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Minnesota Minorities and Entrepreneurship: Financing A New Business Community
By Andrew Haeg
July 26, 2000
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Minorities make up about one-quarter of the country's population, but own only one-tenth of all businesses. In part, that's because many minority-owned companies lack the capital and the social networks that are critical to the success of any business. With that in mind, Governor Jesse Ventura convened a working group of business people and academics to identify the special obstacles facing minority entrepreneurs. Their task is to come up with ways to overcome those hindrances and present a report to the Governor next month.

STARTING YOUR OWN business is no easy thing. The Small Business Administration estimates that half of all start-ups fail in their first year. Yvonne Cheung-Ho, is president and CEO of the Metropolitan Economic Development Association, which helps minority business people make connections and build their businesses. She says minority entrepreneurs face special obstacles.

"A lot of minority entrepreneurs lack the network of family or close relatives who can serve as business mentors," she says. "As a result, they also lack the social network that can help them become successful people that can bring referrals or leads to them."

Richard Copeland is president of Thor Construction, the state's largest African-American-owned construction company. His company is helping to build St. Paul's new hockey arena. Copeland says racism is alive and well, but he thinks what stands between minority business people and success is more an issue of social custom than racial prejudice.

"People work with people they know, or people they like," Copeland said. "And you don't get to know people if you don't socialize with them and if you're socially segregated with dominant culture and with the people who have all the money and all the contracts. [If you are segregated] Well, guess what, you don't get to play ball."

Copeland feels that the government should require companies which receive state contracts to use more minority businesses. Programs like that already exist, but Copeland says they're woefully inadequate.

Even the best designed affirmative-action program is irrelevant to entrepreneurs who can't get the money they need to start their business. The Milken Institute says the median black and Hispanic household has less than $400 in net financial assets. While the median white household has more than $17,000.

That means white entrepreneurs can often use their own money to start their business or they can tap friends and family for money. Minorities, lacking their own funds, must rely on commercial banks. According to a Federal Reserve study of small business finance, banks deny credit to black business-people twice as often as they do whites.

Some say that helps explain why minority communities often lack a culture of entrepreneurship. Mike Temali is the president of Western Initiative for Neighborhood Development, a subsidiary of Western Bank of St. Paul, which is well known for lending to disadvantaged businesses.

"It's the sort of self-feeding cycle that if you don't have a culture of business ownership in your community, that's where your networks are, that's where your role models are. If you've never really seen many people like yourself running a business it's probably not going to occur to you that this is something I'm able to do," Temali explains. "And if it does occur to you then you really have very few places to turn to get solid advice."

Temali says minorities often lack the kind of management expertise bankers like to see when deciding whether to grant a loan. He says Western Bank emphasizes community lending, so it will often take on such risky investments, but larger banks are less likely to do so.

Temali is a member of Ventura's working group. He says the state is already active in supporting minority businesses, but can do more. Committee members won't say what's in the report but it will likely suggest new policies to help minority and immigrant entrepreneurs find financing. It may also suggest methods to help those entrepreneurs find some of the assistance that already exists.

Richard Copeland agrees the state must do more, but wonders whether the report will make a difference.

"Usually, policy makers and government officials don't have the guts or the balls to do what's required, and that's change the paradigm, artificially insert people of color into the system and some of them will stick," Copeland asserts.