The Troubling Reality of Capital Limitations Faced by MBEs

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The Troubling Reality of Capital Limitations Faced by MBEs

  1. 1. The Troubling Reality of Capital Limitations Faced by MBEs Disparities in Capital Access between Minority and Non-Minority Businesses: Congressional Briefing Cannon HOB March 9, 2010 U.S. Department of Commerce Minority Business Development Agency
  2. 2. Major Findings <ul><li>Disparities in Capital Access Regardless of Firm Size </li></ul><ul><li>Disparities in Capital Grow with Time </li></ul><ul><li>MBEs are Good Investment Opportunities </li></ul><ul><li>Minority Firms Grew Faster, but Are Smaller </li></ul><ul><li>Strong Job Creation </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  3. 3. Barriers to Capital Access <ul><li>Financial Constraints </li></ul><ul><ul><li>Lower Asset Levels </li></ul></ul><ul><li>Lending Discrimination </li></ul><ul><li>Other Discrimination </li></ul><ul><ul><li>Penetrating Networks </li></ul></ul><ul><ul><li>Consumer or Other Firms Discrimination </li></ul></ul><ul><li>Human Capital </li></ul><ul><ul><li>Lower Education Level and Language Skill </li></ul></ul><ul><li>Business Ownership Experience and Family Background </li></ul><ul><li>Limited Social Networks </li></ul><ul><li>Industry Sectors and Geographic Locations (New analysis) </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  4. 4. Current Financial Crisis <ul><li>Lower Housing Equity Values </li></ul><ul><li>Lower Stock Market </li></ul><ul><li>Lower Investment Deals and Investment Amounts </li></ul><ul><li>Higher Business Bankruptcies </li></ul><ul><li>Numerous Bank Failures </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  5. 5. Lower Housing Price Index Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  6. 6. Lower Number and Amount of VC Deals Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  7. 7. Higher Business Bankruptcies Filings Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  8. 8. New Analysis <ul><li>Inadequate Capital Access continues to be an important constraint to the growth of minority business. </li></ul><ul><ul><li>Lower Loan and Equity Amounts </li></ul></ul><ul><ul><li>Higher fear of loan rejection and denial rates </li></ul></ul><ul><ul><li>Higher interest rates </li></ul></ul><ul><li>Differences in Capital Access Regardless of Firm Size </li></ul><ul><li>Differences in Capital Grow with time. </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  9. 9. Higher Loan Denial Rates and Rejection Fears Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Survey of Small Business Finances (2003)
  10. 10. Higher Loan Interest Rates Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Survey of Small Business Finances (2003)
  11. 11. Lower Percentage of Firms Receiving Loan and Equity Investments Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Survey of Small Business Finances (2003)
  12. 12. Lower Loan Size and Equity Investments Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Survey of Small Business Finances (2003)
  13. 13. Disparities in Capital Access Grow After First Year in Operations Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Kauffman Firms Survey (2004-2007).
  14. 14. Competitive Returns on Equity Investments <ul><li>Venture Capital Funds Focused on Minority-Owned Firm Investments are Competitive - Venture capital funds focused on investing in minority-owned firms provide returns that are comparable to mainstream venture capital firms. Funds investing in minority businesses may provide attractive returns because the market is underserved. </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Timothy Bates and William D. Bradford, &quot;Venture-Capital Investment in Minority Business,&quot; Journal of Money Credit and Banking 40, no. 2-3 (2008): 489-504
  15. 15. Overview of the State of MBEs <ul><li>Minority-Owned Firms Outpace Growth of Non-Minority Firms </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 2002 Economic Census
  16. 16. <ul><li>Minority-Owned Firms Lag Behind in Size Compared with Non-Minority Firms </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 2002 Economic Census
  17. 17. <ul><li>MBEs Have Fewer Employees on Average Compared to Non-Minority Firms </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 2002 Economic Census
  18. 18. <ul><li>Average Payroll per Employee for MBEs and Non-MBEs about the Same </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 2002 Economic Census $29,842 Non-Minority Firms $23,277 African American $23,888 Hispanic $25,352 Asian $26,848 Native American Average Payroll per Employee, 2002 Group of Firms
  19. 19. Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 1997 and 2002 Economic Census <ul><li>Employment Grows During 2001 Recession </li></ul>-7% Non-Minority Firms 4% Minority Firms 11% Hispanic 5% African American 2% Asian Employment Growth 1997-2002 Group of Firms
  20. 20. New Analysis <ul><li>Young MBEs Create Jobs at Similar Rates Compared to Young Non-Minority Firms </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  21. 21. Major Findings <ul><li>Disparities in Capital Access Regardless of Firm Size </li></ul><ul><li>Disparities in Capital Grow with Time </li></ul><ul><li>MBEs are Good Investment Opportunities </li></ul><ul><li>Minority Firms Grew Faster, but Are Smaller </li></ul><ul><li>Strong Job Creation </li></ul>Disparities in Capital Access between Minority and Non-Minority-Owned Businesses
  22. 22. For more information on MBDA services and products, please visit us at www.mbda.gov Questions? www.mbda.gov MBDA. Your Strategic Partner.

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