News From the
Small Business Committee
Nydia M. Velázquez, Ranking Democratic Member

For Immediate Release
December 8, 2005

CONTACT: Kate Davis, Allyson Ivins, (202) 225-4038

Minority Business Owners Face Challenges in
Accessing Capital and the Federal Marketplace
Democrats release report and introduce legislation to address needs of minorities

WASHINGTON - With minority business owners playing an increasingly important role in the U.S. economy, Democrats on the House Small Business Committee released a report today outlining the unique challenges facing minority entrepreneurs, and offered a series of legislative solutions to address these issues. While minority business owners own 4.1 million firms today, employing over 7 million workers, the report found they face serious barriers when it comes to securing capital and accessing the federal marketplace. The findings are based on discussions that took place during the annual Minority Business Summit hosted by Democrats in September on Capitol Hill.

"Minority entrepreneurs represent the future of this nation's economy," Congresswoman Nydia M. Velázquez, Ranking Democrat on the House Small Business Committee said. "It is this nation's minority business owners that are spurring job creation and economic development - yet even with these great strides, they have a number of obstacles standing in their way. Democrats, through forums such as the Minority Business Summit, are listening to their needs, and are working to find solutions to resolve these ongoing barriers."

The Minority Business Summit, which served as the basis for the report's findings, was attended by over 70 minority business owners, representing all regions of the country, and industries. During the summit, minority business owners expressed their concerns, and discussed their needs as business owners with Members of Congress.

The report found that minority business owners generally have a more difficult time accessing capital and the federal marketplace. Minority entrepreneurs are receiving less contracting opportunities today - last year while the federal marketplace increased by three percent, contracts to minority business owners decreased by nine percent. The report addressed the need to make policy changes that will help reverse this negative trend, such as modernizing vital assistance programs. In addition, it was highlighted that on average, minority entrepreneurs are receiving smaller loans from banks, are more likely to be denied lending opportunities, and are receiving less venture capital - leaving many minority business owners looking to other means of financing for their business ventures. The report reiterated the need for increased investment in minority owned businesses.

Based on the findings of the reports, two initiatives were introduced to address the needs of minority business owners. Rep. John Barrow ( D - GA) introduced the Minority Owned Venture Empowerment (MOVE) Act that modernizes the Small Business Administration's (SBA) 8(a) program. The 8(a) program is a business development program designed to help minority entrepreneurs access the federal marketplace. However, the program has not been updated in nearly two decades, which has reduced the competitiveness of the program. In FY 2004, the 8(a) program lost a record of $2.4 billion in contracting opportunities, illustrating the need for modernization. Mr. Barrow's legislation will make it easier for minority business owners to access federal contracts by refocusing the 8(a) program on business development.

"There is a serious business ownership divide in this country when minorities make up nearly one-third of the population, but own only 15 percent of businesses," Congressman Barrow said. "The 8(a) program is the country's principal minority business development initiative, but it's been almost 20 years since it was last updated. The MOVE Act will bring the 8(a) program up to speed with the times and help ensure that America's emerging minority-owned businesses get a fair shake at government contracts."

The report also found that minority entrepreneurs are receiving less venture capital - studies have shown that minority entrepreneurs receive less than two percent of venture capital. To compound the situation, a major component of the Small Business Investment Company (SBIC) program, the participating securities program, was recently terminated by the Bush administration, making it even more difficult for minority entrepreneurs to obtain venture capital. To expand opportunities for minority business owners to access capital, Congresswoman Velázquez introduced the Angels Nurture Growing Entrepreneurs into Long Term Successes (ANGELS) Act, which encourages investment in minority entrepreneurs. The legislation creates an angel investment program within SBA that would give priority to minority business owners. Angel financing is less formal than traditional venture capital investing, and targets early stage start-ups.

"It has become clear that minority entrepreneurs are not receiving adequate financial assistance today - and this bill will address that need," Congresswoman Velázquez said. "By working to ensure angel investors make investment in minority entrepreneurs a priority, we are increasing the amount of capital that is going into the hands of our nation's minority business owners."

The report found that while minority business owners are increasing their presence, the challenges they face continue to grow. The MOVE Act and the ANGELS Act are the first of a number of initiatives that will be introduced to address the needs of minority entrepreneurs. Democrats plan to introduce further legislation throughout the year based on the needs highlighted in the Minority Business Summit report, and will also use the findings to shape legislative changes and priorities for the upcoming SBA reauthorization.

Read the 2005 Minority Business Summit Report.

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