Growth Strategies for Minority Entrepreneurs
Minority-owned business enterprises (MBEs), have played an important role in the growth of the U.S. economy. Over the last 10 years, small businesses owned by minorities, women, and veterans accounted for more than 50% of the two million new businesses started in the United States and created 4.7 million jobs. There are now more than four million MBEs in the U.S. with annual sales of approximately $700 billion.
Despite the rapid growth, these business owners continue to face disparity when it comes to access to capital, contracting opportunities, and other business opportunities for MBEs. Minorities make up 32% of the U.S. population, but MBE ownership constitutes only 18% of the population. In addition, even though MBEs have grown 35%, the average gross receipts for those companies dropped by 16%.
Sadly, many of these entrepreneurs are left wondering how to fund operations and facilitate business growth which often times leads to business stumbles or failures without sufficient planning.
Challenges and Obstacles Facing MBEs
If you are a minority small business owner, you probably have encountered the same challenges and obstacles that many MBEs face as they try to either start or grow their business.
The lack of access to sufficient financing options is a major challenge which can stunt the growth of your business. This can be due to a few reasons including:
- Lower net worth
- Little to no collateral and weaker credit history
- Limited time in business or lack of business experience
- Limitations with quality standards
- Business located in an area underserved by big banks
- Other tangible and intangible barriers
MBEs that are starved for working capital don’t have the funds they need to invest in their businesses and to compete successfully. Capital constraints also limit the ability of MBEs to compete in an environment where average contract/project sizes are increasing rapidly with inflation.
These challenges and obstacles make MBEs more vulnerable to business slowdowns, economic downturns, tight money, inflation, labor shortages, supply-chain problems, seasonality issues, and other operational difficulties.
What Businesses Are Classified as MBEs?
Businesses that have the following characteristics are classified as MBEs.
- A minimum of 51% of the voting stock of the business is owned or controlled by one or more minority group members.
- A minority individual or group must control the policy-making process, and direct the daily operations of the MBE.
- The minority individual or group owner is a U.S. citizen of Black, Hispanic, Native American, Asian-Pacific American or Asian-Indian American heritage.
Minority owned businesses may have a layer or vulnerability not deemed present with other companies. In a broader sense, businesses that are classified as diverse are operated by an individual that is considered both socially and economically disadvantaged. They include women-owned businesses, veteran-owned businesses, minority-owned businesses, and LGBTQ-owned businesses. These businesses and other disadvantaged business enterprises are also collectively referred to as MWDBEs.
Minority-Owned Business Certification
MBE certification is a key credential that all minority-owned businesses should have and is used exclusively by local and federal governments. The criteria for eligibility includes the MBE characteristics identified above in addition to other certain requirements depending upon the state they are located in.
Some of the potential benefits to MBE certification include:
- Certification acts as a marketing tool to increase business visibility and present a favorable public image for customers.
- Provides strategic access to new markets and government programs as well as access to diversity bidding opportunities, grants, and specific loans.
- Can help the business compete for larger contracts in both public and private sectors – corporations and federal and state agencies all want to do business with MBEs. Often times the ability to procure or bid on certain job opportunities is set aside specifically for certified MBEs.
- Better chance of landing a government contract that can be worth thousands, hundreds of thousands or even millions of dollars. The government has goals related to MBE participation and a certain % of contract dollars needs to be awarded to them. MBEs also help larger business enterprises secure large government contracts because of this as well.
- Access to leads and client databases, networking events, seminars, webinars, and business fairs.
- Training and education workshops and mentorships.
The National Minority Supplier Development Council (NMSDC) can assist with the certification process and is the largest certification organization for MBEs. The NMSDC has a network of 12,000 certified MBEs that can be connected to more than 1,400 large corporate members. NMSDC certification is widely recognized in government circles, with many states and cities using NMSDC certification to help with public-sector contract selection.
The SBA also offers a diversity ownership certification known as an 8(a) certification. Businesses with 8(a) certification are eligible to win federal contracts that are reserved for “small disadvantaged businesses.”
Planning for Growth
Overcoming the challenges and obstacles as a small business owner requires planning and strategizing to grow and develop your business. Here are a few things you can be doing:
- Get your minority-owned business certification – Become a certified MBE and leverage the resources and connections that it opens up for you. This certification is key for many grants and loans, business opportunities both private and public, as well as for other programs.
- Seek out business opportunities set aside for MBEs – Seek out opportunities to procure or bid on jobs that have been specifically set aside for MBEs. For example, in New York state and communities, commodity procurements greater than $25,000 and construction contracts more than $100,000 are subject to Article 15-A of the Executive Law, The Minority and Women Owned Business Enterprise Program, which regulates and promotes business opportunities on state contracts for minorities and women.
- Diversify your business – Seek to expand and diversify your customer base, products and service offerings to grow and avoid the risk of putting all your eggs in one basket. Your business can be gone in a flash – think back to the pandemic and businesses that were deemed “essential.” Doing this will ensure your business is able to transition and move on in the event of a major business disruption.
- Focus on existing customers – Convince your existing customers that you should be their preferred source of goods or services. Inquire with customers and see if there are any other products or services that you can offer to add value. Customer loyalty and consistent branding are valuable tools in retaining your credibility in the industry. Expand your geographical footprint if you are able to.
- Join minority-owned small business associations/ organizations for networking and training – Link up with agencies, other businesses, councils and industry associations that offer professional development and networking opportunities.
- Apply for business grants – Apply for grants designated for small MBEs. Grant applications can be daunting so take advantage of any assistance available in filling them out. Remember, grants, unlike loans, do not have to be paid back.
- Tap into additional programs and resources for MBEs – There are many programs and resources out there to assist MBEs. For example, the Minority Business Development Agency, a part of the U.S. Department of Commerce, was created to provide greater access to capital and resources to MBEs.
- Utilize your marketing and advertising outlets – Utilize your website, social media, email outreaches, and other online platforms to draw potential clients and resource providers to your business. If you’re on a limited budget, get creative and find new ways to help get your name out there and attract new customers. Celebrate your status as a certified MBE and what makes your business unique. Black History Month 2023 is a great backdrop for Black MBE owners to showcase their businesses.
- Develop a financing network – Seek out and develop these relationships to draw on for resources, advice and business funding that includes lenders and alternative funding sources. Planning ahead will put you at an advantage over less prepared businesses.
Join Capstone’s Diverse Funding Program
Back in 2012, Capstone created its Diverse Funding Program which is designed to give minority, women, veteran owned, and other disadvantaged business entities the financing tools they need for growth and to be successful.
Capstone understands the unique challenges faced by these business owners and are able to structure a business funding program specifically tailored to support their working capital needs through Factoring Services, Purchase Order (PO) Financing, as well as Domestic and International Trade Financing. Over the last ten years, Capstone has funded in excess of $100 million to qualified disadvantaged business enterprises.
In addition to providing flexible working capital programs that are often faster and easier to obtain than loans Capstone provides their clients with access to financial and professional development support, including:
- One-on-one business consulting and mentoring
- Customized training, leadership, and executive development
- Procurement guidance
- Relationship building between MBE clients and larger corporations as well as access to government and municipal markets.
- Non-legal contract review
- Budgeting and forecasting development & support, and more
If you are part of one of these groups, we encourage you to contact Capstone to discuss your specific financial needs and learn more about our program.