What’s Driving Startup & Entrepreneurial Growth? Minorities!
In 2012, Asians owned 1.7 million businesses, African-Americans owned 1.9 million, Hispanics owned 2.9 million, and Native American/Pacific Islander owned 0.3 million, according to the most recent data from the Small Business Administration.
And the growth trend is expected to continue and expand.
BUT WHAT’S DRIVING THE GROWTH?
One contributing factor is that minorities are buying businesses from baby boomers seeking to retire as the economy improves. Other factors include immigration, growth of the minority labor force and overall population growth.
According to a study by Kauffman in 2013, immigrants were nearly twice as likely as native-born to start businesses each month. “In a lot of cases, especially low-skilled, low-educated immigrants, entrepreneurship often provides a more economically viable path,” explained Dane Stangler, Vice President of Research & Policy at Kauffman.
Hispanics, the largest minority group in the nation, is also the fastest-growing group of business owners in the U.S. From 2002 to 2014, the number of Hispanic-owned businesses grew from 1.5 million to more than 3.2 million, according to a report by Geoscape, an analytics and market intelligence company.
Although minority businesses are on the rise, they also face challenges—access to capital is one of them. “There’s empirical evidence that they have been disproportionately denied access to capital when they apply for it,” said Christine Kymn, an economist at SBA Office of Advocacy, adding that Hispanics and African-Americans are the minorities most affected.
Experts note that minorities, especially immigrants, don’t have established relationships with banks and many times don’t have the financial education on how to access and build credit and a credit score—crucial factors for banks when determining to lend money.
Other challenges that businesses of color face is profitability and survival rate. About 50% of all small businesses survive five years or more, and only one-third survive 10 years or more. And according to an SBA report, “Women and minority-owned firms tend to be smaller and less profitable … and they carry lower survival rates than their male or non-minority counterparts.“
“Smaller loan sizes seem to be linked to higher failure rates. Access to credit is a big barrier,” Lisa D. Cook, an associate professor of economics at Michigan State University and a former member of President Obama’s Council of Economic Advisers. “Most of minority-owned businesses are located in their local communities, and if their local communities are poorer than other communities, they’re going to have a lot less growth potential.”
Another challenge Cook sees among blacks and Hispanics—whose businesses are mostly in the service and manufacturing industries—is their lack of representation in the innovative economy, or science and technology economy, which she says is the fastest growing economy.
Asians, however, fare well in the STEM (science, technology, engineering and math) industry holding 15% of all stem jobs, according to the Census.
Blacks held 6% of STEM jobs, while Hispanics held 7%.
Despite the challenges minority small-business owners face, there are various resources and organizations that serve as a support system to network and expand their businesses, such as:
Remember, business organizations and chambers of commerce exist to grow small businesses. However, if you don’t get involved and ask for what you need it renders membership with any organization useless. Also, networking is a skill worth millions, but only if you network in the right circles. If you’re a printer, CPA or an app-developer attend non-industry events to reach outside your circles.
Much success, and remember to have fun.