Minority-Owned Businesses: Triumphs and Challenges

Small Business Guide

By George N. Saliba, Managing Editor On Nov 2, 2015

Matters surrounding minorities remain among the most sensitive topics in American discourse, with a wide range of opinions, enlightenments and bigotry. However, regardless of a person’s pleasant (or unpleasant) opinions, a statistical examination of minority-owned businesses reveals the hard facts: For example, New Jersey’s 70,000 Hispanic-owned businesses directly contribute $10 billion annually to the state’s economy.

The contributions of companies owned by nearly every conceivable ethnicity throughout New Jersey are also impressive, and it is notable that the Garden State is one of the most diverse locales in the country. Asian Pacific Americans, African Americans, Asian Indians and other immigrant business owners (or those with recent foreign ancestry) hail from most of the 193 United Nations member states across the globe. Although operating a minority-owned business requires the exact same acumen that any business leader needs, experts say minorities are sometimes faced with unique experiences.

Available Resources

In fact, the United States Small Business Association (SBA) explicitly states on its website: “Some minority groups are presumed to be socially and economically disadvantaged and can qualify for the 8(a) program. These groups include: African Americans, Hispanic Americans, Native Americans, Asian Pacific Americans and Subcontinent Asian Americans.” Overall, the 8(a) Business Development Program helps small, disadvantaged businesses compete in the marketplace, and its mention here is not necessarily to highlight the 8(a) program, but rather to showcase the SBA’s overall stance on minority-owned businesses.

At the state level (the focus of this article), Melissa Orsen, CEO of The New Jersey Economic Development Authority, tells New Jersey Business, “The EDA supports small businesses, of which a large percentage are minority-owned, through dedicated programs that increase access to capital and offer competitive financing to businesses that may not qualify for traditional bank financing. Examples of programs include the Small Business Fund and the Loans to Lenders Program.”

Orsen explains that The Small Business Fund provides financial assistance to qualified small, minority- or women-owned businesses in New Jersey through direct loans, participations or guarantees, with fixed interest rates. Of note, more than $12 million has been provided to 50 businesses through the fund since 2010, with an average loan size of more than $240,000.

Orsen adds that through the Loans to Lenders Program, the EDA makes capital available to financial intermediary organizations that can effectively reach small businesses in local markets, including micro-lenders and Community Development Financial Organizations (CDFIs). These organizations have the ability to offer term loans and lines of credit to micro-enterprises and small companies not qualified for traditional bank financing, extending the state’s reach to underserved communities and businesses.

Orsen says, “CDFIs are generally well-versed in the challenges some small or minority-owned businesses face, including lack of credit history, particularly by recent immigrants, and the lack of collateral sometimes seen in distressed communities, and can offer creative financing solutions, as well as technical support, training and mentoring.”

Orsen explains that since 2010, the EDA has approved a total of $5.5 million to five CDFIs, including UCEDC, Greater Newark Enterprises Corporation (GNEC), New Jersey Community Capital (NJCC), Community Business Assistance Corporation (CBAC), and Regional Business Assistance Corporation (RBAC). She says that of the $3.4 million EDA has actually disbursed to these entities to date, $1.7 million in loans has gone to support 43 businesses, with an average loan size of just over $41,200. More than 50 percent of the businesses supported are minority- or women-owned.

Orsen adds, “The EDA also partners with New Jersey’s banking community through its Premier Lender Program, which helps to lower the cost of borrowing for small businesses. Bond financing is also available for qualified manufacturers and not-for-profit organizations.”

While the New Jersey Department of Labor and Workforce Development (LWD) does not have specific programs for minority-owned businesses, it does provide incentives for small- to medium-sized businesses, and many minority-owned entities fall into this category.

For example, the Community Work Experience Program, will – at no cost to employers – provide approved nonprofits with qualified, entry-level staff who are making the transition from welfare to work. The state provides workers’ compensation insurance at no cost to the employer.

Additionally, for employers providing on-the-job training to newly hired employees, LWD will reimburse an employer 50 percent to 90 percent of their salaries, for up to six months via customized training grants.

Separate LWD literacy training grants are available to give employers’ current employees training in skills that will benefit their businesses. Grants are also available to improve employees’ English language, math, reading, writing and computer skills. In both cases, grants of $75,000 or more are typical.

Access to Capital

Regarding challenges minority-owned businesses face, Carlos A. Medina, chairman of the Statewide Hispanic Chamber of Commerce of New Jersey, says, “Unfortunately, we have done polling, and access to capital is the No. 1 challenge for our members. And [it is even a challenge] for some pretty well-established companies. We are always working with the SBA, and we have a lot of banking relationships to help our members. Banking regulations, over the past five years, have become even more stringent.”

When asked directly if access-to-capital challenges are a result of “discrimination,” Medina tells New Jersey Business, “No, I would not say it is particularly because it is a Hispanic-owned business. I would just say that it is a small business without an established credit history.”

Overall, John E. Harmon, Sr., founder, president and CEO of the African American Chamber of Commerce of New Jersey, says, “I would say we have made significant progress, as it relates to access to capital. We have a number of financial institutions that are members of the chamber; there are some that do more than others.”

The EDA’s Orsen says, “Minority-owned businesses face many of the same challenges in securing capital faced by owners of any start-up. Lack of credit history is often a challenge for start-ups, regardless of how strong their revenue projections might be. The programs offered by the EDA and its partners help to secure capital for borrowers while mitigating risk for lenders.

“One of the big challenges we see is a lack of skill or experience in areas critical to building a successful business. While most entrepreneurs are experts in their particular area of interest, they may lack the hands-on skills needed to start and grow a business, which can be compounded by a lack of local networking and mentoring opportunities. While a business owner may have an innovative idea for a business, he or she may need help in areas like developing a business plan, marketing or managing finances.”

The Social Landscape

On the topic of public perception, the Hispanic Chambers’ Medina cites the Partnership for a New American Economy’s recent study which revealed that when the country was in a recession, and there were few new startups, Hispanic immigrant entrepreneurs started over a half a million new companies across the county. In effect, the white paper concluded that Hispanics helped pull the United States out of a recession.

Medina adds, “This is ironic, given Donald Trump’s recent comments, and a lot of the sentiment that somehow immigrants are taking jobs from American workers. It is quite the opposite; they come here often overqualified. They are doctors who are fleeing their countries for political reasons, and then they come here, and they are offered a job as a dishwasher. So, perhaps their alternative is to open a medical services group, or something else that is in their industry. They would rather take that risk than work at $8 an hour, somewhere. Also, woman Hispanic businesses are starting businesses at a pace seven times that of the general population right now, in the United States. It has really been an amazing success story, that Hispanic entrepreneurs are starting businesses at such a greater pace. And that’s what drives the United States’ economy: small businesses.”

Conclusion

All businesses face a host of challenges, and the extent to which minority-owned businesses encounter unique circumstances, or may seek additional support, is at the vortex of hotly debated constitutional, political and social perceptions in the United States. One thing is clear, however: Minority-owned businesses have long been an integral component of this country’s landscape, turning the wheels of commerce and creating jobs for their employees and others.

 

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