Closing the wealth gap for minority business owners
Minority-owned businesses exist in every corner of the U.S., with new ones launching all the time. What businesses qualify as minority-owned? A private business must be at least 51 percent owned by members of a minority group to qualify. For public companies, a business is minority-owned if at least 51 percent of shareholders are minorities. According to the Minority Business Development Agency (MBDA), there are more than 9.2 million minority-owned businesses in the U.S. They employ more than 8 million people, and generate more than $1.8 trillion in annual revenues.1
A mainstay of the U.S. economy, minority-owned businesses bring significant benefits to local areas:
- Innovative products and services that might not otherwise be available
- Economic uplift to local communities
- Job creation
- Opportunities to reduce unemployment and lift people out of poverty
Minority-owned businesses create jobs and wealth and invest in their communities, which can be a great way to help close the wealth gap. Historical discrimination against certain minority groups created some challenges. Learning about the common financial barriers and ways to create sustainable solutions to overcoming them is an important step forward.
Challenges faced by minority small business owners
Historically, a primary challenge for minority business owners has been insufficient working capital to keep their business doors open long-term. Several factors have diminished the working capital available to minority businesses:
- Greater experience of business loan declines
- Approval for smaller loan amounts
- Less collateral to secure business loans
- Fear of rejection means firms more likely to avoid applying for loans
- Lack of social capital/network to help grow their business
Building a network of trusted professionals is critical to running a successful company.
Working with financial professionals to build a thriving business
Financial professionals can be allies and valuable resources in helping minority business owners to overcome the challenges they face. They can provide entrepreneurs with insights on how to separate personal and business banking accounts, as well as information about grant programs, government contracting programs that set aside contract awards for minority-owned enterprises, and alternative funding options that can provide capital. Funding sources like these can fuel business growth and increase innovation.
In addition, since financial professionals typically have strong networks, they can introduce minority business owners to other small businesses. This networking can help minority business owners find mentors, suppliers, colleagues, and other sources of social support.
Financial services professionals can also help develop a business plan, which is a must for every company. A robust business plan includes a precise analysis of the market conditions, competition, product, service differentiators, and financial outlook. If owners need to borrow money or seek investments, a business plan can explain how the funds will be used and what returns the investment will gain.
By working with a financial professional, minorities can help safeguard their business and personal interests. Financial professionals can provide guidance on legacy planning or tools to protect critical business personnel, such as life and disability insurance. Business owners can also plan for their own retirement and strategize how to hand off the business to the next generation or new owners. The key takeaway here is that minority business owners should not only work with banking or financial professionals to complete transactional events, but should also collaborate with them to form deeper relationships.
Minority business owners can seek guidance from empathetic and knowledgeable financial professionals. Financial professionals should take time to get to know each client as a person and welcome opportunities to work with individuals from diverse backgrounds. Building a relationship with a financial professional can be a critical step toward business success for every minority entrepreneur. Supporting minority business owners is an essential step to close the wealth gap.
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2022-146135 Exp. 11/2024