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Minority businesses still face
capital gap
Bankrate.com
 For
minority businesses, these appear to be the best of times, with
a growth rate of 17 percent annually from 1987 to 1997, but a lack
of access to capital could end the party early.
And that gap between minority firms and the
money they need to grow could have serious consequences for the
rest of the U.S. economy as well.
That's according to "Mainstreaming Minority
Business: Finding Domestic Emerging Markets," a new report by the
Milken Institute and the Minority Business Development Agency of
the U.S. Department of Commerce. Click here
to view the complete report. (Adobe Acrobat Reader required. Click
here
to download.)
Minority firms have been growing at a faster
rate than their majority counterparts. As mentioned above, overall
minority business growth was 17 percent per year over a 10-year
period -- vs. 3 percent for all businesses -- and sales rose 34
percent, more than twice the national average of 13 percent.
Latino firms increased in number by 23 percent
per year in the above-mentioned 10-year period, and their sales
grew 46 percent per year. Asian-American firms increased in number
by 18 percent per year, and their sales rose 42 percent per year.
But African-American-owned companies only grew in number by 11 percent
per year and their sales grew 11 percent per year.
But minorities are still underrepresented in
the ranks of business owners. Though African-Americans represent
12.5 percent of the U.S. population, they only own 3.6 percent of
the businesses. Latinos are 11 percent of the U.S. population, but
they own only 4.5 percent of the businesses. Asian-Americans are
4 percent of the population and own 3.5 percent of the businesses.
If minority businesses are to survive and thrive,
and if the larger economy is to continue to grow, the study finds
that the capital gap will have to be closed so minority businesses
can get an infusion of cash. Such firms get only 2 percent of all
private equity investments and 3 percent of all Small Business Investment
Company money. "America's economic future is so inextricably linked
with minority and immigrant groups that investment in these communities
is essential," notes the study.
It goes on to suggest that institutional investors,
insurance companies, banks and other investors adopt a broader strategy
to include companies in "emerging domestic markets." "The minority
business community is growing, profitable and free of the risk inherent
in more distant markets," the study notes. "Failure to invest in
this business sector will lower productivity and likewise act as
a brake on the economy."
What is your investment strategy?
--Posted: Sept. 27, 2000
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