Minority entrepreneurs face challenges in business development

By March 29, 2016 Blog No Comments

All small business owners find themselves with challenges on a daily basis. For minority business owners, there can be additional hurdles to overcome such as different financial matters, professional development obstacles and access to the right kinds of advisers and mentors.

Let’s take a look at some of these challenges and explore some resources that can help business owners succeed in today’s financial climate.


Access to Capital

Minority business owners have historically found it difficult to gain access to capital. That funding often plays a big part in determining the success of a small business. A study conducted by the Department of Commerce’s Minority Business Development Agency showed some of the disparities:

  • Minority-owned businesses are less likely to get loans than non-minority owners. This is particularly true for businesses that have less than $500,000 in gross receipts.
  • The value of loans for minority-owned businesses is usually less than non-minority loans. For minority businesses with more than $500,000 in gross revenue, the average loan amount is $149,000. But non-minority business loans average $310,000, and the MBDA report says interest rates are often higher for minority business loans.
  • Due to “a real or perceived likelihood of rejection,” some minority-owned businesses avoid seeking loans. This could prevent these businesses from reaching their potential.

The MBDA advises minority-owned businesses to show their worth in efforts to gain capital access. These tips include:

  • A record of profitable performance
  • Audited financial statements
  • Positive net worth
  • A strong management team and business strategy
  • A competitive advantage in the business’ industry

“Providing adequate access to capital would help the minority business community reach the goal of economic parity,” the MBDA’s site states. “Investing in businesses owned by minorities not only makes good business sense, but is an investment in the future growth of the U.S. economy. According to the Census Bureau, by 2050 the nation’s minority population will be the majority. In other words, new businesses, new jobs and new products will be strongly influenced by, if not created by, the minority community.”

 

Social Capital

Another challenge for minority business owners is building social capital. Karen E. Klein examines this in a story for Bloomberg Business in which she focuses on Quisha King, a single mom who turned a teething toy idea for babies into a full-blown Florida business.

“Black women in her community are more likely to run restaurants or beauty salons than online startups like her company, TeetherTops, she says. ‘I tried to find other minority moms who’ve invented baby products, but I couldn’t,’ says King, 32. ‘It would be great to have someone like that in my life.’”

Because female-owned minority businesses are often smaller than non-minority businesses, there’s often a lack of opportunity to gain this kind of social capital, Klein explains.

“Women of color in business face the familiar challenges common to all entrepreneurs, such as a lack of financial capital,” she writes. “They also contend with occasional outright racism or sexism. And they face more subtle obstacles as well: lack of mentors and role models, difficulty finding good professional partners, and indifference — or even hostility — from business networks. Together it adds up to a lack of social capital that means entrepreneurs like King may never get the crucial introduction, the benefit of the doubt from a financier, or the valuable guidance of a mentor that propels their businesses forward.”

 

Find the Right Advisers

Business owners need to have supportive and smart advisers such as accountants and lawyers. These working relationships are essential for minority business owners navigating through some of the challenges they face. Klein’s story for Bloomberg features Ramona Streit, a Hispanic woman in Southern California who bought a Homewatch CareGivers franchise. It had revenue of $1.5 million in 2013, Klein says, but Streit found that gender made it difficult to find the right advisers.

“I started out with males, but I didn’t feel like they were giving me the attention that I needed,” Streit tells Klein. “When I switched to a female banker, she told me I didn’t need to pay for overdraft protection because I had a line of credit.” Klein adds that a female accountant shared information with Streit that her previous male accountant did not, and advised her to not use the company debit card for personal withdrawals.

 

Mentors Matter

Just as advisers in financial and legal matters are essential, so too are mentors for professional development. Vivian Giang writes about this in her story for Fast Company, saying that a minority woman’s mentors should include another minority women.

“A lot of people simply don’t feel comfortable giving feedback to others who aren’t like them because they don’t know what to expect,” Giang explains. “For example, if there is an issue with your ‘executive presence,’ it may be difficult for your white male mentor to tell you that if you’re a black woman.”

Another part of this challenge is the lack of minority women in leadership positions, Giang says. She quotes Jewel Burks of Google to illustrate this point: “In my case, my work is in primarily in technology, so it has been difficult to find people who are doing the things that I want to be doing in the future who also have the time to mentor me.”

Finding mentors that will be honest and freely give constructive feedback “can be a tricky road to navigate,” Giang says, but these challenges “are crucial to getting more minority women into higher positions.”

“The first step is letting go of the fear that’s holding you back or our gender problem will be a recurring one,” she says. “The second step is knowing that intelligence and hard work can only take you so far; you need your networks and connections to pull you along the rest of the way.”

 

Comprehensive Education

The challenges of minority business owners have changed over the years. According to Alfred Edmond Jr. in his story for American Express’ Open Forum, there was a time when “rugged individualism, intrepid determination and subject matter expertise” were the primary requirements for a successful business. Those are certainly still valid, but Edmond says the landscape has changed.

“Today, African-American business owners must be students and ultimately masters of entrepreneurship itself, including developing a capacity for raising capital, financial management, strategic planning, brand positioning, mergers and acquisitions and other nuts and bolts of growth beyond mom-and-pop status,” he says.

How can minority business owners get there? One way is to start with organizations designed to assist minority business owners. As Rohit Arora writes for Inc.com, the Small Business Administration offers the “Emerging Leaders Training Cycle,” which is a seven-month process “to provide entrepreneurs growing business operations in economically challenged communities with fundamental training.” The program, which is free, includes mentoring, workshops and networking opportunities. The results are impressive, Arora says with “nearly 70 percent of past participants in the annual program recorded revenue growth, according to the SBA.”

The SBA also offers an 8(a) Business Development Program, which includes one-on-one sessions and workshops with small business experts, Arora writes. Another organization he includes is the Young Black Male Entrepreneur Institute, which is a 16-week program by U.S. Black Chambers designed to “inspire new leadership opportunities” through counseling with business professionals.

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