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Disparities in Capital Access between Minority and Non-Minority Businesses:

U.S. Department of Commerce Minority Business Development Agency. Disparities in Capital Access between Minority and Non-Minority Businesses:. The Troubling Reality of Capital Limitations Faced by MBEs. Congressional Briefing

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Disparities in Capital Access between Minority and Non-Minority Businesses:

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  1. U.S. Department of Commerce Minority Business Development Agency Disparities in Capital Access between Minority and Non-Minority Businesses: The Troubling Reality of Capital Limitations Faced by MBEs Congressional Briefing Cannon HOB March 9, 2010 1

  2. Major Findings • Disparities in Capital Access Regardless of Firm Size • Disparities in Capital Grow with Time • MBEs are Good Investment Opportunities • Minority Firms Grew Faster, but Are Smaller • Strong Job Creation Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  3. Barriers to Capital Access • Financial Constraints • Lower Asset Levels • Lending Discrimination • Other Discrimination • Penetrating Networks • Consumer or Other Firms Discrimination • Human Capital • Lower Education Level and Language Skill • Business Ownership Experience and Family Background • Limited Social Networks • Industry Sectors and Geographic Locations (New analysis) Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  4. Current Financial Crisis • Lower Housing Equity Values • Lower Stock Market • Lower Investment Deals and Investment Amounts • Higher Business Bankruptcies • Numerous Bank Failures Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  5. Lower Housing Price Index Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  6. Lower Number and Amount of VC Deals Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  7. Higher Business Bankruptcies Filings Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  8. New Analysis • Inadequate Capital Access continues to be an important constraint to the growth of minority business. • Lower Loan and Equity Amounts • Higher fear of loan rejection and denial rates • Higher interest rates • Differences in Capital Access Regardless of Firm Size • Differences in Capital Grow with time. Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  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. Higher Loan Interest Rates Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Survey of Small Business Finances (2003)

  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. 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. 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. Competitive Returns on Equity Investments • 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. Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Timothy Bates and William D. Bradford, "Venture-Capital Investment in Minority Business," Journal of Money Credit and Banking 40, no. 2-3 (2008): 489-504

  15. Overview of the State of MBEs • Minority-Owned Firms Outpace Growth of Non-Minority Firms Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 2002 Economic Census

  16. Minority-Owned Firms Lag Behind in Size Compared with Non-Minority Firms Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 2002 Economic Census

  17. MBEs Have Fewer Employees on Average Compared to Non-Minority Firms Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 2002 Economic Census

  18. Average Payroll per Employee for MBEs and Non-MBEs about the Same Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 2002 Economic Census

  19. Employment Grows During 2001 Recession Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: U.S. Census Bureau’s 1997 and 2002 Economic Census

  20. New Analysis • Young MBEs Create Jobs at Similar Rates Compared to Young Non-Minority Firms Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  21. Major Findings • Disparities in Capital Access Regardless of Firm Size • Disparities in Capital Grow with Time • MBEs are Good Investment Opportunities • Minority Firms Grew Faster, but Are Smaller • Strong Job Creation Disparities in Capital Access between Minority and Non-Minority-Owned Businesses

  22. Questions? For more information on MBDA services and products, please visit us at www.mbda.gov www.mbda.gov MBDA. Your Strategic Partner. 22

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