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Capital Access is a Significant Barrier for Minority-Owned Businesses

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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

 

(immigrantspirit.com)

 

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.