Expansion Grants for Minority Owned Business
According to a year 2000 report from the U.S. Minority Business Development Agency (MBDA), minority businesses are vital to increased minority participation in the workforce. Lack of financing, however, stunts their ability to grow. Out of frustration, entrepreneurs occasionally fall victim to the notorious urban legend that minority business grants can finance a business startup or expansion. The fact is that grants are not a realistic funding option for entrepreneurs of any ethnicity.
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Debunking Grant Myths
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Minority business development grants from government agencies and foundations usually fund programs that help minority entrepreneurs acquire the training and skills needed to become successful business operators. Grant recipients are typically other government agencies, educational institutions, nonprofit organizations and sometimes for-profit businesses specializing in business consulting. Federal and state agencies are not authorized to give grants for personal financial assistance, such as starting, purchasing or expanding a business. Private foundation grants can fund only scholarships, disaster relief and financial hardship programs. Foundations face severe penalties from the Internal Revenue Service for awarding grants directly to for-profit businesses.
Ways to Fund a Business Expansion
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Despite constraints minorities face in accessing capital, there remain only three ways to finance a business expansion: self-financing, debt financing and equity financing. Debt obviously involves borrowing funds with the promise to repay. The MBDA report of 2000 found an enormous gap in the ability of minorities to raise capital in equity markets compared to mainstream businesses. This disparity has inspired many innovative government-guaranteed loan programs to compensate for the deficit.
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Federal Minority Business Programs
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The U.S. Small Business Administration (SBA) is the dominant player in financing small businesses. Most SBA programs are nonracial. However, SBA's CDC/504 Program may be particularly beneficial to minority businesses on the hunt for expansion funds because it targets businesses that can facilitate the goal of community economic development. Proceeds from SBA-guaranteed 504 loans cannot be used for working capital. The loans must go to fixed asset projects. These include the purchase of land and existing buildings, facility improvements, construction of new facilities and the purchase of long-term machinery and equipment. Learn more about the CDC/504 loan program on the SBA website.
State and Local Programs
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Many state and local authorities have innovative programs to stimulate community economic development, similar to the SBA's. An example is tax-increment financing to fund the development of distressed areas where development might not typically occur. Check with your state and local economic and community development agencies to learn about business-expansion financing programs in your community.
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References
- U.S. Minority Business Development Agency: The Minority Business Challenge...; Milken Institute, September 25, 2000; Executive Summary, Page VI
- Minority Business Development Agency Web Portal: Grants
- University of Missouri Extension: The Myth About Grants
- Internal Revenue Service: Private Foundations; October 29, 2010
- Foundation For The Carolinas: Grant FAQs
- Illinois Tax Increment Association: About TIF
Resources
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