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MINORITY ENTREPRENEURS: The difficult search for funding amid disparities!

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According to a report by the Center for Women’s Business Research, Hispanic and African American women are the fastest growing entrepreneurial segments in the country growing at rates of 133.3% and 191.4% respectively from 1997 to 2007. For most minority women, the problem isn’t entrepreneurial appetite or the often-preached go-getter mentality; it’s sufficient financial and social capital resources.

Since the early 1900’s, African Americans have dominated small retail, service and independent sales type businesses. They were concentrated in occupations such as hauling, local moving, restauranteur-ship, and hotel keeping. Many have and continue to be self-employed as barbers, mechanics or skilled craftsman, real estate and insurance agents, musicians and caterers. In 1982, there were about 64 businesses for every 1,000 people in the population, yet the rate of business ownership among Blacks was only 12.5 per 1,000. The business ownership rate of Latinos was almost 50% higher than that of African-Americans, and the business ownership rate of Asian-Americans was 260% higher than that of African Americans.

In a report by the Minority Business Development Association, research shows how much more likely minority owned ventures are denied loans. Among companies with gross receipts under $500,000, loan denial rates for minority businesses were about three times higher, at 42 percent, compared to those of non-minority-owned firms, who were reported at 16 percent. To that end and for high sales firms, the rate of loan denial was almost twice as high for minority businesses as for non-minority organizations.

Estimates from the U.S. Census Bureau indicate that half of all Hispanic families have less than $7,950 in wealth, and half of all African American families less than $5,446. Wealth levels among whites are 11 to 16 times higher. Low levels of wealth and liquidity constraints create a substantial barrier to entry for minority entrepreneurs because the owner’s wealth can be invested directly in the business, used as collateral to obtain business loans or used to acquire other businesses.

A study conducted by CB Insights in 2010 examined the disparity in the amount of venture capital funding for Silicon Valley companies founded by minorities and women as compared to companies founded by Caucasians. The study found that while less than 1 percent of venture-capital-backed company founders were African American and 12 percent were Asian-American, 83 percent had a racial composition that was entirely Caucasian. According to the Michigan Black Chamber of Commerce, headed by Ken Harris, “African Americans, women and people of color are not participating in $3 billion worth of economic development activity in Detroit.”

Across the spectrum of financing entrepreneurial ventures, the federal government states very clearly on the Small Business Administration (SBA), Minority Business Development Association (MBDA) and a number of other business resource sites, that it is not in the business of giving grants to startup businesses. However, for graduates of the ProsperUs’s Entrepreneur Training Program, ProsperUS Detroit provides access to credit for start-up and existing small businesses that otherwise could not gain access to traditional sources of capital. They offer financing of up to $15,000 for start up businesses and up to $25,000 for existing businesses. Groups, like Women 2.0, a media brand that works on behalf of women entrepreneurs in technology, are trying to open avenues to capital funding for women by creating networking opportunities. It takes some research to find an organization whose qualifications you meet, but another well-known organization that provides grants to ethnic minorities includes the MillerCoors Urban Entrepreneur Series. This grant is focused especially on businesses in areas that are in need of urban renewal.

Greater capital access for minority-owned businesses is essential to sustaining their growth, reducing national unemployment levels, and more specifically, the high rate of unemployment in minority communities.

Edward Foxworth III is CEO of The Center for Entrepreneurship & Innovation in Detroit Michigan, a facility dedicated to training, advising and facilitating opportunities for aspiring and existing emerging ethnic business owners. His book, The Six Routines of Self-Discovery, part of the Recapture your Passion System is available at www.edwardfoxworth.com.

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