Success in virtually any contemporary business market requires that organizations operate from as strategically advantageous a position as possible. For new entrants into a market, one of the primarily determinants of advantage, at least in terms of objectively measurable resources, is access to capital. Since the late 1990s and early 2000s, many young entrepreneurs have been able to make a name for themselves after acquiring startup capital to fund their innovative ideas from risk-taking venture capitalists. While the trend has cooled off somewhat, there is still a major need for small organizations to seek out capital to fund either a startup, or an expansion of an already-existing small business. Unfortunately, there is a historical precedent for minority entrepreneurs having lesser access to capital and funding opportunities. This is detrimental, not only to the minority business owners, but also to the market as a whole, which would undoubtedly benefit from the introduction of diversity. To some extent, the global economic crisis may well be to blame, but this has impacted investment capital on the whole, and doesn’t quite explain the disparity faced by minorities seeking capital. This suggests that one of the most pressing issues for increasing capital access for minorities and (consequently) diversity in the marketplace is educating the holders of private capital about minority investment opportunities of which they would otherwise be unaware.

The American Recovery and Reinvestment Act

To be sure, there has been some recent progress in this area, such that minorities seeking to open or expand a small business now face less opposition than they would have even ten years ago. For example, as part of his approach to stimulating the ailing economy, U.S. President Barack Obama has strengthened the lending capacity of the Small Business Administration (SBA) in an effort to help minorities access capital.

This has actually proven quite effective in terms of stimulating the growth of minority business; records show that 40 percent of the loans made by the SBA go to minorities. Additionally, under the directives of the American Recovery and Reinvestment Act, the SBA has granted an unprecedented $15 billion in 2009 alone, with 23 percent of that total, or just over $4 billion, going to minorities. Of that total, $3 billion has been channeled towards minority businesses owned by women. In addition, due to its acting in a Federal capacity, the SBA has been able to offer many long-term government contracts in industries as diverse as service and defense to minority business owners.

While this is undeniably a boon, it is not an entirely ideal situation, as the SBA is not specifically tailored to channeling funds towards minorities. In fact, this violates the charter of the organization. So, while private banks and other institutions might be more willing to lend to minority businesses for the purposes of increasing diversity and market value, the SBA is not allowed, according to its bylaws, to discriminate either against or in favor of minorities.

Criticisms from

Low-Income Communities

On the whole, minority owned businesses are somewhat dissatisfied with the efforts of the Obama administration to stimulate business growth in low-income communities. While the Recovery Act and the SBA have taken great strides, there has been a tendency to overlook those communities where stimulus is most needed because demographic factors sometimes preclude the measurable viability of a business and discourage investment. Also, despite promises to reform tax code in favor of small business owners, these changes have not taken place under Obama; the Bush-era repeals for the richest two percent and owners of large corporations remain in place and taxes have in some cases gone up for small business owners.

Alternative Agencies for Minority Businesses

The lack of a total success on the part of federal efforts to support minority businesses suggests the need for alternative solutions through which minority business owners can gain access to investment capital. Luckily, there are many organizations that provide exactly such a service. For example, the Minority Business Development Agency is a branch of the federal United States Department of Commerce, and unlike the SBA, it is authorized to deal exclusively with minority-owned businesses. While it does not lend capital directly, it provides funding to a large network of regional centers that work directly with local minority entrepreneurs to help them increase their chances of accessing capital by assisting in drafting business plans, developing marketing segmentations and strategies, and financial planning.

Besides the Minority Business Development Agency, there is also the Minority Business Roundtable. While it is not a federally funded organization, the Minority Business Roundtable has a strong relationship with the SBA that works to the advantage of minority business owners looking for funding. The SBA offers the Roundtable firsthand information on available funds, programs, services, and other resource channels, which the Roundtable then passes along to its registered members (who are all minority entrepreneurs). Conversely, the Roundtable also provides the SBA with a database of readily available minority businesses in need of funding, thereby generating significant exposure for both parties. In addition to putting the two sides in touch with one another, the Roundtable also provides services to minority entrepreneurs, such as programs that can be used to develop their business and make it more attractive to investors, or sponsorship for trips to national industry conventions and meetings.

Accessing Capital in the Future

The existence of progressive legislation such as the Recovery Act and organizations such as the Roundtable suggests positive movement for the future of minority capital acquisition. While there is still a long way to go, minority entrepreneurs seeking to gain funding for their business ideas are bound to face considerably less resistance. Until the situation improves further, however, there are certain things that minority business owners can do to increase their capacity for competitively acquiring capital. First of all, minority owners must understand the competitive nature of the loan and capital acquisition process and take steps to objectively demonstrate the value of their ideas and businesses to investors. This means taking steps, such as developing a sound and robust business plan with in-depth market research and reliable information that demonstrates how the organization will pursue and obtain an advantageous position within the market and eventually generate a profit that will enable the repayment of loaned capital. Financial projections based upon market research are essential to presenting an effective business plan, and owners must realize they can not rely entirely upon the strength of an idea.

Additionally, minority business owners eager for capital must realize that many lenders are willing to adopt predatory practices that ultimately exploit minorities. If a lender lacks a positive reputation or offers a deal that seems too good to be true, it’s entirely possible that this is the case. Some predatory lenders will issue large amounts of debt equity to hopeful startups, in exchange for a controlling share in the company. This is a bad idea for several reasons. First, it enables unscrupulous lenders to absorb minority businesses into larger corporations, effectively profiting from the originality and innovation of the owner’s ideas. Second, if a minority owned business is no longer controlled by a minority, it loses the diversity of thought and strategy that makes minority businesses such a valuable asset to the market in the first place.