Comparing Minority-Owned Businesses to Non-minority-Owned Businesses

There are notable differences between minority-owned businesses and non-minority-owned businesses. In comparison to non-minority-owned businesses, minority-owned businesses have been growing at a faster pace, in terms of number of firms, annual revenue, and number of jobs created. Yet, minority-owned businesses fall short in some areas. When it comes to capital access, for instance, there are considerable disparities between minority-owned businesses and non-minority-owned businesses. (Fairlie, Ph. D. and Robb, Ph.D., 2010)

Growth Rate

Minority-owned businesses outgrow non-minority-owned businesses. Between 1997 and 2002, minority-owned businesses grew in number of businesses by 30 percent versus a 6 percent increase by non-minority-owned businesses. Gross receipts during this period by minority-owned businesses firms grew by 12 percent, while non-minority-owned businesses saw a 4 percent increase. (Fairlie, Ph. D. and Robb, Ph.D., 2010)

Creating Jobs

Young minority-owned businesses create jobs at similar rates to their non-minority counterparts. According to an analysis of the Kauffman Foundation Survey, between 2004 and 2007, over the first four years of operations, young minority-owned businesses created 3.1 jobs while young non-minority-owned businesses created 2.4 jobs in that same period.

Minority-owned businesses pay well. Working for a minority-owned business you can expect a job with good pay, with minority-owned businesses paying wages similar to those of non-minority-owned businesses. According to data from the United States Census Bureau, the average pay per employee for non-minority-owned businesses is not much higher than that of minority-owned businesses. In 2002, non-minority-owned businesses paid $29,842 per employee while that number was about $26,000 for minority-owned businesses.

Jobs created by minority-owned businesses benefited the 2001 United States recession. Between 1997 and 2002, total employment among non-minority-owned businesses saw a decline of 7 percent, while total employment for all minority-owned businesses grew by 4 percent during this same time. Hispanic-owned businesses saw an 11 percent increase, Black-owned businesses experienced a 5 percent growth in job creation and employment and Asian-owned businesses increased by 2 percent. This growth in employment among all minority firms added up to about 160,000 jobs, during a time where many were losing their jobs and businesses were closing. (Fairlie, Ph. D. and Robb, Ph.D., 2010)

Business Size

Minority-owned businesses tend to be smaller than non-minority-owned businesses in terms of number of employees, payroll, and gross receipts. In 2002, the average gross receipt for a minority-owned business was roughly $167,000; for non-minority-owned businesses, it was $439,000. In 2002, minority-owned businesses, on average, employed 7.4 employees, while non-minority-owned businesses employed 11.2 employees. In that same year, the average payroll for minority-owned businesses was $200,000, in comparison to $333,000 for non-minority-owned businesses. (Fairlie, Ph. D. and Robb, Ph.D., 2010)

Revenue Sources

In 1987, minority-owned businesses with annual revenues of $1 million or more earned about 13 percent of their gross revenue from the public sector and government contracts, while non-minority-owned businesses of a similar size earned only 6 percent of their revenue from such sources. For businesses with revenues less than $1 million, the percentage of revenues that came from working with the government were 9 percent for minority-owned businesses and 5 percent for non-minority-owned businesses. (Boston, 2001)

Access to Capital

Due to minority-owned business having less sales, less ideal geographical and industry distributions, and less business experience their ability to raise financial capital is limited in comparison to non-minority-owned businesses.

Minority-owned businesses are less likely to receive small business loans, receive lower loan amounts and are paying more interest than non-minority-owned businesses. According to the 2003 Survey of Small Business Finances, 23 percent of non-minority-owned businesses making $500,000 or less received a loan, compared to 17 percent of minority-owned businesses. For businesses making more than $500,000, 52 percent of non-minority-owned businesses received a loan compared to 41 percent of minority-owned businesses. Minority-owned businesses on average can expect a loan amount of $149,000, while the non-minority loan average is $310,000, more than 2x the average for minorities. On average, minority-owned businesses are also paying about 7.8 percent in interest, while non-minority-owned businesses pay 6.4 percent. Something to note is that minority-owned businesses are also less likely to apply for loans because of fears of being rejected. About 33 percent do not apply for loans, compared to 17 percent of non-minority-owned businesses.

Minority-owned businesses also receive smaller equity investments than non-minority-owned businesses. According to the data from the 2003 Survey of Small Business Finances, the average new investment amount for all minority-owned businesses is $3,379, which is 43 percent of what a non-minority-owned business would receive. For minority-owned businesses with high sales, the average investment is $7,274, which is only 28 percent of what a non-minority-owned business would receive.

(Fairlie, Ph. D. and Robb, Ph.D., 2010)