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Historically, BIPOC entrepreneurs have been underrepresented and underserved. This being said, however, minority-owned businesses are growing rapidly—in fact, according to Census Bureau data, the number of minority-owned businesses has doubled in the last decade. So, if you’re an entrepreneur of color looking to turn your dream into a reality, you might be wondering how to begin the process.
In this guide, we’ll explain everything you need to know about how to start a minority-owned business, including how to actually get certified as a minority-owned business and how that certification can be beneficial to your operations. Plus, we’ll also explore some of the top resources for minority entrepreneurs that can help you along as you start and grow your business.
How to start a minority-owned business in 5 steps
Regardless of your background, learning how to start a business can be an intimidating process. Plus, if you’ve seen or heard some of the statistics about minority-owned businesses — like, despite their substantial growth, they still make less revenue than businesses owned by white people — you might be hesitant to get started.
Luckily, figuring out how to start a minority-owned business isn’t all that different from starting any business, as you’ll see in our break down below. Additionally, as we mentioned above, minority-owned businesses have the opportunity to get certified as a minority-owned business, which opens up specific opportunities that can help your business launch and grow.
With all of this in mind, let’s get started.
1. Choose your business idea.
Some entrepreneurs become entrepreneurs because they’ve come up with the perfect business idea. Others know they want to run their own business or be their own boss, but they need to brainstorm to find the best small business idea for them. If you fall into the first group, you can skip to our second step. But, if you need to do a bit of searching for your business idea, you can start by asking yourself these four questions:
Where do you have experience?
What resources do you have access to?
What interests you?
What problem can you solve?
As you might imagine, coming up with the right business idea isn’t always a quick and easy process. Nevertheless, it also might be worth considering ideas that particularly lend themselves to you, and to your future minority-owned business. For example, you might explore your local community and see if you have an opportunity to set up a minority-owned business that can work with and benefit those in your area.
Similarly, you might also consider franchise opportunities as a way to start your minority-owned business. Many of the best franchises, like the UPS Store, among others, have specific initiatives for minority entrepreneurs looking to start their own businesses.
2. Write your business plan.
Once you have your business idea solidified, the second step in learning how to start a minority-owned business is to begin ironing out the details and writing them all down. Writing a business plan is not only a valuable exercise for planning your business, but a comprehensive business plan is also crucial for many startup business processes, like accessing financing.
Ultimately, your business plan will vary based on what kind of business you’re starting and what you’re using the plan for. In this way, it may be helpful to draft a few different versions of your business plan based on what end they need to fulfill — like building up your team, pitching to investors or applying for a loan.
Overall, however, a business plan should always include certain pieces of crucial information. Here are the fundamentals you’ll want to include in your business plan:
Executive summary: This section will summarize your business’s unique value proposition.
Company overview: Here, you’ll describe your business’s history, leadership team, and locations.
Market analysis: This section will illustrate your intended industry and how your business would stand out from competitors.
Business organization: In this part, you will need to include details on your business’s legal structure and key executives.
Product and services: Here, you’ll be able to discuss your business’s product or service and how you plan to price it.
Marketing and sales plan: This section will describe your customer acquisition and retention plans.
Financial plan and projections: You’ll want to create a revenue forecast and other financial projections for at least the next three years.
Appendix: Any additional information your other business plan sections don’t cover—like your resume—will go in this section.
Of course, as you go through this process, you’ll want to include any relevant information to your minority-owned status — like certification (which we’ll discuss in detail below), for example — that might be helpful for potential investors, lenders or employees to know and understand. For instance, if you’re working with a local community organization to set up your minority-owned business, who this organization is, what they do and how they’re supporting your business can be important information for many of the sections listed above.
3. Register your business.
The next step you’ll need to tackle in regard to figuring out how to set up a minority-owned business is making sure you’ve checked off all of the legal requirements for new businesses. Although some of these requirements will be unique to your location and industry, overall, you’ll want to think about:
Registering your business name: Not all businesses will require a DBA, or “doing business as,” registration, but if you do, you’ll want to make sure you register with the proper agencies.
Choosing a legal structure for your business: The business entity type you choose will dictate how your business is organized, as well as how you pay taxes. Although there are pros and cons to each of the different entity types, you’ll want to think carefully and decide which option works best for your business. Along these lines, you might also find it helpful to consult with an attorney for advice.
Registering for federal, state and local taxes: Not all businesses will require an IRS employer identification number (EIN), but registering for one can be helpful in separating your business and personal finances. In addition, your state and local agencies will have specific requirements that you’ll need to abide by when it comes to registering for and paying taxes.
Getting any necessary business licenses or permits: Once again, depending on the location of your business (as well as your entity type) you may have to legally register with the state and apply for certain business licenses and permits. Certain types of businesses will also be more likely to require specific licenses and permits, such as food service businesses, childcare centers and health care businesses.
4. Get certified as a minority-owned business.
Thus far, the steps we’ve discussed for learning how to start a minority-owned business aren’t all that different from starting any type of business. With this next step, however, the process will change a bit. Once you’ve obtained the required general business licenses and permits, you’ll want to consider getting a minority-owned business certification.
Although this certification isn’t required for you to start your business, it can be extremely helpful as you get set up, as well as provide opportunities for your business down the road. A minority-owned certification business can help you qualify for some government benefits, gain access to minority business grants, apply for and receive government contracts and help you become a supplier for large companies.
There are several government agencies at the local, state or federal level that offer this certification. Here are a few options you might consider:
Getting a minority-owned business certification
NMSDC (National Minority Supplier Development Council): This organization has a national office, affiliate regional councils around the nation and offers training and loan programs for small businesses. If your business wants to connect with private-sector buyers, you’ll want to look into completing the NMSDC application process to become a minority-owned certified business, in this case, called an “MBE.” To qualify, your business should be at least 51% owned and operated by an entrepreneur from a minority background.
Small Business Administration’s 8(a) Business Development Program: The SBA’s 8(a) program is designed to help minority-owned businesses compete better for federal government contracts. To comply with this program, federal government agencies need to set aside a portion of their contracts for 8(a) applicants. This being said, to be eligible for this program, the SBA must certify your company as a minority-owned business — in this case, meaning your business is at least 51% owned by an individual who is either socially or economically disadvantaged.
Department of Transportation (DOT) Disadvantaged Business Certification Program: This program requires that departments that receive funding from the DOT set aside at least 10% of their budget for contacts to minority-owned businesses. These individual programs, called Disadvantaged Business Enterprise or DBE programs, vary based on your state, so you’ll need to consult your state’s DOT website for more information. Based on your state’s requirements, however, you can apply for minority-owned business certification and be listed as DBE in the corresponding state directory.
On top of these three options, you might also consult your local state or city business agency to see if they have additional avenues available for you to get a minority-owned business certification.
5. Find financing for your business.
Once you’ve taken the steps to get certified as a minority-owned business, the next thing you’ll want to do is find business financing. There are a variety of ways you can fund your business — from traditional debt-based financing, to equity financing, to more creative methods, like crowdfunding or working with friends and family.
Within these different financing avenues, you might first and foremost consider the options that are specifically available to your minority-owned business. Although there isn’t a particular lender you can go to that exclusively offers minority business loans, there are federal, state, local and private loan programs tailored to address some of the challenges that minority small business owners often face. Here are some options you might consider:
Small Business Administration Community Advantage Loans: The SBA Community Advantage loan program works specifically to meet the financial needs of small businesses in underserved markets. The program encourages local, community lenders such as nonprofit organizations to make loans of up to $250,000 by guaranteeing up to 85% of the loan amount. The program is designed to service small business owners who might not qualify for traditional financing.
Microloans: International microloan organization Accion has a U.S. microlending program targeting low- to moderate-income business owners who have difficulty accessing capital through traditional channels. Although they’re not minority-specific, Accion’s U.S. member organizations offer microloans in all 50 states.
Online Alternative Lenders: Unfortunately, minority entrepreneurs often have trouble accessing financing due to credit inequality. If you’re in this position, you might look to an online, alternative lender to find financing. These lenders often place less emphasis on credit and more on business revenues.
Union Bank: If you’re running a minority-owned business in California, Georgia, Illinois, New York, Oregon, Texas or Washington, then Union Bank’s small business loan program could be a perfect fit for your financing needs. As long as your annual revenues don’t exceed $20 million and you’ve been in business for at least two years, then you could be eligible for a minority business loan through this program. They’re willing to lend up to $2.5 million to businesses with an owner of at least 51% that qualifies as a minority (as defined by their standards, which they detail on their website).
Business Center for New Americans: Another top option for minority-owned businesses in need of funding, the Business Center for New Americans provides microloans of $500 to $50,000 with repayment terms of six months to three years. Loans of $500 to $9,999 will have fixed rates of 8.25% and loans of $10,000 to $50,000 will have fixed rates of 10%.
Business Consortium Fund: Minority-owned businesses searching for working capital loans or lines of credit might consider the Business Consortium Fund. They offer funding of $75,000 to $500,000 with repayment terms of up to seven years. To be eligible, you’ll need to be an NMSDC certified minority-owned business.
Unshackled Ventures: First-generation immigrant entrepreneurs looking for venture capital should look into Unshackled Ventures. This venture capital firm invests specifically in immigrant-owned businesses with the potential to earn high returns.
Ultimately, it will be up to you to decide what type of financing is best for your minority-owned business. Once you’ve applied for and received the financing you need, however, you’ll be on your way to successfully running and managing your business.
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How to start a minority woman-owned business
At this point, we’ve gone through the five essential steps you need to know to start a minority-owned business. If, however, you’re wondering more specifically about how to start a minority woman-owned business, you can consult the following:
Ultimately, learning how to start a woman-owned minority business isn’t all that different from starting any other kind of business. Overall, you would be able to follow the steps we’ve outlined:
Choose a business idea.
Write a business plan.
Register your business.
Get certified as a minority-owned business.
With step four, however, there are other certifications you might want to consider. In addition to getting certified as a minority-owned business—which typically means your business is owned by an individual who is at least 25% Asian-Indian, Asian-Pacific, Black, Hispanic or Native American—you can get certified as a woman-owned business as well.
Certifications for minority woman-owned businesses
Like the minority-owned business certification options we discussed above, getting certified as a woman-owned minority business can give you access to unique employment, training, development, funding and other business opportunities.
SBA Women-Owned Small Business (WOSB) Program Certification: This SBA program certified women-owned businesses to allow them to compete for set aside government contracts, as well as access resources tailed to running a women-owned business. In this way, the WOSB certification is similar to the SBA 8(a) program certification. Additionally, under this program, you can also become certified as an EDWOSB or economically disadvantaged women-owned small business, if you meet the eligibility criteria.
Women’s Business Enterprise National Council (WBENC) Certification: Like the NMSDC certification for minority-owned businesses, the WBENC certification helps women-owned businesses gain opportunities from WBENC corporate members and government agencies. To qualify for this certification, your business must be 51% owned, controlled, operated and managed by a woman or women.
Resources for starting and managing your minority-owned business
There are a variety of resources available for minority entrepreneurs who are looking to get their businesses up and running. If you need help during your startup process, you might consult some of these business resources:
U.S. Small Business Administration (SBA): As we’ve already discussed throughout this guide, the SBA is the perfect starting place for any business, with resources for writing a business plan, educational tools, and information on government contracting, SBA loans and grants — some of which are specifically tailored to minority businesses.
National Minority Business Council: An organization developed specifically for minority business owners called the National Minority Business Council offers programs like their Entrepreneurial Bootcamp and their Executive Management Program to provide education and growth opportunities to minority business owners.
Minority Business Development Agency: An agency within the U.S. Department of Commerce, the Minority Business Development Agency, helps connect minority-owned businesses with the “capital, contracts and markets” they need to succeed. You can find an MBDA business center near you to gain access to their services.
Black Founders: If you’re a Black entrepreneur working in the tech industry, then you’ll want to check out Black Founders. They offer programs that connect Black tech entrepreneurs to educational resources, networking opportunities, and funding sources.
Change Catalyst: Another organization that provides support to minority entrepreneurs is Change Catalyst. Of particular interest to minority business owners looking to get their business up and running is their Startup Fellows Program. Through this program, Change Catalyst works with entrepreneurs from underrepresented demographics and ushers their businesses toward success through education and funding.
U.S. Minority Chamber of Commerce: Did you know there was a U.S. Chamber of Commerce specifically for minority entrepreneurs? The United States Minority Chamber of Commerce offers programs like their Advanced Entrepreneurship Training Center and their Global Entrepreneurs Virtual Centers. Additionally, in most cities, there are national and local U.S. Chamber of Commerce chapters for Black, Asian and Hispanic entrepreneurs. These are advocacy groups that champion favorable legislation for entrepreneurs, but they also offer growth resources and networking opportunities.
SCORE: A resource partner of the SBA, SCORE can help entrepreneurs at any stage of business ownership. This small business association is composed of a volunteer network of over 10,000 business mentors in 300 chapters nationwide. These individuals can serve as advisors, coaches, or mentors in your industry and can provide invaluable help when you’re first starting out.
U.S. Department of the Interior Native American Business Development: The U.S. Department of the Interior Office of Indian Affairs has a Native American Business Development program. This program offers technical assistance to Native American entrepreneurs in starting businesses and accessing government and private procurement opportunities.
DigitalUndivided: The startup incubator DigitalUndivided is devoted to guiding Black and Latina women founders through the startup pipeline to success. They’ve built over 52 companies and raised over $25 million in investments for those companies.
Minority-owned business statistics
Throughout this guide on how to set up a minority-owned business, we’ve touched on some of the statistics that exist surrounding the growth (and challenges) of minority businesses in the U.S. For greater insight on these topics and how they might apply to your business, you can take a look at the small business statistics below.
1. There are 8 million minority-owned businesses in the U.S.
According to the SBA, there are 8 million minority-owned businesses in the United States. This means that minority-owned businesses comprise just 29% of all businesses in the U.S.
2. Minority-owned businesses contribute $1.38 trillion in revenue and 7.2 million jobs to the economy.
Additionally, the SBA has found that minority-owned businesses contribute $1.38 trillion in revenue and 7.2 million jobs on a yearly basis. This being said, the SBA adds that all minority businesses have sales and employment disparity ratios under 100%. Essentially, this means that minority-owned businesses make up a larger percentage of businesses than they do of sales and employment in the U.S.
3. Only 11% of minority-owned businesses have paid employees.
According to the MDBA, only 11% of minority-owned businesses have paid employees. If you compare this number to 22% for non-minority businesses that have paid employees, you can understand the further disparity that this statistic reveals.
4. The combined total revenues of minority-owned businesses grew 35% over 5 years.
The MDBA also found that over five years, the combined gross revenues of minority-owned businesses grew 35%. This growth in revenues can mostly be attributed to a growth in the total of minority-owned businesses in operation.
5. Over those same five years, the average revenue per minority-owned business decreased by 2%.
The MDBA also found that, over those same five years, the average revenue per minority-owned business dropped by 2%. So, although the number of minority-owned businesses grew — and, as a result, the total sales — the average amount of sales made by each one of these minority-owned businesses dropped.
6. During the Great Recession, a net 2 million minority-owned businesses opened.
According to numbers from the SBA, a net 2 million minority-owned businesses open through the five years of the recession. Meanwhile, a net 1 million non-minority-owned businesses closed over the same five years.
7. In a Census survey, 30% of BIPOC reported that they felt discouraged from seeking a loan.
According to the results of a Census survey reported by the SBA, 30% of BIPOC felt discouraged from seeking a loan. In comparison, only 16% of white people felt discouraged from seeking a loan.
The bottom line
For the most part, learning how to start a minority-owned business, or a woman-owned minority business, is largely the same as starting any business. However, it’s important to consider the different certifications you can get for your minority-owned business and how these may be able to offer you new and unique opportunities.
Plus, despite some of the disparities that still exist for minority entrepreneurs, there are a variety of resources available for those looking to access education, networking and business financing. Along these lines, you’ll want to be sure to check out your local options. Many community-based organizations offer grants, alliances and clubs that help foster success in minority-owned small businesses.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.