Minorities: Starting and Financing a Business
The share of U.S. businesses owned by minorities rose between 2007 and 2012. Minority business ownership—excluding Hispanic Americans—made up 11.5 percent of the population in 2007; by 2012, this share grew to 14.6 percent. A bump up in growth occurred for businesses owned by Hispanic Americans as well. In 2007, Hispanics owned 8.3 percent of U.S. businesses; in 2012, that number had reached 10.3 percent. Read this report PDF on minority business ownership numbers compiled by the U.S. Small Business Administration (SBA). Since 2012, growth has continued to be reported. According to the U.S. Census Bureau’s 2015 Annual Survey of Entrepreneurs, minority owned businesses increased by 4.9%.
These recent gains are encouraging, but there’s still a lot of ground to cover: Minorities make up about 37 percent of the U.S. population. If you’re a minority aiming to start a business, there are multiple resources available to you on the federal level—and frequently on the local level—to help you achieve your goals. We’ll discuss many of the major resources below. Of course, nothing beats starting out with a strong business plan that will enable you to continue to mature and grow your business over time.
The 8(a) Business Development Program
The SBA’s 8(a) Business Development Program exists to help small businesses that are owned and run by socially and economically disadvantaged entrepreneurs. The designation “socially and economically disadvantaged” includes African Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, and others.
Here are a few key benefits of the 8(a) Program:
- It is set up to help business owners gain access to “specialized business training, counseling, marketing assistance, and high-level executive development provided by SBA” and its partners. Other benefits include possible eligibility for access to surplus government property and supplies, SBA-guaranteed loans, and bonding assistance.
- The 8(a) Program offers what’s called the Mentor-Protégé Program. Eligible participants are paired with an experienced mentor who can help provide technical and management assistance; mentors may help protégés raise capital; and mentors and protégés can also compete together on federal government contracts.
The SBA sets aside designated federal contracts for eligible minority-owned small businesses. You can learn more about these opportunities in this section of the Playbook.
The SBA’s small business loan program does not have specific set-asides for minority entrepreneurs, but these loans typically have less stringent requirements for owners’ equity and collateral than most commercial loans.
To apply for an SBA loan, you actually go through your local bank. The bank processes the loan and applies for a guarantee from the SBA. The SBA will guarantee your loan if your application meets its guidelines. Two of the most common SBA loans are the 7(a) Loan (a general business loan), and the SBA’s Microloan Program.
The Minority Business Development Agency (MBDA)
The MBDA is run by the U.S. Department of Commerce. It exists to help minority business owners secure the opportunities they need to succeed and grow. In the year 2014, for example, the MBDA helped to achieve $4.2 billion in contract awards and $1.7 billion in financial awards for minority owned businesses.
Furthering minority business’ access to capital is just one part of MBDA’s mandate. The organization runs about 40 business centers across the U.S. They are located in areas with large concentrations of minority populations and minority businesses. You can tap into the knowledge and experience of business specialists, get technical assistance, and learn about potential grants, loans, and government contracts. The MBDA website is also a great place to learn about the range of resources available to minority business owners.
Other mentoring and training resources
Having the opportunity to talk through, and learn from, the successes of other entrepreneurs can go a long way towards helping you know what to expect—and avoid many pitfalls. Here are two potential avenues of training and mentoring to explore for anyone interested in starting a business:
Small Business Development Centers (SBDCs)
Funded by the SBA, state governments, and local educational institutions, these business development agencies are located in every state, and offer an array of technical assistance services and mentoring opportunities to aspiring business owners at little or no cost. Here’s a link to their location finder: SBDC locator.
SCORE’s 11,000+ volunteer members are all experienced business people dedicated to helping others get a good start in business; educational offerings include workshops and one-on-one mentoring.
State and local organizations
Depending on where you plan to locate your business, you may be able to take advantage of programs unique to your state or community. Certain states and cities offer programs targeted to minority-owned businesses; plus, there are any number of community-based nonprofits that exist to help minority entrepreneurs start a business—and achieve growth and maturity.
For example, the state of Ohio sponsors the Ohio Minority Business Direct Loan Program. This program provides fixed, low-interest loans to certified minority-owned businesses that meet its criteria for job creation and other eligibility requirements. And the Cambridge (Massachusetts) Economic Development Division provides business development assistance to minority-owned business owners.
On the nonprofit side, Operation HOPE, headquartered in Los Angeles, has programs in about 20 major U.S. cities. Operation HOPE offers a Small Business Development Program that encompasses entrepreneurial training, business development workshops, business plan development, credit counseling, loan packaging assistance, and more.
Probably one of the best ways to learn about programs in your state or community is to speak with someone at your local SBDC—or contact your state’s business development office.