UW News

May 10, 2007

Washington’s minority businesses guardedly optimistic despite hurdles

Competition from big businesses, unmet financing needs and weak sales forecasts are the most pressing concerns shared by Washington state’s minority small-business owners, according to researchers at the University of Washington. They found that minority business owners in the state are, much like entrepreneurs across the country, confident about their abilities to succeed despite the fact that fewer than one-third of them feel the state’s business climate is supportive.


University of Washington Business School Professors William Bradford, Vandra Huber and Richard Yalch, co-authors of the Washington Minority Small Business Survey, asked 376 randomly selected minority small-business owners from across the state to describe their confidence levels and expectations about future industry trends.


Minority-owned businesses are defined as companies in which majority ownership is Asian, black or Hispanic. Of those surveyed, 155 were Asian, 114 were Hispanic and 107 were black. All of the companies had fewer than 250 employees and 80 percent have fewer than five full-time employees. About 16 percent were sole proprietorships, employing only the owner. Owners from multiple service sectors, including construction, government, finance, retail and transportation, participated in the survey.


Their overall confidence level, a measure of how favorably they viewed the future, was 56 on a 100-point scale. The higher the score, the more favorable the outlook. This index reflects the owners’ responses to questions about the future prospects of their business. A flat or neutral outlook would be 50.


“Entrepreneurs everywhere tend to see the glass half-full rather than half-empty and minority small-business owners in Washington are no exception,” said Huber, a professor of human resources management. “While more than 50 percent of minority small-business owners said that sales and profits were poor or just ok during the last quarter of 2006, 60 percent were confident that business prospects in upcoming months would be good. This optimism keeps Washington’s minority entrepreneurs going, even when business performance falls short of expectations.”


The researchers said that because the number of minority businesses in the state is growing faster than non-minority-owned businesses, it is important to understand what helps or hinders their success. According to the U.S. Department of Commerce, minority-owned businesses have grown three times faster than other businesses in the last decade.


Bradford, a professor of finance and business economics, added that minority owners will employ an increasing share of Washington’s workforce and provide a growing share of business tax revenues to support public expenditures. He said that nationally, small businesses report that competition with bigger businesses is only the fifth-largest financial hurdle they face (after taxes, insurance costs, employee costs and weak sales), while minority-owned businesses in Washington report that competition with bigger businesses is their top challenge. Conversely, in Washington taxes — including concerns about the business and occupation tax — ranked only fourth.


“The threat of competition from large businesses is particularly felt by minority firms that seek government contracts,” Bradford said. “Minority businesses have lost government contracts to large businesses since the passage of I-200 in Washington state. Initiative 200 outlawed affirmative action in government contracting and we’re seeing the repercussions of it.”


According to the survey, the ability to obtain credit is a major sticking point for Washington’s minority business owners. Bradford added that this could be because the business is not credit-ready or because bias exists in lenders’ credit decisions.


“Academic studies using national data have found evidence of lending bias against minorities in general and African-Americans and Hispanics in particular. Clearly, more research is needed to understand what’s going on in Washington state and what needs to be done in the future to keep minority business growing.”


The survey also found that:


  • Compared to small businesses nationally, more than three times as many minority businesses in the state report credit needs are not satisfied.
  • 17 percent of minority-owned businesses in Washington said they could not secure financing vs. just 5 percent nationwide.
  • Black-owned businesses reported the highest proportion of credit needs not being achieved at 24.5 percent.
  • Asian- and Hispanic-owned businesses reported about the same in proportion of credit needs not satisfied at 13.2 percent and 15.2 percent, respectively.


The Washington Minority Small Business Survey was partially funded with a grant from the UW’s Diversity Research Institute, the Office of Minority Affairs and Diversity and a grant from the Business School. The researchers will survey minority and women-owned businesses this fall.


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For more information, contact Bradford at (206) 543-4559 or cell (206) 585-5077 or bradford@u.washington.edu; Huber at (206) 543-5365 or cell (425) 890-8751 or vandra@u.washington.edu.  A complete copy of the report can be found at http://bschool.washington.edu/bedc/msbs-may07.pdf