual economic output. If these businesses are not able to grow and succeed, the U.S. economy and global economy will be negatively impacted.

Scott Vowels, PhD and Co-Founder of The Institute for Thought Diversity (ITD), led efforts on a study of procurement and supplier diversity experience. According to ITD, minority-owned businesses reinvigorated the stagnant economy, and they are continuing to create sustainable jobs, which positively contributes to the tax base.

The Minority Business Development Agency developed a fact sheet, which speaks volumes on the impact that minority-owned businesses have on our economy. Check it out here.

Minorities may start their own  businesses for many reasons. Due to lack of access to social capital, poor educational systems, broken transportation systems and/or systemic racism, they may not be able to access traditional jobs. Whether they are running their business full-time or part-time along with another job, they see their business as an opportunity to generate their own form of income.

Although it is evident that there is a rise in minority-owned businesses, there still are significant barriers when it comes to access to capital. This lack of access may relate to bank loans and lines of credit.

Melissa Bradley, Director of the Sustainable Entrepreneurship and Innovation Initiative, proposed the following potential solutions to some of these barriers:

  • Create access to new social networks. Institutions need to invest in new social networks in order to meet the needs of diverse groups of people.
  • Pursue alternative credit score models. To increase access to capital, it is important to help minority entrepreneurs establish and maintain credit.
  • Reauthorize and scale existing policy levers. Currently historical policy decisions like the Community Reinvestment Act and more recently, New Market Tax Credits, have been instrumental in unlocking capital for marginalized communities, and in turn marginalized entrepreneurs. It will be important to make these legislative actions permanent and not be subject to reauthorization and the polarization of politics.
  • Develop a pipeline for minorities to access professional education programs. As the cost of professional education continues to rise, it will be important to create more opportunities to support communities of color in accessing intellectual and social capital. This can be done by holding various workshops and conferences led by business professionals.

Being able to understand and support the needs of minority entrepreneurs is imperative, not only from a moral perspective, but also from an economic perspective. According to the U.S. Census Bureau, the minority population is expected to rise 56 percent of the total population in 2060, compared with 38 percent in 2015. Along with this, minority owned businesses have increased over 50 percent over the last decade. The future economic growth of our country will be continuing to include people of color, and business policies and investments will need to become more diverse in exchange for a global economy.


Kristina Busch: PI Intern

Kristina Busch has been with the Southern Minnesota Initiative Foundation since December 2016, as a our Prosperity Initiative communications intern. She is currently a senior at Minnesota State University, Mankato. Kristina will be graduating in May with a bachelor’s degree in Mass Media with an emphasis in Public Relations, and a minor in Sociology.

As a communications intern, Kristina works with Meg Steuer, the SMIF Economic Advancement Coordinator and key Prosperity Initiative partners to design layout and content of webpage.
She has helped to develop, implement and maintain a community calendar containing business-related events throughout the region, and identify collaborative partners, services and resources to create a resource portal to support minority-owned businesses.



ROCHESTER, Minn., October 16, 2016 – Somalia Rebuild Organization (SRO) hosted the Southeast Somali Small Business Training in partnership with the Prosperity Initiative, a program of the Southern Minnesota Initiative Foundation (SMIF). The day-long training aimed to increase business knowledge among the numerous Somali-owned small businesses located in Rochester and the surrounding area. More than 40 small business owners attended the event to learn from business leaders, academic instructors and services providers.

Hosted in Somali language, the Somali Small Business Training aimed to promote the advancement of Somali small businesses in order to foster a healthy, thriving businesses ecosystem throughout southern MN. To achieve this goal, SRO brought in Somali trainers, academics with Masters and Ph.D. Degrees and Somali small business owners to discuss leadership strategies, Islamic principles and ways to grow small businesses in southern Minnesota. These presenters included:

Omar Nur, MBA | Executive Director, Somalia Rebuild Organization
Sheikh Abdirahman Sheikh Omar Ahmad, Ph.D. | Chairman, Islamic Association of North America (IANA)
Fanah H. Adam, MS | Educational Leadership Academic Admission Adviso, South Central College – Mankato
Mohamed Muse, MBA | Twin Cities-based Business Consultant
Saido Omar, MS | Female Business Owner, Rochester

Small Business Development Center (SBDC) and SMIF also presented on the resources and services their organizations provide. The Southeast MN SBDC offers at no cost, confidential consulting to help businesses identify, understand and overcome the challenges of starting a business, running a successful business, and developing exit strategies. They provide the professional expertise and guidance every small business owner needs to flourish in today’s competitive and ever-changing business world. Find out more at:

The Southern Minnesota Initiative Foundation strives to catalyze entrepreneurial activity within the region and plays a strong role in growing local business by supporting entrepreneurship. To do this, SMIF provides early-stage investments, traditional loans, micro loans, technical assistance, mentoring, grants to non-profit organizations and opportunities for networking and regional leadership development. Find out more about SMIF’s economic development work here:

In addition, SMIF launched the Prosperity Initiative in 2015 to address the growing needs of minority entrepreneurs throughout the region. Through this new initiative, SMIF is been able to offering training and coaching to minority-owned businesses as well as numerous training opportunities, such as the Somali Small Business Training.


OWATONNA, Minn., October 6-7, 2016 – Southern Minnesota Initiative Foundation’s Prosperity Initiative program offered its second Executive Training for minority business owners. This training provides participants the opportunity to receive hands-on business education, network with other business owners, assess their current business situation and set goals for the future.

Following the training, each participant is paired with a coach to help them work towards their business goals over a 6-month period. Coaches will create action plans with participants to help identify what must be done to reach their goals. After a plan is created, coaches will provide participants with one-on-one technical assistance with business planning, marketing, financial projections and budgeting, among other things. In addition, the Prosperity Initiative program will help participants access other local resources, services and business specialists. It is SMIF’s hope that pairing participants with coaches will make a transformation difference in their businesses’ success.

Want to take your business to the next level through PI training and coaching? Apply today.