A Pillar of the Economy

Shining a Spotlight on the Contributions of Minority-Owned Business
Written by Jessica Ferlaino

There are countless barriers that hinder minority- and women-owned businesses from reaching their full potential, but despite the challenges they face they represent a rapidly growing sub-section of the economy, one that contributes greatly to the country’s tax base and gross domestic product (GDP) by providing jobs and bringing wealth and prosperity into communities across the United States.
In 2015, findings from an Economic Impact Report researched and published by the National Supplier Development Council (NMSDC), in partnership with The Institute for Thought Diversity (ITD), illustrated the economic impact that 12,000 certified minority-owned businesses have on the U.S. economy.

According to their figures, minority-owned businesses generate over $400 billion in annual revenue and are responsible for directly or indirectly employing more than two million people. They also contribute nearly $49 million in local, state and federal taxes, figures that are on the rise year after year.

Data from the U.S. Census Bureau’s 2012 Survey of Business Owners reflects that minority-owned businesses grew at a rate that was three times faster than the growth of the minority population, even exceeding the rate of growth of nonminority-owned businesses: nonminority-owned firms showed a decrease of four percent between 2007 and 2012.

A U.S. Department of Commerce Minority Business Development Agency Fact Sheet about the growth of minority-owned businesses between 2007 and 2012 indicated that the number of minority-owned firms had increased by thirty-eight percent to eight million, with the number of people employed in these firms showing a twenty-three percent increase. During the same period, women-owned businesses specifically grew by forty-five percent, a growth rate five times the national average. According to the U.S. Census Bureau’s Annual Study of Entrepreneurs, women owned nearly twenty percent of all employer businesses in the U.S., one-quarter of which were also distinguished as minority-owned.

According to data from the Small Business Administration’s Office of Advocacy’s Women’s Business Ownership 2012 Survey of Business Owners, as majority or joint business owners, women entrepreneurs are responsible for generating $2.5 trillion in sales. Further to sales, women-owned businesses employ nearly 8.5 million people and generate more than $264 billion in payroll annually.

Last year was a great year for minority-owned business growth, especially for African-American entrepreneurs who are taking full advantage of available programs, initiatives and support mechanisms in place. Currently, there are over 2.5 million African-American-owned businesses in the U.S. Similar can be said of other minority cohorts as well, such as the Latino population, which has long contributed to the economic foundation of the United States.

Figures published in 2016 show that the number of minority- and women-owned businesses doubled in the U.S., totalling ten million. Over the same period, minority business revenue grew at the same rate, exceeding a trillion dollars. Today, there are over eleven million minority-owned businesses in the United States.

Much of the available data pertains to certified minority- and women-owned businesses, those that meet the required criteria of the NMSDC or the federal government’s Small Business Administration (SBA) 8(a) Business Development Program. To become a certified minority-owned business or enterprise, a company must be at least fifty-one percent owned by a U.S. citizen (by birth or naturalization) who is at least one-quarter African-American, Latino, Pacific Islander, Asian, or Native American, otherwise referred to as “presumed groups.”

To be certified, businesses must be controlled or managed by socially and economically disadvantaged individuals who are considered citizens of good character. In the case of program 8(a), the business must be considered a small business and the business must demonstrate potential for success. Individuals are subject to a means test to prove identity and must submit to an investigation into their lives and finances to prove social and economic disadvantage. It is not easy to prove social disadvantage, but it is far less burdensome than the proof of economic disadvantage that is required.

According to the SBA, a socially disadvantaged individual is one who has, “been subjected to racial or ethnic prejudice or cultural bias within American society because of their identification as members of groups without regard to their individual qualities.” Economically disadvantaged individuals are those whose participation and ability to compete in the free enterprise system have been impaired due to diminished capital and credit opportunities; this requires a closer look into an individual’s life and finances.

Certainly, access to credit and capital is often the largest impediment keeping minority-owned businesses from achieving their full potential. Many minority business owners have a solid business plan but lack the credit history required.

However, access to financial assistance, loans and capital is starting to improve. There are some banks that have developed small-business oriented programs, as well as Community Development Financial Institutions (CDFI) which serve as alternative financing options. Becoming certified, though it is an arduous process, can also benefit minority-owned businesses in several ways.

Once certified, minority-owned businesses can take advantage of government programs including access to contracting opportunities and capital that would have otherwise been impossible to secure that can help to accelerate growth, in addition to counselling opportunities, training and workshops, as well as management and technical guidance.

In addition, the federal government is the largest procurer of goods and services in the U.S. and awards a percentage of this work to small disadvantaged businesses. In 2013, $30.6 billion in projects were awarded to minority-owned businesses, a figure that continues to rise. As many federal government agencies are required to award a certain percentage of contracts to certified minority-owned businesses (such as the U.S. Department of Transportation, which requires at least ten percent of the money being spent on contracts go to minority-owned businesses), entities that receive funding must develop disadvantaged business enterprise (DBE) programs to ensure compliance.

DBEs are any small, for-profit enterprises that are owned and managed by an individual or individuals who are socially and economically disadvantaged and have at least fifty-one percent stake in the company and the 8(a) program is designed to help improve their rate of success. The nine-year program includes four years of developmental support and five years of transitional support. Participants gain access to sole-source contracts and have the freedom to enter joint ventures and bid on contracts in teams to enhance their ability to win larger contracts. One aspect of support under this program is a Mentor-Protégé program.

Many reports indicate that the minority is set to be the majority in less than thirty years, which means the growth of minority-owned businesses in the present signals strength for the U.S. economy in the future. It also validates the many programs that are focused on supporting minority entrepreneurship to ensure their full participation and success in the market.

Minority-owned businesses are a pillar of the economy and the community. Consumers and corporations, while they must make the decision that best suits their needs and wants, should consider supporting minority-owned businesses: it will not only provide minority-owned businesses with the customer base they need, it will strengthen and diversify the supply chain and the national economy.



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