Small Business, Entrepreneurship, and Economic Recovery

U.S. Department of Commerce Minority Business Development Agency Small Business, Entrepreneurship, and Economic Recovery Ivonne Cunarro Co- Hosted by the Kauffman Foundation, Federal Reserve Bank of Atlanta, & Federal Reserve Bank of Dallas Chief Knowledge Officer Atlanta, Georgia October 26, 2010

Impact of the Economic Crisis on Minority-Owned Firms Minority-Owned Business Growth Trends Minority-Owned Business Challenges Economic Impact on Minority-Owned Firms Growth Opportunities for Minority-Owned Firms MBDA Programs and Results 2

Minority Business Growth 60% 50% 56% 2002-2007 46% 40% 30% 20% 10% 21% 27% 0.03% 9% 13% 1% 0% Gross Receipts Employees Number of Firms Population All Minority Non-Minority Minority firms outpace the growth of non-minority firms between 2002 and 2007. Source: U.S. Census Bureau, 2007 Survey of Business Owners, July and September 2010. 3

Minority Firms Are Still Smaller Group All Firms Gross Receipts Ave. Receipts Paid Employees African American 1,921,907 $137.4 billion $72,000 920,198 American Indian & Alaska Native 237,386 $34.5 billion $145,000 191,472 Asian 1,552,505 $513.9 billion $331,000 2,869,153 Hispanic 2,260,309 $345.2 billion $153,000 1,932,243 Native Hawaiian & Other Pacific Islander 38,881 $7.0 billion $179,000 43,187 All Minority 5,762,940 $1.0 trillion $178,000 5,916,651 Non-Minority 20,107,057 $9.8 trillion $490,000 50,707,027 Classifiable Firms 26,306,316 $11.0 trillion $418,000 57,356,178 Total Firms in the U.S. 27,110,353 $30.2 trillion $1.1 million 118,665,692 Source: U.S. Census Bureau, 2007 Survey of Business Owners, July and September 2010. 4

Higher Loan Denial Rates and Rejection Fears Loan Denial Rates 50.0% 40.0% 41.9% Minority Firms 30.0% 20.0% 10.0% 16.0% 14.9% 8.4% Non-Minority Firms 0.0% under $500,000 $500,000 + Firm Size Fear of Rejection 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 33.4% 17.4% 18.8% 12.2% under $500,000 $500,000 + Disparities in Capital Access between Firm Minority Size and Non-Minority-Owned Businesses Source: Survey of Small Business Finances (2003) Minority Firms Non-Minority Firms 5

Higher Loan Interest Rates Loan Interest Rates 10.0% 9.1% 8.0% 6.0% 6.9% 6.2% 5.9% Minority Firms 4.0% 2.0% Non-Minority Firms 0.0% under $500,000 $500,000 + Firm Size Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Survey of Small Business Finances (2003) 6

Lower Loan Size and Equity Investments Average Loan Size $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 $310,232 $149,354 $9,261 $20,482 under $500,000 $500,000 + Firm Size Average Equity Investments Minority Firms Non-Minority Firms $25,000 $20,000 $19,377 $15,000 $10,000 $5,000 $1,969 $2,747 $7,274 Minority Firms Non-Minority Firms $0 under $500,000 $500,000 + Disparities in Capital Access between Firm Size Minority and Non-Minority-Owned Businesses Source: Survey of Small Business Finances (2003) 7

Disparities in Capital Grow Over Time Total Financing Capital $100,000 $80,000 $60,000 $40,000 $20,000 $74,017 $90,391 $29,447 $45,627 Minority Firms Non-Minority Firms $0 Startup Capital (2004) Subsequent Capital (2005-2007) Disparities in Capital Access between Minority and Non-Minority-Owned Businesses Source: Kauffman Firms Survey (2004-2007). 8

Entrepreneurial Parity Gross Receipts (in $ trillions) Paid Employment (in millions) Number of Firms (in millions) $3.5 $3.0 $2.5 $3.4 $2.5 20 15 17.7 10 8 5.8 8.1 $2.0 $1.5 $1.0 $0.5 $0.0 $1.0 2007 Actual 2007 Parity 2009 Minority Buying Power 10 5 0 5.9 2007 Actual 2007 Parity 6 4 2 0 2007 Actual 2007 Parity Entrepreneurial parity for minority business has yet to be reached. Parity is defined as reaching proportionality between the adult minority population and business development measures such as numbers of firms, gross receipts and employees of Classifiable firms (excludes publicly held). MBDA s Minority-Owned Business Growth and Global Reach (Fact Sheet), 2010. Based on data from the U.S. Census Bureau s 2007 Survey of Business Owners. Purchasing power estimates based on the data from the University of Georgia, Selig Center for Economic Growth, The Multicultural Economy 2009, Georgia Business and Economic Conditions, 2009. 9

Is the Gap Narrowing? Minority-Owned Firms 1997 2002 2007 Share of Number of Firms as a Percentage of Parity Figures 57% 61% 71% Share of Gross Receipts as a Percentage of Parity Figures 27% 26% 30% Share of Paid Employment as a Percentage of Parity Figures 30% 29% 33% MBDA s analysis based on data from the U.S. Census Bureau s 2007 Survey of Business Owners and 2002 Survey of Business Owners. Parity figures for 1997, 2002, and 2007 are based on the minority population share, ages 18 and above. 10

Business Bankruptcies Filings Total Business Filings 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2006 2007 2008 2009 2010 Source: Based on data from the Administrative Office of the U.S. Courts, for bankruptcies filings during the 12-month periods ending in June of 2006, 2007, 2008, 2009, and 2010. 11

22 MBDA Network MBDA network is comprised of 46 centers which are organized as public/private partnerships. 12

MBDA Services Business Consulting Procurement Matching Bonding Assistance and Loan Packaging Private Equity and Venture Capital Sourcing Strategic Partnering (e.g, Business-to Business, Teaming, Joint Ventures, etc.) Market Promotion of Clients to Prime Contractors and Other Buyers 13

Impact of Economic Crisis Anecdotal Stories from MBDA s Regional Offices and Network of Business Centers 14

MBDA s Capital Access Strategies Use of Alternative Lending Sources Alternative Lenders Community Development Banks/CDFIs Micro lenders Dept. of Energy Guaranty for alternative energy products to obtain Credit Lines Private Equity Firms Domestic and International Asset Manager Funds 15

MBDA s Market Access Strategies Teaming Arrangements/Joint Venturing Mergers and Acquisitions Strategic Partnering Green projects Diversifying client base Technology Commercialization Globalization of MBEs 16

MBEs Twice as Likely to Export Exporting Firms 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Minority Firms 2.5% 1.2% Non-Minority Firms Minority firms operating in 2002 were twice as likely to generate sales through exports compared to non-minority firms operating in the same year. Source:. Minority Business Development Agency (MBDA), Characteristics of Minority Businesses and Entrepreneurs, 2008. 17

MBE Global Reach Minority-Owned Business Global Reach Spans Six Continents 1.6% Russia 2.8% Canada 1.6% United Kingdom United States 23.8% Mexico 2.0% Guatemala 4.4% Nicaragua 2.0% Colombia 4.8% Peru 11.1% Dominican Republic 1.2% Venezuela 17.5% Brazil 1.2% Ghana 2.8% Turkey 3.2% India 2.4% United Arab Emirates 2.8% China 2.0% Philippines 2.4% Argentina MBE Export Activity Measured by Ex-Im Bank Authorized Financial Transaction, 1992-2009 0% to < 1% 1% to < 5% 5% to < 15% 15% to < 25% Minority business export activity spanned 41 countries between 1992 and 2009. Mexico, Brazil, and Dominican Republic are the top markets, accounting for 52% of all financing transactions authorized for these firms when foreign markets were identified. 18 Source: MBDA s analysis of data from the U.S. Export Import Bank, for calendar years 1992-2009.

MBDA s Performance Fiscal Year Contracts Financial Transactions New Jobs Created to date FY 2010* $1.55 B* $1.69 B* 4,950* FY 2009 $2.14 B $ $0.91 B 4,134 FY 2008 $1.03 B $1.09 B 5,316 FY 2007 $1.2 B $0.55 B 3,506 *Note: FY 2010 Performance data is preliminary and may be revised. 19

MBDA s New Strategic Focus Increase Size, Scale and Capacity of Minority Business Enterprises Strategic Priorities: Create a new generation of minority-owned firms generating $100 million in annual revenues Maximize job creation and global competitiveness for minority business enterprises Global Construction Program Global Export Initiative Develop global financing solutions for minority business enterprises(mbes) 20

MBDA s New Strategic Focus (Cont d) Increase Size, Scale and Capacity of Minority Business Enterprises Develop unique public-private partnerships to create funding vehicles for MBEs Expanding the number of financing option Increasing surety bonding opportunities Foster innovation and entrepreneurship within minority communities in high-growth industries, Clean and Renewable Energy Green Technology Health Care Information Technology Create openness and transparency in minority business government contract reporting 21

Larger MBEs vs. Smaller MBEs 100% 98% 80% 60% 64% 36% 58% 42% 40% 20% 2% 0% Number of Firms Gross Receipts Paid employees Minority firms ($1 million and above) Minority firms (under $1 million) 22

MBDA Capacity Building American Recovery and Reinvestment Act Global Construction Program Gulf Coast Recovery Efforts OPIC Loan Originators Portfolio Companies Initiative National Urban League Partnership Surety Bonding Program Minority Investment Fund Haiti Reconstruction 23

Minority Business Growth 60% 50% 56% 2002-2007 46% 40% 30% 20% 10% 21% 27% 0.03% 9% 13% 1% 0% Gross Receipts Employees Number of Firms Population All Minority Non-Minority Minority firms outpace the growth of non-minority firms between 2002 and 2007. Source: U.S. Census Bureau, 2007 Survey of Business Owners, July and September 2010. 24

MBDA s Research For more information on MBDA s Research on Minority-Owned Businesses please access: http://www.mbda.gov/pressroom/research-library For questions, please contact MBDA Ivonne Cunarro, icunarro@mbda.gov 25