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Remarks by MBDA National Director David Hinson at the Greater New England Minority Supplier Development Council
Good morning! Thank you for that kind introduction.
It’s a pleasure to be here today for this Summit on Capital and Minority Business Capacity Building. This theme hits at the core of an issue impacting just about every business owner in this room.
I would like to thank my friend, Dr. Fred McKinney, the board of directors and staff of the Greater New England Minority Supplier Development Council for the opportunity to come before you today. I would also like to thank the Federal Reserve Bank of Boston and the many corporations that support this critically important summit.
The state treasurers: Denise Nappier, Chip Flowers, and Steve Grossman who have been leaders in facilitating access to capital for minority-owned firms. I would also like to acknowledge Len Greenhalgh from the Tuck School of Business for a long and distinguished career in working with minority firms. Len and Jim Lowry just published a book titled, Minority Business Success: Refocusing on the American Dream, which I believe all of us would benefit from reading. And finally, I would like to thank the senior management teams of the minority-owned businesses that have come to seek solutions to issues that plague the minority business community.
I greet you this morning, on behalf of President Barack Obama and Secretary of Commerce Gary Locke. I must say, I make speeches all across the nation and I never get tired of saying on Behalf of President Barack Obama.
For 41 years, our goal at MBDA has been to expand the U.S. economy and create new jobs through the historically underutilized and often undervalued minority business community. Depending on who you talk to today--- the glass for the minority business community may be half empty or half full. But when you consider the potential of the minority businesses to create jobs, to expand the current economy, and to participate in the future economy, which will be export-based - the glass is indeed half full!
The 5.8 million minority-owned businesses in the United States contribute over $1 trillion in gross receipts to the U.S. economy. This makes this community – if it were separated from the United States the 17th richest nation in the world. These firms also directly provide six million jobs to American citizens and tens of millions of additional jobs are created simply through their presence. According to the U.S. Census, the number of workers employed at minority-owned firms increased 26 percent between 2002 and 2007. That’s a jump of 1.2 million American workers who now find adequate employment in minority-owned businesses. During the same period, job growth for non-minority owned firms was less than 1 percent.
And while we are encouraged by the overall growth of the minority business community, there is still much work to be done for MBEs to achieve entrepreneurial parity in size, scope and capacity. Which is why we are here today, to develop solutions to the impediments that hamper the growth of minority-owned businesses and thus hamper the growth of the U.S. economy.
The two factors that will be discussed at this Summit are capital and capacity building.
Let me start with the issue of capital. Last year, MBDA commissioned a report, titled “Disparities in Capital Access between Minority and Non-Minority-Owned Businesses: The Troubling Reality of Capital Limitations Faced by MBEs.” Let me share with you a few of the findings which many of you may be familiar with.
Minority-owned firms are less likely to receive loans than non-minority owned firms. Among firms with gross receipts greater than $500,000 - 41 percent of minority-owned firms received loans versus 52 percent of non-minority owned firms.
And when minority-owned firms obtain loans, they pay higher interest rates. Minority-owned firms paid 7.8 percent on average for loans compared with 6.4 percent for non-minority owned firms. An average of 140 basis points more at the same relative risk level.
Minority-owned firms are also more likely to be denied loans, particularly those of smaller size. Among minority-owned firms with gross receipts under $500,000, loan denial rates are an astronomical 42 percent compared to non-minority owned firms at 16 percent.
In addition, fear of rejection influences capital. Among firms with gross receipts under $500,000, 33 percent of minority firms did not apply for loans because of fear of rejection. This compares to 17 percent for non-minority firms.
In terms of equity capital, the data is chilling on average minority firms received equity capital ranging from a mere $3,000 to $7,000 which was 38 percent of what non-minority-owned firms received of the same size.
All of the statistics reinforce what we already know. That is minority-owned firms are challenged in the area of capital and the playing field is not level.
But what about capacity?
The average minority-owned firm generates $178,000 in gross receipts. This compares to the $500,000 averaged by non-minority-owned firms. But of particular concern are African-American-owned businesses, which are only $71,000 in gross receipts and in fact were the only minority subgroup that saw average gross receipts drop from the prior Census period. Yet, minority-owned firms continue to create jobs, continue to innovate, continue to find a way to win!
Our Administration is keenly aware of the challenges facing minority-owned businesses and we are taking steps to address the issues. Let me take a moment to share with you what we have done for small businesses which encompasses the vast majority of minority-owned businesses.
Since coming into office, we have cut taxes on small businesses 17 times.
We now have zero capital gains taxes on key investments in small businesses.
New deductions for healthcare for the self employed.
And a new expensing benefit, which will allow companies to write off 100 percent of their machinery and equipment purchases “made” in 2011.
We are putting the finishing touches on the Small Business Lending Fund which will provide over $30 billion in capital to community and small banks to support lending to minority and small businesses.
The Small Business Administration has dramatically increased equity capital through the expansion of its SBIC program.
My agency, MBDA, has increased contracts and capital to MBEs by over 85 percent since our administration took office.
We are working with agencies across government to increase government contracting opportunities for minority-owned firms both large and small.
We launched a Secretarial-level advisory board on minority business to provide policy recommendations on strengthening the minority business community. This is the first time there has been a Secretarial advisory board on minority business enterprises since 1970.
Finally, the White House has launched a new initiative called Startup America which is designed to increase the number and scale of new high-growth firms that are creating economic growth, innovation and high quality jobs.
On the international side, the Department of Commerce is initiating a substantial number of trade missions – and we are inviting you to attend. We are creating greater access to the services of the International Trade Administration and other trade support agencies for MBEs. And through our 46 business development centers nationwide, MBDA is beginning the process of training minority-owned firms on how to access the global markets.
But what else can be done?
What more can be done to grow our companies bigger in light of the current economic environment? I’d like to conclude my comments with three suggestions.
My first suggestion is that we grow our businesses much more aggressively. In order to do this we have to change the way we think about growing and consider growth through merger and acquisition, joint venture and strategic partnership. To do this, many of us will have to change the way we evaluate equity ownership. Far too many minority-owned businesses evaluate ownership as an all or nothing proposition – that it is better to have 100 percent of something small than 50 percent of something big. We have to change this mentality.
Second, we have to seek to globalize our business models. With 95 percent of consumers living outside the United States and the opportunities that are available to the “Made in America” brand around the world, we have to think more global. Again, this may necessitate changing the way you evaluate strategic partnering and joint venture arrangements.
Finally, large substantial corporations must be better partners to the minority business community. While there are no free breakfasts, lunches, or dinners, corporations should take a more active role in promoting their minority-owned suppliers by:
Increasing their spend within this sector.
By working with them to help them better understand and function within their global supply chain.
And by making a conscious effort to increase access to the highest levels of senior management.
These steps must be taken if minority-owned firms are to be true partners in the execution of a corporation’s global strategy – it just makes good business sense.
I want to thank you for allowing me to speak with you this morning. We need your voice to be heard throughout every sector of government about the importance of growing minority-owned firms.
The work that you will do at this summit is critical to the future of our nation.
Partner with us, so we can partner with you. So together we can build a minority business community that our children and grandchildren will be proud of.