Capital Ventures

Gaining access to existing sources of financing remains a priority for black-owned firms

growth in the number and total sales of minority businesses the fact that the Milken Institute relies on figures from the Small Business Administration (SBA) Office. These figures do not account for minority-owned Subchapter C corporations, which tend to be larger than those businesses using other forms of incorporation, such as Subchapter S corporation, general partnership or sole proprietorship. Thus, the capital demands of black businesses may be even greater than suggested by the figures used in the Milken Institute report.

According to the report, minority businesses-despite record growth-remain underserved by the capital markets, because of “a lack of credit information and resulting perceptions of minority businesses as small, unprofitable and unfavorably located; minority firms’ overdependence on bank lending due to low levels of net worth and net financial assets among minority entrepreneurs and a lack of access to alternative forms of finance; government policies that have focused on bank lending, while increased regulation, capital restrictions and consolidations have made commercial bank lending to small businesses less attractive; and SBA financing rules that have constrained equity financing in small minority businesses and that have focused on policy on the least profitable industry sectors and firm sizes.”

In order to increase the total supply of capital accessible to minority businesses, lending markets should shift the emphasis from early-stage financing of these companies to equity investing. The report makes a number of proposals, including: promoting the use of the Community Reinvestment Act (CRA) of 1977 to encourage large bank lenders to provide capital to private funds that are focused on minority entrepreneurs, revising the rules governing tax policies and capitalization guidelines for the SBA’s small business investment companies (SBIC) program and establishing industry-wide efficiencies in the small-business lending market through the development of standardized credit scoring, loan documentation and borrower education. (To read a complete executive summary of the Milken Institute’s report, go to www.milken-inst.org/mod22/exec_summary

.html.) In terms of the demographic trends, Cooke-Wells believes that 90% of overall business growth is going to emanate from the minority business community, with a significant percentage of that growth coming from young minorities.

“It’s going to change the buying power of minorities in this country, and that is going to create inroads [for minority businesses] into markets that they are already aware of and knowledgeable about and that will be growing in importance to the overall economy,” she says. “As minority businesses continue to grow at a much faster rate than the overall business community, it’s going to provide a lot of demand for capital.”

Access to capital for black-owned businesses is also a key element of the black enterprise Black Wealth Initiative and its Declaration of Financial Empowerment. DOFE principle No. 8 mandates a commitment to building wealth for the creation and growth of profitable, competitive black-owned companies.

According to reports presented by Brimmer on the economic outlook for African Americans in 2000, “their relative employment and income position [will improve] somewhat. In step with these improvements, the job and income deficits they face will narrow moderately.”

According to the

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