Access to Capital-Funding Opportunities for Minority-Owned Businesses in Government Procurement (Guide 4 of 4)

Capital is the lifeblood of small businesses and fundamental to their formation and growth. However, obtaining capital can be difficult for minority-owned business enterprises (MBEs), as a lack of access to capital is one of the primary barriers for MBEs hoping to enter the government contracting world. Access to capital and access to contracts form a symbiotic relationship: MBEs need both simultaneously to survive. They seldom arrive at the same time, however. MBEs often lack access to capital both at startup and in subsequent years, making it difficult to compete for government contracts. According to a study by Stanford Institute for Economic Policy Research, the average MBE has $500 of outside equity at its foundation compared to $18,500 for non-MBEs.[1]

Challenges that MBEs face

  • Lower personal wealth levels are a barrier to entry
  • MBEs may receive lower loan amounts than non-MBES, are more likely to be denied loans, and are more likely not to apply for loans because of rejection fears.

The federal government has established a number of programs to attempt to redress this imbalance. Federal SBA-backed loans are three times more likely to go to MBEs than conventional loans.

SBA LOAN PROGRAMS

What type of funding is this?

 

 

What can this funding be used for?

 

Who qualifies for this funding

Business must (1) be a small business under SBA lending size standards (which differ from contract standards), (2) must be unable to get similar financing elsewhere, (3) must demonstrate it can repay the loan, (4) the owner must invest their own money in the business, (5) must have good credit. Often borrowers must contribute a down payment of up to 10%.

SBA lenders may have additional criteria as well including capital requirements & collateral.

 

How much funding is available to MBEs?

 

What are the repayment terms?

 

What are the benefits of this funding?

 

What are the drawbacks?

How do I apply?

 

Additional info

Certification and verification of MBEs will also help firms compete in more state and local government procurement. Contact the National Minority Supplier Development Council for more information
.