Building equitable entrepreneurial ecosystems
How government can increase access to capital for minority-owned business enterprises, through technical assistance and community
As the focus on environmental, social, governance (ESG) increases across the nation, federal, state and local governments continue to increase minority business enterprise (MBE) goals on contracts, grants, tax incentives and loan opportunities. Many times, however, these self-imposed mandates are never realized. Why? Governments struggle to meet MBE goals due to a lack of awareness and preparedness around government economic programs — specifically amongst community stakeholders, MBEs and even within government agencies themselves.
What do MBE goals look like across the nation?
According to the Department of Labor [1], although minority-owned businesses represent 24% of eligible businesses for federal contract awards, they account for just 3% of all contract awards in fiscal year 2021 (a 21% point difference). As a result, the Biden-Harris administration set a 15% MBE goal by 2025, recognizing that the federal government spends more than $650 billion each year on purchasing goods and services.
Ohio
Cuyahoga County
Of the $1.1 billion in prime contractor spending from 2014 to 2018 [2], only $51.5 million — or 4.62% — was awarded to (MWBE) firms as prime contractors. Subsequently, the city of Cleveland passed a community benefits ordinance increasing MBE goals to 30% for development projects over $250,000.
Louisiana
Baton Rouge
A recent disparity study [3] showed that locally owned disadvantaged businesses could receive 21% of public spending, yet only 5% of those firms were ever awarded contracts. Shortly after this study, the East Baton Rouge Parish Metro Council unanimously voted to establish a Division for Supplier Diversity and it’s first MBE program, with a 25% MBE goal, on city contracts.
Washington
King County
In the home of the city of Seattle, from 2015 to 2020 about 65% of the small businesses in the county’s directory of contractors and suppliers were white-owned. Those businesses, however, received 75% of county contracts, the report found. Today, the city has a goal of over 20% [4] for MWBEs, and while they have not quite achieved that goal, Seattle is further than other cities because they announced an equity and social justice strategic plan [5] acknowledging the very barriers MBEs face in the city.
So, what is the solution?
For government to increase MWBE participation, move the needle on equity in underserved communities and begin to meet these lofty MBE goals, state and local leaders must cultivate an equitable entrepreneurial ecosystems of economic support. How can governments accomplish this?
During the onset of the COVID-19 pandemic, the Illinois Department of Commerce realized the only way that the state minority owned businesses would receive an equitable amount of relief funding was if the state proactively worked to reduce systemic barriers that existed for these businesses before the pandemic. Leveraging American Rescue Plan dollars, the state of Illinois officially created the Small Business Community Navigator Program [6] — a small business support program that reduces the barriers underserved businesses often face when trying to access relief program dollars or government services. The program uses a “hub and spoke” model by partnering with trusted community organizations such as minority serving economic development corporations, chambers, faith-based organizations and community-based groups to offer grassroots engagement with small businesses to assist with access to grants, financial planning, marketing outreach and technical assistance. In the first year, the program was instrumental in ensuring that 40% of the $250 million [7] in grant funding went to minority owned business with over 50,000 businesses served.
As a result, Small Business Administration (SBA) administrator, Isabel Guzman, announced the US Small Business Community Navigator Program [8], officially solidifying this ecosystem approach as a national benchmark. The SBA provided 100 million in funding for minority serving organizations nationwide with grassroots footprints, representing all 51 states and territories.
In Illinois, Isabel quoted “This Community Navigator Program will help state, local and federal agencies connect with small businesses that have historically been left behind. The smallest of the small — in rural and urban America — and small businesses owned by women and people of color have suffered the greatest economic loss from the pandemic” [9]. To date, the US Small Business Community Navigator Program [10] has helped small businesses secure $250 million in funding, train over 290,000 businesses and provide 145,000 one-to-one coaching hours.
The Small Business Community Navigator model allowed for the state of Illinois and the SBA to receive real time data and feedback from underserved minority owned businesses that are usually hard to reach. The data proved that the majority of businesses did not access government programs because they simply were not aware of — or prepared for — the funding. The second theme that arose was that businesses lacked the capacity to pursue government opportunities due to the size of MBEs. Lastly, many businesses expressed a lack of access to capital, CPA services and financial coaching as a reason for not pursuing or receiving government economic opportunities.
The solution to helping governments meet their self-imposed minority business participation goals on government programs and increase economic opportunity equitably, is to cultivate equitable entrepreneurial ecosystems that leverage the best practices proven by the Small Business Community Navigator Program. The White House doubled down on this approach [11] in early August of this year by announcing $56 million in technical assistance funding for 12 states to provide technical assistance to help businesses access the Department of Treasury’s State Small Business Credit Initiative.
Four strategies to help MBEs
State and local Governments must use an equitable multifaceted approach to better coordinate, collaborate and communicate with minority entrepreneurs, community partners, financial institutions and economic development organizations to better deliver on MBE goals.
Here are strategies that governments can utilize to begin to move the needle on achieving MBE goal and increasing MBEs access to capital, technical assistance and 1:1 financial coaching below.
- 1. Identify inefficiencies
- 2. Establish community programs
- 3. Leverage existing organizations
- 4. Reduce barriers
Conduct an equity audit of grants, procurement and loan functions to identify inefficiencies that make it harder for small businesses, especially MBEs, to access economic programs.
Establish a community outreach and technical assistance program that leverages trusted community partners and organizations to engage with underserved, minority owned businesses in their communities
Leverage existing business support organizations such as Small Business Development Centers (SBDC), Procurement Technical Assistance/APEX Centers (PTAC), Minority Serving Chambers of Commerce and Community Based Organizations to provide 1:1 financial and small business coaching.
Reduce barriers to access to capital and gap financing for MBEs by leveraging programs such as the State Small Business Credit Initiative [12], minority CDFIs or Revolving Loan Funds that make it easier to fund MBE’s that struggle to receive capital through traditional institutions.
What is the cost to government by not implementing these solutions?
MBEs will remain unaware and unprepared to access government programs, the economic wealth gap will widen for minority owned businesses and government will never reach their self-imposed MBE mandates — ultimately costing taxpayers more money for less equity.
References
[1] Progress in Procurement: Equity in Federal Contracting, Equity in Federal Contracting Blog, Department of Labor.
[2] Cleveland leaders address recently passed Community Benefits Ordinance, News 5 Cleveland, June 2023.
[3] New Baton Rouge department aims to increase government contracts for minority-owned businesses, The Advocate, April 2021.
[4] Support Women and Minority Owned Businesses (WMBE), Equity in City Contracting, City of Seattle, 2023.
[5] Equity & Social Justice (ESJ) Innovation Plan, King County.
[6] 2023 Small Business Community Navigator Program, Illinois Department of Commerce & Economic Opportunity, 2023.
[7] Governor Pritzker Announces $250 Million in Grant Awards for Small Businesses, Office of Governor JB Pritzker, May 2022.
[8] SBA Launches $100M Community Navigator Pilot Program, U.S. Small Business Association, May 2021.
[9] Pritzker Administration Announces $9 Million Investment in Community Navigator Program to Accelerate Small Business Economic Recovery, Illinois Department of Commerce & Economic Opportunity, July 2021.
[10] FACT SHEET: Vice President Harris to Announce Support to Help Historically Underserved Entrepreneurs Tap into Bidenomics-Fueled Small Business Boom, Statements and releases, The White House, August 2023.
[11] Vice President Harris, Treasury Department Announce Over $175 Million to Support Small Businesses as Part of the Biden-Harris Administration’s Investing in America Agenda, Press releases, U.S. Department of Treasury, August 2023.
[12] State Small Business Credit Initiative (SSBCI), U.S. Department of Treasury, 2023.
