Disparities In Access To Financial Capital
Link to El Nuevo Herald column in Spanish: Here
My father has a policy which he has employed in his dealings with people for as long as I can remember. I know because I recall how trying it was at times for my brothers and me growing up. If it was frustrating for me as a child at home, you can imagine my reaction when I first showed up to work at Lemartec, our family design-build business, as a teenager to find him implementing his policy with everyone in the company – particularly me, his only son in the business. It took me years to appreciate the value of this policy but I can honestly tell you that, today, I get it, and I appreciate it more with each passing day. It’s simple, really, but it’s also pure genius: “Don’t come to me with a problem unless you also come prepared with a couple of solutions that we can discuss.”
Having learned a thing or two from the old man, I can’t help but address a problem without also offering some potential solutions meant, at least, to open up the discussion. Today I will begin a two-part series aimed at addressing a problem that affects all of us in business either directly or indirectly – particularly those of us involved in a minority-owned business. In Part II next week, we’ll look at some initiatives and resources that are available to help minority-businesses deal with the problem. The best solutions, though, will come from open, productive discussion of which I hope you will be a part.
The Issue:
Minority businesses are absolutely critical to our nation’s economic wellbeing, contributing more that $661 billion in total gross receipts in 2002. According to a recent report by the U.S. Department of Commerce Minority Business Development Agency, in 2002 minority-owned firms employed 4.7 million people with an annual payroll totaling $115 billion. From 1997 – 2002, minority-owned firms grew in total number of firms, employment and gross receipts at a faster rate than non-minority-owned businesses. In fact, while paid employment among non-minority-owned firms declined by 7 percent during this period, it grew by 4 percent among minority-owned firms.
Not surprisingly, the positive effect minority businesses have on our economy, and the potential to further strengthen our economic foundation, is tied to population trends. According to the US Census Bureau, in 2006 the nation’s minority population represented more than 33 percent of the country’s total of 299 million. Of that 33 percent, Hispanics represented the largest demographic group with more than 44.3 million, 14.8% of the total U.S. population. In fact, between 2000 and 2006, Hispanics accounted for one-half of the nation’s growth with a growth rate of 24.3% – more than three times the growth rate of the total population at 6.1%. I have a feeling that the 2010 census will reveal even stronger numbers in U.S. Hispanic population trends. We’ll see.
The Problem:
According to the MBDA’s report, if minority-owned firms would have reached parity with the representation of minorities in the U.S. population, these firms would have employed over 16.1 million workers, grossed over $2.5 trillion in receipts, and numbered 6.5 million firms. In other words, minority businesses in the U.S. aren’t as strong as they could be, and one of the main reasons is access to capital. We know that inadequate capital access is a problem for business across the board, whether minority-owned or not. But according to the report, “The latest nationally representative data on the financing of minority firms indicates large disparities in access to financial capital. Minority-owned businesses are found to pay higher interest rates on loans. They are also more likely to be denied credit, and are less likely to apply for loans because they fear their applications will be denied.” That’s a problem because today, when the strength of our nation’s economic productivity is more important than ever, the growth potential of minority-owned businesses is being hindered.
There are far too many reasons for this disparity to be covered in this column. Most reasons are purely objective such as experience, geographic location, lower sales, industry sectors, personal wealth, and language barriers to name just a few. Some reasons, however, are more subjective such as racial discrimination as acknowledged in the U.S. Department of Commerce MBDA report. I’ve chosen, however, to focus on a handful of objective reasons we can actually try to do something about by offering information on available resources aimed at helping minority businesses succeed. But again, this is only meant to start the discussion. If you have a question or concern, or better yet, if you would like to contribute an idea for a solution, please post your comments or send me an email to manny@mgtunon.com and we’ll try to keep the discussion going, raise awareness, and try to help each other out.
