Minority Businesses Continue to Lose Access to Equity, Report Shows

Capital markets are ignoring minority-owned businesses at the expense of the nation’s economic health, a new report by the Milken Institute concludes.

Minority firms are falling further behind in access to equity and debt financing, though they are increasing at about six times the rate of all U.S. companies, the report by the Santa Monica institute found.

“Economic growth cannot be sustained without the inclusion of minority businesses and an infusion of capital into those businesses,” warns the report, conducted for the Department of Commerce’s Minority Business Development Agency.

The report updates a similar study a year ago that called for an increase in capital to minority enterprises through institutional investment and the securitization of minority business loans for sale on the secondary market.

Of the $95 billion in the private equity market in 1999, the new report found, only $2 billion was managed by companies that focus on women- and minority-owned businesses.

Minority-owned businesses that receive capital infusions tend to do as well as any other business, the report found. Furthermore, the risk of investing in those enterprises is smaller than the risk of investing in volatile overseas markets.

The report calls for tax and other incentives to encourage investments in minority enterprises; training programs to encourage more minority venture capitalists; and greater enforcement of minority procurement programs. It also called for implementation of the Clinton administration’s New Market’s Initiative, much of which must still be approved by Congress. The initiative calls for venture capital and technical assistance for businesses operating in low-income areas. Among supporters of the proposals is state Treasurer Philip Angelides, who recently laid out a strategy to enhance institutional investment in underserved communities.

The report relies in part on minority business data released by the Small Business Administration’s Office of Advocacy last year, which showed minority-owned firms growing by 17% from 1987 to 1997, compared with 3% for firms overall. That data was projected from 1992 U.S. Census Bureau figures. New figures are expected to be released by the bureau next month and could shed further light on the state of minority business.

*

Times staff writer Lee Romney can be reached at lee.romney@latimes.com.