Small Businesses Owned by Minorities Fall Behind Amid Reduced U.S. Contracts

U.S. Contracts and minority-owned businessesHispanics make up approximately 17 percent of the U.S. population while Blacks account for 13 percent. However, the federal award ratios given to small businesses owned by these groups are both below 10 percent. President Barack Obama recently declared that small businesses are vital for the growth of the U.S. economy. According to Bloomberg business data, this economic sector was awarded about $98.2 billion last year. However, Black-owned businesses received only 7.2 percent, or $7.1 billion, and Hispanic businesses were awarded just 8.4 percent, or $8.21 billion. As market watchdogs point out, the awards given to these groups are not reflecting their proportions to the total U.S. population.

Possible Explanations

Part of the reason for less money going to these groups may lie in the competition that continues in the face of government spending cuts related to business contracts. Acquisition officers haven’t created a model for targeting companies owned by these populations, making it more difficult for these businesses to take advantage of the $512 billion market. By the government’s definition, small businesses are those with average annual sales below $7 million and employing fewer than 500 individuals. Small businesses owned by blacks fell by approximately 1 percent as of September 30, 2012, compared to the prior fiscal year. Hispanic businesses increased by 1.5 percent, but this wasn’t enough to make up for a major drop in the fiscal year 2011.

Minority Business Discrepancies

Total business contracts awarded to small businesses fell by 3.7 percent in the fiscal year 2012. At the same time, all awards fell by 4.1 percent. This means that both blacks and Hispanic businesses experienced less decline compared to the average, but they are recovering more slowly than others since the market fell in 2011. Since fiscal year 2010, black-owned companies fell by 6.5 percent, about four times the fall of all contracts. Hispanic businesses dropped by 4.4 percent, which is significantly more than the 3.9 overall drop for small businesses. Although each group has experienced relatively better growth for 2012, the improvement does not match the size of the country’s demographics, and experts say that black-owned companies should be getting twice the percentage of contracts they are presently.

Doing Business Elsewhere

Because of the lack of contracts awarded to black businesses, some experts are encouraging black business owners to work overseas and in commercial sectors. Part of the problems facing Hispanic business owners has to do with a public focus on immigration issues rather than Hispanic businesses. Now, budget cuts in the federal government are set to make the next decade more difficult for small businesses, with this year seeing about $85 billion cut from spending.

Not Enough of the Pie

Experts point out that the problems facing black business owners are compounded by their lower awards. Meanwhile, Hispanic contracts are not keeping pace with their population growth. Some companies owned by these ethnic groups may qualify for contracts under the 8a program, which is designed for those with social and economic disadvantages. According to government sources, the lower contract percentages are unrelated to race because procurement officers do not know the race of applicants.

The Small Business Administration is now focusing on training and recruitment for small business in these underserved communities. At present, however, there is no imperative or incentive for contracts being allocated for these groups. As a result, contracts are practically awarded at random. According to President Obama, small business owners must play a role in the growth of the U.S. economy. To help this effort, Obama specifically addressed programs to increase opportunities for small businesses and those owned by minorities.