CHARACTERISTICS OF MINORITY 

BUSINESSES AND ENTREPRENEURS 

AN ANALYSIS OF THE 2002 SURVEY OF BUSINESS OWNERS 

 

MINORITY BUSINESS DEVELOPMENT AGENCY 

RONALD N. LANGSTON, NATIONAL DIRECTOR 

MARCH 2008 
2 
3 

TABLE OF CONTENTS 

Preface................................................................................................................................. 5 

Executive Summary............................................................................................................ 7 

Introduction....................................................................................................................... 11 

Data and Methodology...................................................................................................... 17 

Business Characteristics.................................................................................................... 20 

Employer Firms ........................................................................................................ 20 

Employee Productivity .............................................................................................. 22 

Sources of Capital to Start or Acquire Business....................................................... 23 

Sources of Capital Used for Expansion or Capital Improvements........................... 30 

Business Ownership and Structure: Home-Based, One Owner, and Franchised .... 37 

Customer Categories ................................................................................................ 42 

Owner’s Education ................................................................................................... 51 

Owner’s Age.............................................................................................................. 53 

Conclusion ........................................................................................................................ 54 

Acknowledgements........................................................................................................... 56 

References......................................................................................................................... 57 

Appendix: Glossary of Terms........................................................................................... 59 

Appendix: Additional Tables............................................................................................ 60 
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5 

PREFACE 

Minority business enterprises are an engine of employment growth and economic expansion in 

America. As minority businesses grow in size, scale, and capacity, so does the American 

economy. 

Although the number of minority firms continued to increase at a fast rate between 1997 and 

2002, and it is at a historic height of 4 million firms, their growth rate in gross receipts has 

lagged behind their growth in number of firms. Minorities also have yet to achieve 

entrepreneurial parity in relation to their proportional share of the U.S. population. 

This report, Characteristics of Businesses and Entrepreneurs, analyzes minority businesses to 

identify trends that may have impacted their performance in 2002. 

The report uncovers a positive trend in the growth of average gross receipts for minority firms 

with employees. It also reveals that minority firms are more likely to export compared to nonminority businesses. These trends support the premise that minority firms are uniquely 

positioned to compete in the global economy, due in part to language capabilities and 

understanding of other cultures by many minority entrepreneurs. 

The report also examines some of the challenges minorities may be facing in growing their 

businesses, such as adequate capital to start and expand the business, entrepreneurial experience 

and educational attainment. It also highlights that minority firms are less likely to sell goods and 

services to businesses and organizations. This is an opportunity for growth for minority 

entrepreneurs. 

With a fast growing minority population that will approach 50 percent of the Nation’s population 

by 2050 and a highly competitive global market, America’s competitiveness will increasingly 

depend on the innovation and strength of minority business enterprises. 

The Minority Business Development Agency remains committed to working with public and 

private sector partners to strengthen programs that effectively support the expansion and growth 

of minority owned businesses. America’s full economic potential and global competitiveness 

demand no less. 

Ronald N. Langston 

National Director 

Minority Business Development Agency 
6 
7 

EXECUTIVE SUMMARY 

In this second review of the Census’s 2002 Survey of Business Owners (SBO), we analyzed the 

characteristics of minority-owned businesses and those that influence business survival to try to 

find factors that may have contributed to the business performance of minority-owned businesses 

in 2002. To accomplish this, we analyzed the data from the Census’s SBO Company Summary, 

Characteristics of Businesses, and Characteristics of Business Owners, among other sources. 

Some key findings include: 

Average Gross Receipts of Minority Employer Firms Increased 1

• Average gross receipts of minority employer firms increased by 5.4 percent, from 

$840,000 in 1997 to $886,000 in 2002, unlike all minority firms. All minority firms had 

declining average gross receipts during the same period. 

Capital Costs to Start, Acquire, Expand, or Finance Capital Improvements of Firm 

• A greater proportion of minority respondent firms (9.8%) used credit cards to start or 

acquire their business compared to non-minority respondent firms (8.8%). 

• A lesser proportion of minority respondent firms used bank loans to start or acquire the 

business (7.2%) or to expand or finance capital improvements of the firm (5.7%) 

compared to non-minority firms (12% and 9.7%, respectively). 

• A lower proportion of larger minority respondent firms (gross receipts of $500,000 or 

more) used bank loans to start or acquire the business (23.3%), or to expand or finance 

capital improvements of the firm (24.7%) compared to larger non-minority respondent 

firms of the same size (29.2% and 30.2%, respectively). 

• Excluding firms owned by Native Hawaiian and Other Pacific Islanders, a greater 

proportion of larger minority firms (gross receipts of $500,000 or more) used bank loans 

to start, acquire, expand, and finance the capital improvement of the firm compared to 

smaller minority respondent firms (receipts under $500,000). 2 For example, 25 percent 

of larger African American firms used bank loans to start or acquire the business 

compared to 5.2 percent of smaller African American firms. 

• A large proportion of minority firms in retail trade and information3

 used credit cards to 

start or acquire the firm (14% in retail and 12% in information), and for the expansion or 

capital improvement of the firm (14.8% and 14.3%, respectively). These industries also 

 

1

 All differences on this page are statistically significant at a 90% confidence level, unless noted differently. 2

 These differences are statistically significant at a 90% confidence level excluding statistics for Native Hawaiians 

and Other Pacific Islanders. 

3

 The information industry includes firms in publishing, motion picture and sound recording, broadcasting, Internet 

publishing and broadcasting, telecommunications, Internet service providers, web search portal, and data processing 

services. 
8 

exhibited relatively low survival rates. A lower proportion of minority firms in industries 

with higher survival rates such as health care and social assistance used credit cards to 

start/acquire the firm (6.8%), and for the expansion/capital improvements of the firm 

(8.5%, excluding data for Native Hawaiian and Other Pacific Islanders)4

 compared to 

those in retail trade and information. 

Likewise, a larger proportion of non minority-owned firms in retail trade (12.7%) and 

information (10.7%) used credit cards to start/acquire the business and for the 

expansion/capital improvements of the firm (15%, retail trade and 14.6%, information), 

compared to non-minority firms in health care and social assistance (7% to start/acquire, 

10.3% for expansion/capital improvements). 

Greater Incidence of Single Ownership when Family-Owned 5

• Among family-owned firms, a greater proportion of minority firms operating in 2002 

were owned by only one individual (70.7%) compared to non-minority firms (64.4%) 

operating in the same year. 

• A greater proportion of larger minority, family-owned firms (receipts of $500,000 or 

more) were owned by only one individual (49.3%) compared to non-minority, familyowned firms of the same size (41.74%). 

• A smaller proportion of larger, family-owned minority firms (receipts of $500,000 or 

more) had only one owner (49.3%) compared to smaller, family-owned minority firms 

with receipts under $500,000 (71.9%). 

Less Home-Based and More Franchised 

• Minority respondent firms were less likely to operate from the home (42.5%) compared 

to non-minority respondent firms (51.9).6

• Minority respondent firms were more likely to operate as franchises (2.7%) compared to 

non-minority respondent firms (1.8%). 

More Exporters and Fewer Businesses Selling to Other Businesses 

• Minority respondent firms were more likely to generate 10 percent of their sales through 

exports (2.5% of firms) compared to non-minority firms (1.2%). 

 

4

 A statistical test conducted at a 90% confidence level found that minority firms in other industries, such as 

wholesale trade, may have similar rates of credit card usage as those in information and retail trade. 5

 The two 2002 survey forms provided slightly different response options to the question about family ownership. 

The difference in response wording may have caused different interpretations by respondents. Therefore, firms that 

reported being family-owned and also as having only one owner were counted in both categories; they were not 

reclassified as nonfamily-owned businesses. All remaining differences on this and the following page are 

statistically significant at a 90% confidence level. 

6

 A statistical significance test for some of these differences could not be performed because standard errors were 

not available. 
9 

• Minority respondent firms were less likely to generate 10 percent of their receipts 

through sales to businesses (22.6%) compared to non-minority firms (33.9%). 

• Larger minority respondent firms (receipts of $500,000 or more) were less likely to 

generate 10 percent of their receipts through sales to businesses (34.2% of firms) 

compared to lager non-minority firms of the same size (46.7%). 

Implications 

The key findings reviewed in this paper point to characteristics that may have contributed to the 

survival and growth in receipts of minority firms. A study by Brian Headd7 indicates that firms 

with employees, better financing, multiple ownership, and a variety of customers enjoy higher 

rates of survival compared to those which do not have these characteristics, among other factors. 

 

Minority entrepreneurs were more likely to use more expensive sources of capital, such as credit 

cards, and less likely to use lower-cost capital, such as bank loans to start or acquire a business 

compared to non-minority entrepreneurs. Minorities were also less likely to use bank loans to 

finance the expansion or capital improvement of the business compared to non-minorities. The 

higher cost of capital placed an additional burden on minority entrepreneurs who were trying to 

grow their businesses. 

In addition, businesses with multiple owners can tap into the experience and resources of other 

business partners, unlike businesses with only one owner. Among family-owned businesses, 

minority firms were more likely to be owned by one person compared to non-minority firms. 

The absence of additional resources and experience offered by other partners could have 

curtailed the performance of some minority family-owned businesses. 

On the other hand, average gross receipts of minority employer firms increased between 1997 

and 2002, while those of all minority firms decreased during the same period. Employer firms 

are defined as firms with payroll. 

Because employer firms have a higher rate of business survival, employer firms operating in 

2002 had the time to grow in gross receipts over the years. However, further research is 

necessary to find why minority firms had lower employee productivity rates8

 compared to nonminorities in 2002. The firms’ industry, lifecycle stage, and management capabilities among 

many other factors can impact employee productivity. 

Minority respondent firms were less likely to have businesses and other organizations among 

their customer base compared to non-minority firms. It is essential to step up business 

development and business-to-business brokering services, such as those provided by MBDA, to 

increase the opportunities for minority firms to contracts with the private sector. 

 

7

 Brian Headd, “Redefining Business Success: Distinguishing Between Closure and Failure,” Small Business 

Economics 21 (2003): 51-61. 8

 Employee productivity was measured as the average gross receipts of employer firms per paid employee. 
10 

Minority firms were more likely to export compared to non-minority respondent firms. The 

finding supports the concept that minority firms have a unique competitive advantage and 

opportunity based on cultural and family ties, among other factors, to engage in international 

trade. Minority businesses can play a vital role in reversing the national trade imbalance.

Finally, minority firms were less likely to be home-based and more likely to operate franchised 

businesses compared to non-minorities. Franchised businesses may offer essential management 

and marketing assistance that can support the growth of the firm. 

Further research is necessary to confirm and suggest possible explanations for the correlation 

between the higher cost of capital to start, acquire, expand or finance the capital expansion of the 

business and the firm’s performance. 

With a fast growing minority population and relatively high unemployment rates among some 

minority groups, the strategic growth of minority businesses may be an essential element to 

strengthening local and regional economies nationally. 
11 

INTRODUCTION 

“The success or failure of minority-owned businesses will increasingly drive the success or 

failure of the overall U.S. economy,”9

In 2006, the Minority Business Development Agency (MBDA) produced the first analysis of the 

initial release of the U.S. Census Bureau’s 2002 Survey of Business Owners (SBO) entitled, The 

State of Minority Businesses.10 In that analysis, we concluded that minority-owned businesses 

continued to thrive in number of firms, growth receipts, and paid employment between 1997 and 

2002; however their growth in gross receipts lagged behind the growth in number of firms. 

Between 1997 and 2002, the number of minority firms grew by 30 percent, surpassing the 

growth rate in number of all U.S. firms and of the minority population during the same period. 

Despite the tremendous growth rate, average gross receipts of minority firms declined by 14 

percent between 1997 and 2002, compared to a decline of 2 percent for non-minority firms 

during the same period.11 The decrease in average gross receipts was possibly led by a greater 

growth of minority firms with receipts under $500,000 (36% growth) compared to those with 

receipts of $500,000 or more (15% growth), unlike in previous five-year periods, among other 

factors.12 

Moreover, minority businesses continued to have less overall receipts compared to non-minorityowned firms. In 2002, average gross receipts of minority firms were about $167,000, while 

those of non-minority firms surpassed $438,000.13 

The five-year period between 1997 and 2002 saw enormous economic growth, particularly in the 

information technology sector, which ended with the dot.com bust in 2001. Many companies 

were acquired or became publicly held through initial public offerings between 1997 and 2001; 

however, others were challenged to survive past 2001. These economic factors could have 

influenced the performance of minority and non-minority firms during this period. 

Economic factors aside, the subsequent release of the Census 2002 SBO reports, Characteristics 

of Businesses and Characteristics of Business Owners, provides us with an opportunity to 

analyze data and identify trends that may have influenced the success of minority and nonminority businesses in 2002. Some of these characteristics will be analyzed in view of factors 

that may influence a business survival rate, and therefore success. It is also important to 

understand that the life cycle of a minority firm could determine the firm’s performance. 

 

9

 Andrew B Bernard and Matthew J. Slaughter, The Life Cycle of a Minority-Owned Business: Implications for the 

American Economy. Prepared in collaboration with the Minority Business Development Agency. (2004). 

10 U.S. Department of Commerce, Minority Business Development Agency, The State of Minority Business 

Enterprises, An Overview of the 2002 Survey of Business Owners, Number of Firms, Gross Receipts, and Paid 

Employees (2006). 11 Data based on MBDA’s analysis of a U.S. Census Bureau’s special tabulation of minority-owned firms operating 

in 2002 released in 2007 and the 1997 Survey of Minority-Owned Business Enterprises (SMOBE). 12 U.S. Department of Commerce, Minority Business Development Agency, The State of Minority Business 

Enterprises. 13 Data based on MBDA’s analysis of a Census’ special tabulation released in 2007. 
12 

Life Cycle of Minority Firms 

Bernard and Slaughter14 introduced the concept of the life cycle of minority firms and proposed 

that its analysis is necessary to address the questions behind the business performance of these 

firms. According to Bernard and Slaughter, the four stages of a firm’s life cycle include birth, 

adolescence, maturity, and death. 

 

Minority firms in their birth stage are “start-up firms.” Generally, a start-up firm generates lower 

gross receipts compared to similar firms, which are in their adolescence or maturity stage. 

A minority firm in its adolescence would still have additional growth potential, while one that 

reaches maturity would be at its peak in growth of receipts and employees. Minority firms in 

their “death stage” would have ceased operations for a variety of reasons, such as bankruptcy, 

acquisition by another company, or the company having gone public. In addition, if the firm is 

acquired by a non-minority owner, it would no longer be counted among the minority firms in 

operation. 

The life cycle stage is critical to all firms and particularly for those with high-growth potential 

because firms that survive, prosper, and grow to scale generate much larger receipts—and jobs—

during their life compared to micro enterprises. 

The life cycle stage and survival rate of businesses that were operating in 1997 should have 

affected the growth of gross receipts generated by these firms and the growth of paid workers 

employed by these firms between 1997 and 2002. However, the 2002 SBO did not track results 

on the life cycle of firms beyond data on the year the business was acquired, which does not 

necessarily represent when it was first launched as a new business. Firms that closed operations 

before 2002, would no longer be included in the 2002 SBO survey but may have been included in 

the 1997 survey. 

The Census did not specify the life cycle phase of the minority firms analyzed in their survey. 

However, we should note that these firms were at all different stages of their life cycle, and their 

performance would have been affected accordingly. 

A longitudinal study of minority and non-minority firms, and these firms’ gross receipts, number 

of employees, and other business characteristics would provide valuable information regarding 

the performance of these firms over their life cycle stages. 

 

14 Bernard and Slaughter, 14-17. 
13 

Survival Rates of Firms 

According to a study by the U.S. Small Business Administration (SBA),15 minority-owned firms 

had lower survival rates compared to non-minority firms. The study included firms that were 

operating in 1997 through 2001 based on a special tabulation from the Census. The survival rate 

for all minority businesses was 69 percent compared to 72.6 percent for all non-minority firms 

during the same period. Of these firms, African American firms had the lowest survival rate at 

61 percent, followed by American Indian and Native Alaskan firms, 67 percent; Hispanic, 68.6 

percent; and Asian and Pacific Islander, 72.1 percent. 

The SBA study found a correlation between the size of the firm and its survival, expansion and 

contraction rates. Between 1997 and 2001, larger firms (with gross receipts of $500,000 or 

more) had higher four-year survival, expansion, and contraction rates, compared to smaller firms 

(with gross receipts of under $500,000) during the same period. The findings revealed that 

larger firms are more dynamic because they undergo higher expansion and contraction rates 

compared to smaller firms. 

The SBA study also analyzed survival rates by industry. Industry survival rates for all U.S. firms 

can be used as a benchmark for minority firms in the same industry. According to the study, the 

rate of survival for all U.S. firms in the manufacturing (74%) and services (72%) industries 

were higher between 1997 and 2001 compared to the survival rates of all U.S. firms in other 

industries. On the other hand, all U.S. firms in the transportation, communication, and 

utilities industries had the lowest survival rate (65% for all three) compared to other industries. 

A separate study by Amy E. Knaup,16 found slightly lower survival rates for establishments that 

started operations in the second quarter of 1998, compared to the SBA’s analysis that analyzed 

firm between 1997 and 2001. Knaup analyzed data from the Bureau of Labor Statistics’ 

Quarterly Census of Employment and Wages program. Bureau of Labor Statistics analysts 

constructed a longitudinal database to track these establishments. According to Knaup’s study, 

66 percent of new establishments were still operating two years after their birth, and 44 percent 

four years after. 

Knaup also analyzed firms by industry. She found that firms in the information industry that 

started operating in 1998 had the lowest survival rates during the two-year and four-year periods 

compared to other industries. Meanwhile, firms in the education and health services industries 

had the highest survival rates in the same period intervals. Firms in natural resources, mining, 

and other services also had slightly higher tendencies of survival. 

 

15. U.S. Small Business Administration, Office of Advocacy. Dynamics of Minority-Owned Employer 

Establishments, 1997-2001, Ying Lowrey, (2005), http://www.sba.gov/advol (accessed in 2007). 16 Amy E. Knaup. “Survival and longevity in the Business Employment Dynamics,” Monthly Labor Review. (May 

2005): 50-56. 
14 

Minority firms have been found to be concentrated in industries with relatively low entry 

barriers. Among these, the services sector requires lower capital investments compared to 

manufacturing and other industries.17 

According to the 2002 SBO data, Minority firms were more highly concentrated in the following 

industry sectors:18 other services19 (17%), health care and social services (14%), professional, 

scientific and technical services (11%), and administrative support, waste management and 

remediation services (10%), and construction (9%). About 2.6 percent of minority firms were in 

manufacturing and only 1 percent in the information industry in 2002. 

Nevertheless, the dot.com bust and mild recession of 2001 disproportionately affected the 

survival of firms in the information industry and may have impacted firms in other industries. 

However, further analysis is necessary to understand the variability of survival rates among other 

industries and by racial and ethnic group. In the next section we will review findings from some 

scholars who have identified factors that affect business survival. 

Characteristics of Businesses with High Survival Rates 

A study conducted by Brian Headd20 examined the survival rates of firms and characteristics of 

successful and unsuccessful business closures. Headd analyzed data from the Census’s Business 

Information Tracking Series, which followed employer firms from 1989 through 1996, and the 

previously released Characteristics of Business Owners report for firms that started operations 

between 1989 and 1992 and closed between 1992 and 1996. 

According to Headd’s study, about half of new employer firms survived more than four years, 

and a third of closed businesses were successful at closure. Success at closure was defined by 

the owners and involved executing a planned exit strategy, such as selling a viable business, 

closing a business without excess debt, or retiring from the work force. 

Headd also found that larger, better financed firms with employees and start-up capital of 

$50,000 or more had a greater rate of survival compared to firms that did not have these 

characteristics. In addition, employer firms with start-up capital of $50,000 or more had a 

greater likelihood of closing operations successfully, such as through mergers and acquisitions. 

Although Headd’s study contradicts the results found by SBA regarding firms in the services 

industry and their likelihood of survival, the difference in results may stem from the fact that the 

two reports studied firms during different time periods, and firms included in the services 

industry sector may have been defined differently by each author. 

 

17 U.S. Department of Commerce, Economics and Statistics Administration and the Minority Business Development 

Agency, Keys to Minority Entrepreneurial Success: Capital, Education, and Technology, Patricia Buckley, (2002), 

5-7. 

18 Industry sectors included in the Census 2002 Survey of Business Owners (SBO) are based on the North American 

Industry Classification System (NAICS). 

19 Other services includes firms not provided for elsewhere in the NAICS classification system that are engaged in 

activities such as equipment and machinery repairing, promoting religious activities, grant-making, advocacy, 

providing dry-cleaning and laundry services, personal care services, and dating services 20 Headd, 51-61. 
15 

Some of the factors Headd found that influenced business survival are included in the following 

table. (Table 1) 

Table 1: Characteristics of Business Survival and Closure 

More Likely to Survive More Likely to Close 

• Employer firms 

• Start-up capital of $50,000+ 

• Owner with college degree 

• Owner previously owned a 

business

• Started a business for personal 

reasons (“gives the owner increased 

motivation to keep a business 

going.”)

• Had multiple owners

• Home-based at start-up (costs are 

kept low) 

• Firms in manufacturing 

• No start-up capital 

• Owner’s age under 35 (owner may 

have other opportunities) 

• Firms in urban/suburban areas 

• Firms in the services industry 

• Firms in retail trade 

Headd found that not all business closures were failures. Of the firms that started operations 

between 1989 and 2002, and closed between 1992 and 2002, about 29 percent were successful at 

closure. These businesses had the following characteristics. (Table 2) 

Table 2: Characteristics of Successful Business Closures 

More Likely To Be Successful at Closure Less Likely To Be Successful at Closure 

• Start-up capital of zero or 

$50,000+ 

• Female owners 

• Owner previously owned a 

business

• Owner’s age under 35 

• Firms in the services industry

• Start-up capital under $50,000, but 

not zero 

• Owner with high school diploma or 

less education 

• Started a business for personal 

reasons (when it fails, less likely to be 

successful at closure) 

• Firms in retail trade 

Besides the characteristics of businesses discussed before, Leonard Greenhalgh, Professor of 

Management, Tuck School of Business at Dartmouth College, has found a pattern of weaknesses 

typical among minority-owned businesses. Greenhalgh’s analysis is based on his clinical work 

with minority-owned businesses. Poor cash flow management and narrow portfolio of 

products, services, and customers are common weaknesses exhibited by minority-owned 
16 

businesses.21 Other factors present in minority firms included lack of strategic direction, 

ineffective empowerment of employees, underutilized control systems, inefficient processes, 

ineffective organizational structure, and inattention to customer service. The following table lists 

Greenhalgh’s findings. (Table 3) 

Table 3: Weaknesses of Minority Businesses 

Weaknesses of Minority Businesses 

• Poor cash flow management 

• Narrow portfolio of products, services and customers 

• Lack of strategic direction 

• Control systems underutilized 

• Inefficient processes 

• Organizational structure as an impediment 

• Not empowering employees effectively 

• Not customer-oriented 

Greenhalgh’s findings are consistent with anecdotal information from MBDA’s service delivery 

programs to minority busineses and a paper by the Economics Statistics Administration and 

MBDA, which identified the three keys to entrepreneurial success for minority business 

enterprises: access to capital, education and technology.22 As discussed before, capital and 

education are factors that influence business survival. 

The life cycle stage of firms and their business characteristics are important because they can 

affect a firm’s performance and survival. It is outside the scope of this publication to analyze all 

the studies and characteristics that influence business success and closure or to determine the life 

cycle of the firms measured in the 2002 Survey of Business Owners (SBO). However, through 

the analysis of data from the SBO Company Summary, Characteristics of Businesses and 

Characteristics of Business Owners, we will try to identify factors that could have contributed to 

the success and performance of minority businesses in 2002. 

 

21 Leonard Greenhalgh, lectures from the Tuck Executive Program at Dartmouth held in partnership with MBDA, 

(2003-2007). 

22 U.S. Department of Commerce, Economics and Statistics Administration and the Minority Business Development 

Agency. Keys to Minority Entrepreneurial Success: Capital, Education, and Technology, 2. 
17 

DATA AND METHODOLOGY 

In this report, MBDA analyzed business measures for firms with employees from the U.S. 

Census Bureau’s 2002 Survey of Business Owners’ (SBO) Company Summary, 1997 Survey of 

Minority Owned Business Enterprises, and a Census’ 2007 special tabulation for minority firms 

in 2002. 

In addition, we also analyzed data from the 2002 SBO’s reports: Characteristics of Businesses 

and Characteristics of Business Owners. The reports include data on businesses that were 

operating in 2002. We analyzed statistics from these reports on the following variables: 

• sources of capital to start a business and acquire the business; 

• sources of capital to expand the firm and finance capital improvements; 

• home-based, franchised, family-owned firms, and owned by one owner; 

• customer categories of firms; and 

• education and age of sole proprietors 

The 2002 Survey of Business Owners (SB0) includes results from a survey conducted by mail to 

a random sample of 2.3 million businesses selected from a list of all firms operating during 2002 

with receipts of $1,000 or more. 

According to the Census, the list of firms was compiled from a combination of tax returns and 

other data. The survey excluded firms classified in a few industries, such as crop and animal 

production; scheduled air transportation; rail transportation; postal service; funds; trusts; public 

administration; and religious, grant-making, civic, and professional organizations. 

The Census mailed one of two separate surveys to the list of firms, one to partnerships and 

corporations and a second to sole proprietors and self-employed individuals. About 81 percent of 

the 2.3 million firms in the sample responded to the survey. For the remaining non-respondents, 

some data were imputed by the Census from donor respondents with similar characteristics. 

Minority-Owned Firms 

The source for 1997 data on minority-owned firms is the Census’s 1997 Survey of MinorityOwned Business Enterprises (SMOBE), which included totals for business measures of minorityowned businesses. 

The source for 2002 data on minority firms, when specified, is a 2007 special tabulation prepared 

by the Census at the request of MBDA. Otherwise, business measures for minority firms were 

estimated by adding up measures for all five minority groups included in the Census’s 2002

SBO: African Americans, American Indian and Alaska Natives, Asians, Hispanics, and Native 

Hawaiian and Pacific Islanders. 

The above mentioned methodology was used because the 2002 SBO did not include data for all 

minority firms. In this case, the total number of minority firms is slightly overrepresented 

because businesses that are owned by Hispanic or Latinos may be of any race. In addition, in 
18 

accordance with the Office of Management and Budget guidelines, each owner in 2002 had the 

option of selecting more than one race; so, therefore, businesses could be tabulated in more than 

one racial group. Owners that reported more than one race may be counted more than once in 

the report. 

Comparisons between 1997 and 2002 estimates for minority-owned should be interpreted with 

caution. Minority-owned data include estimates for American Indian and Alaska Native-owned 

firms. However, new questions in the 2002 SBO survey allowed for the exclusion of triballyowned firms that may have been included in the 1997 estimates. 

The methodology employed in the analysis of data from the Characteristics of Businesses and 

Characteristics of Businesses is similar to the methodology stated above. In this case, MBDA 

converted percentages from all minority groups represented in the report into absolute numbers. 

Absolute numbers were added up and converted once again into a percentage to demonstrate the 

proportion of minority-owned firms, which had a particular business characteristic as defined by 

the Census report. 

Non-Minority-Owned Firms 

The source for 1997 data on non-minority firms is the Census’s 1997 SMOBE. MBDA 

calculates the number of non-minority-owned firms by deducting from the number of all U.S. 

firms, the number of minority-owned firms and the number of publicly held firms, and other 

firms whose ownership cannot be classified by race or ethnicity. 

When specified, the source for 2002 data on non-minority firms was derived from a 2007 special 

tabulation prepared by the Census at the request of MBDA. The estimate is calculated by 

deducting from the 2002 total number of all U.S. firms, the number of minority firms from the 

special tabulation and the number of publicly held firms, and other firms whose ownership 

cannot be classified by race or ethnicity from the 2002 SBO report. 

Because the 2002 SBO data for all minority firms, all other measures for non-minority firms 

were derived with a different methodology. In this instance, totals for all minority firms were 

calculated by adding up measures for all racial and ethnic groups of firms. Measures for nonminority firms were derived by deducting the estimate of minority firms and publicly held firms. 

Because business measures for minority-owned firms, including the number of firms, may be 

slightly overestimated, business measures for non-minority firms could also be underestimated 

by the same degree. 

A similar methodology was used to calculate the percentages for non-minority firms from the 

2002 Characteristics of Businesses and Characteristics of Business Owners. In this case, 

MBDA converted percentages from the Census report into absolute numbers for all U.S. firms, 

publicly held firms, and all minority groups. Absolute numbers for minority groups were added 

up. The absolute number for publicly held firms, and the new total for minority-owned firms are 

deducted from those of all U.S. firms to calculate the number of non-minority firms with a 

particular characteristic. The absolute number of non-minority firms was converted into a 
19 

percentage to demonstrate the proportion of non-minority firms that had a particular business 

characteristic as defined by the Census report. 

American Indian and Alaska Native 

The 1997 SMOBE survey data on firms owned by American Indian and Alaska Natives is not 

directly comparable to the data from the 2002 SBO survey. MBDA reports this data but makes 

no comparisons between those years because it would not be statistically valid. New questions 

in the 2002 SBO survey may have allowed for the exclusion of tribally owned firms that may 

have been included in the 1997 survey. 

Comparability of 2002 Characteristics of Business and Business Owners and 1992 

Characteristics of Business Owners 

The 2002 Characteristics of Business and Business Owners (CB/CBO) is not directly comparable 

to the previous reports because the methodology employed by the Census changed significantly. 

Prior to the 2002 CB/CBO, the last Characteristics of Business Owners was conducted for 1992. 

For this reason, no comparisons between the 1992 and 2002 reports were made in this analysis. 

Relative Standard Errors 

The relative standard error (RSE) of an estimate is a measure of the reliability or precision of that 

estimate. Relative standard error is defined as the ratio of the standard error to the survey 

estimate. For example, a relative standard error of 10 percent implies that the standard error is 

one-tenth as large as the survey estimate. 

The RSE of an estimate is calculated by dividing the standard error of the estimate [SE(r)] by the 

estimate itself (r). This quantity is expressed as a percent of the estimate. 

The sample estimate and an estimate of its standard error allow us to construct interval estimates 

with prescribed confidence that the interval includes the average result of all possible samples 

with the same size and design. When a RSE is not available for a particular estimate, we cannot 

define with precision the ratio of the standard error of the estimate. 

For additional information on the reliability of individual minority group estimates and their 

relative standard errors, and on the methodology used by the U.S. Census to produce the 2002 

SBO Company Summary, Characteristics of Businesses, Characteristics of Business Owners, and 

1997 SMOBE, please visit the U.S. Census Bureau website at 

http://www.census.gov/csd/sbo/index.html. 
20 

BUSINESS CHARACTERISTICS 

Employer Firms 

In this section, MBDA analyzed the business performance of minority employer firms between 

1997 and 2002 compared to other firms during the same period. As discussed before, MBDA 

derived the data on non-minority firms from the U.S. Census Bureau’s 1997 Survey of MinorityOwned Business Enterprises (SMOBE) and the 2002 Survey of Business Owners (SBO). MBDA 

also derived the data on minority firms from the 2002 SBO, unless specified that a 2007 Census’ 

special tabulation on minority firms in 2002 was used.23 

Minority employer firms exhibited a stronger performance between 1997 and 2002, compared to 

non-minority employer firms. Average gross receipts of minority employer firms increased by 5 

percent, from $840,000 in 1997 to $886,000 in 2002.24 On the other hand, average gross receipts 

of non-minority employer firms stayed at about the same at $1.65 million during the same 

period.25 (Table 5) 

The finding is relevant particularly since average gross receipts for all minority-owned firms and 

for larger minority firms (with gross receipts of $500,000 and more), declined during the same 

period, by 14 percent and 3 percent, respectively.26 Larger minority firms included employer and 

non-employer firms. 

While gross receipts of larger minority firms lagged behind their growth rate in number of firms 

between 1997 and 2002, gross receipts generated by minority employer firms outpaced their 

growth in number of firms during the same period. 

The business performance of minority employer firms supports the findings by Headd, which 

indicated employer firms have higher rates of survival, therefore a longer life cycle, and an 

opportunity to grow in size, compared to non-employer firms. 

Further analysis is necessary to find why average gross receipts of employer firms owned by 

Asians and Native Hawaiian and Other Pacific Islanders decreased between 1997 and 2002, 

unlike other minority employer firms during the same period. 

 

23 For more information, please refer to the data and methodology section. 24 Data based on MBDA’s analysis of U.S. Census Bureau’s special tabulation released in 2007 and the 1997 Survey 

of Minority Owned Business Enterprises. These differences are statistically significant at a 90% confidence level. 25 Ibid. 

26 U.S. Department of Commerce, Minority Business Development Agency, The State of Minority Business 

Enterprises.

Average gross receipts of minority employer firms increased between 1997 and 2002, 

while those of all minority firms decreased. The finding supports Headd’s study 

which indicated employer firms have higher rates of survival, therefore a longer life 

cycle, and an opportunity to grow in size, compared to non-employer firms. 
21 

Table 4: Growth in Number of Firms, and Receipts of Employer Firms, 1997-200227

Table 5: Growth in Average Gross Receipts, and Employees of Employer Firms, 1997-2002 

 

27 2002 Total Minority estimates in Table 4 and 5 were based on a Census’ special tabulation requested by MBDA 

and released in 2007. Percent changes for American Indian and Alaska Natives firms are not represented because 

data from the 1997 Survey of Minority Owned Business Enterprises (SMOBE) and 2002 SBO surveys on these firms 

is not directly comparable. Available relative standard errors from which the reliability of the estimates can be 

determined can be found in Table 4b and 5b in the Appendix section. 

Group Year Number 

of Firms 

Percent 

Change Year Annual Gross Receipts ($1,000s) 

Percent 

Change 

2002 94,518 2002 $65,799,425 African American 

1997 93,235 

1.4% 1997 $56,377,860 16.7% 

American Indian and 2002 24,498 2002 $21,986,696 

Alaska Native 1997 33,277 

Not 

comparable 1997 $29,226,260 

Not 

comparable

2002 319,468 2002 $291,162,771 Asian 

1997 286,976 

11.3% 1997 $274,569,397 6.0% 

2002 199,542 2002 $179,507,959 Hispanic 1997 211,884 

-5.8% 1997 $158,674,537 13.1% 

Native Hawaiian and 2002 3,693 2002 $3,502,157 

Pacific Islander 1997 3,023 

22.2% 1997 $3,724,948 -6.0% 

2002 629,831 2002 $557,774,029 Total Minority 1997 615,222 

2.4% 

1997 $516,979,920 7.9% 

2002 4,542,233 2002 $7,481,478,680 Non-Minority 1997 4,411,988 

3.0% 

1997 $7,286,902,820 

2.7% 

2002 5,524,784 2002 $21,836,249,354 All U.S. Firms 

1997 5,295,151 

4.3% 1997 $17,907,940,321 21.9% 

Group Year Average Gross 

Receipts ($1,000s) 

Percent 

Change Year Employees Percent Change 

2002 $696 2002 753,978 African American 

1997 $605 15.1% 1997 718,341 

5.0% 

American Indian 2002 $897 2002 191,270 

and Alaska Native 1997 $878

Not 

comparable 1997 298,661 

Not 

comparable

2002 $911 2002 2,213,948 Asian 

1997 $957

-4.7% 

1997 2,169,032 

2.1% 

2002 $900 2002 1,536,795 Hispanic 1997 $749

20.1% 

1997 1,388,746 

10.7% 

Native Hawaiian 2002 $948 2002 29,319 

and Pacific 

Islander 1997 $1,232

-23.0% 

1997 34,047 

-13.9% 

2002 $886 2002 4,675,382 Total Minority 1997 $840

5.4% 

1997 4,514,699 

3.6% 

2002 $1,647 2002 50,692,834 Non-Minority 1997 $1,652

-0.3% 

1997 54,386,713 

-6.8% 

2002 $3,952 2002 110,766,605 All U.S. Firms 

1997 $3,382 16.9% 1997 103,359,815 

7.2% 
22 

Employee Productivity 

A firm’s employee productivity provides additional insight regarding the ability it may have to 

continue growing in size and scale. In this section we analyzed employee productivity by all 

groups of employer firms. 

Table 6: Employee Productivity, 1997-200228

Employee productivity was measured as the average gross receipts of employer firms per paid 

employee. Minority employer firms had lower employee productivity, generating about 

$119,000 receipts per employee in 2002, compared to non-minority employer firms, $148,000 

per employee. (Table 6) 

Further research is necessary to find the reasons behind the discrepancy in employee productivity 

between minority and non-minority firms. 

 

28 A statistical significance test could not be performed on these differences. The source of the 2002 Total Minority 

estimates is a 2007 U.S. Census Bureau Special Tabulation requested by MBDA. Percent changes for American 

Indian and Alaska Natives firms are not represented because data from the 1997 SMOBE and 2002 SBO surveys on 

these firms is not directly comparable. 

Group Year

Average Number 

of Employees 

per Firm

Average Receipts 

Per Employee 

($1,000s)

2002 8.0 $87 African American 1997 7.7 $78 

American Indian and 2002 7.8 $115 

Alaska Native 1997 9.0 $98 

2002 6.9 $132 Asian 1997 7.6 $127 

2002 7.7 $117 Hispanic 1997 6.6 $114 

Native Hawaiian and 2002 7.9 $119 

Pacific Islander 1997 11.3 $109 

2002 7.4 $119 Total Minority 1997 7.3 $115 

2002 11.2 $148 Non-Minority 1997 12.3 $134 

2002 20.0 $197 All U.S. Firms 1997 19.5 $173 

In 2002, employee productivity remained lower for minority employer firms compared 

to non-minority employer firms. Further research is necessary to find answers to this 

discrepancy, which may affect the long-term growth of a firm. 
23 

Sources of Capital to Start or Acquire Business 

In this section, we analyzed data from the 2002 SBO Characteristics of Businesses on the sources 

of capital to start or acquire a business by firm size and industry. For the purposes of this report, 

the industry sectors were based on the North American Industry Classification System (NAICS). 

The 2002 SBO Characteristics of Businesses included data from a random sample of 2.3 million 

firms that were operating in 2002. Only data from respondent firms were included in estimates. 

MBDA derived the data on firms owned by minorities, non-minorities, and classifiable firms29

from the Census surveys unless specified otherwise.30 

According to MBDA’s estimates, most minority and non-minority respondent firms used 

personal savings to start or acquire the business, 54 percent and 56 percent, respectively. The 

usage of personal savings was followed by credit cards for minority respondent firms (10% of 

firms), and business loans for non-minority respondent firms, (12%).31 (Chart 1) 

Moreover, a greater proportion of minority respondent firms were started or acquired by using 

credit cards (10% of firms) among other sources of capital, compared to non-minority respondent 

firms (9%). On the other hand, a greater proportion of non-minority respondent firms were 

started or acquired by using business loans (12%) compared to minority respondent firms (7%). 

32 

Of all minority-owned respondent businesses, Native Hawaiian and Other Pacific Islanders and 

American Indian and Alaska Natives had the largest proportion of firms (13% and 12%, 

respectively) that used credit cards for the same purpose compared to other minority respondent 

firms. (Table 7) 

A greater proportion of Asian respondent firms used personal savings (61%) and bank loans 

(10%) to start or acquire a business compared to other minority firms. Asian firms also had the 

 

29 Classifiable firms include all U.S. firms except publicly held, foreign owned, non-profit, and other firms whose 

ownership cannot be classified by gender, race or ethnicity. 

30 For more information, please review the data and methodology section. 

31 These differences are statistically significant at a 90% confidence level. 32 Ibid. 

For firms operating in 20002, minority-owned firms were more likely to use credit 

cards and less likely to use bank loans to start or acquire their business compared to 

non-minority firms. The findings suggest minority entrepreneurs may be financing longterm liabilities with short-term debt that often carries higher interest rates. The 

practice may have created a larger financial burden for minority entrepreneurs 

compared to non-minorities. 
24 

highest percentage of firms that used outside investors (3%) for the same purpose compared to 

other minorities, excluding businesses owned by Native Hawaiian and Pacific Islanders.33 

Chart 1: Respondent Firms by Sources of Capital Used to Start or Acquire the Business, 

200234

In 2002, Asian firms also had larger average gross receipts compared to other minority groups. 

This finding may suggest a correlation between the sources of capital accessed to start or acquire 

a business and the firm size. For example, the less costly the source of capital used for acquiring 

or starting the business, the larger the subsequent size of the firm in gross receipts. More 

research is necessary to test this relationship. 

The findings suggest that a greater proportion of minority firms financed their long-term 

investment of starting or acquiring a business with short-term debt (credit cards), instead of longterm debt (bank loans). Entrepreneurs who use credit cards to start or acquire a business may be 

exposed to higher operating costs because credit cards tend to charge, on average, higher interest 

rates compared to other sources of capital. Firms started by using credit cards for capital are 

usually at a cost disadvantage compared to firms that were started with other sources of capital. 

Further research is necessary to confirm this statement. 

Moreover, smaller firms and firms in the services sector generally lack the collateral to access 

traditional bank loans but could benefit from guaranteed loan products. As discussed earlier, 

firms in services sector generally have lower barriers to entry because these require relatively 

 

33 Due to a larger standard error, Native Hawaiians and Other Pacific Islander firms could have similar rates of 

outside investors to start or acquire a business compared to Asians at a 90% confidence level. 34 A statistical significance test for some of these differences could not be performed because standard errors were 

not available. 

9.8%

1.0%

0.6%

2.3%

29.7%

0.8%

0.7%

12.0%

2.5%

7.2%

7.7%

54.1%

9.3%

27.4%

8.8%

55.6%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

personal/family savings

other personal/family assets

personal/business credit card

business loan from government

government-guaranteed bank loan

business loan from bank

outside investor

none needed 

Non-Minority Firms 

Minority Firms 
25 

lower capital investments compared to firms in other industries, such as manufacturing and 

mining.35 

Minority firms were highly concentrated in the services industry sector and smaller in size. 

About 95 percent of these firms generated $500,000 or less in 2002, compared to 90 percent for 

non-minority firms. Minority entrepreneurs may have depended more on credit cards to start or 

acquire their business possibly because some of them may have lacked the collateral to obtain a 

traditional loan, among other possible factors. Further study is necessary to identify factors that 

may have influenced the access to bank loans by minority firms compared to non-minority firms. 

Table 7: Sources of Capital Used to Start or Acquire the Business by Race/Ethnic Group, 

200236

 

35 U.S. Department of Commerce, Economics and Statistics Administration and the Minority Business Development 

Agency, Keys to Minority Entrepreneurial Success: Capital, Education, and Technology, 5-7. 36 Available standard errors from which the reliability of the estimates in this table can be determined can be found 

in Table 7b in the Appendix section. 

Respondent 

Group

Personal/ 

Family 

Savings

Other 

Personal/

Family 

Assets

Personal/

Business

Credit 

Card

Business 

Loan from 

Government

Governmentguaranteed 

Bank Loan

Business 

Loan 

from Bank

Outside 

Investor

None 

Needed

African American 50.2% 7.1% 10.1% 1.1% 0.5% 5.7% 2.1% 33.0%

American 

Indian and 

Alaska Native 

51.9% 10.0% 12.2% 1.0% 0.8% 7.8% 2.0% 30.8%

Asian 61.4% 8.9% 9.6% 1.0% 0.8% 10.2% 3.1% 22.6%

Hispanic 51.2% 6.7% 9.4% 0.8% 0.4% 5.6% 1.8% 33.1%

Native Hawaiian 

and Other 

Pacific Islander

52.6% 10.3% 12.7% 2.3% 0.4% 5.2% 2.1% 29.9%

Minority Firms 54.1% 7.7% 9.8% 1.0% 0.6% 7.2% 2.3% 29.7%

Non-Minority 

Firms 55.6% 9.3% 8.8% 0.8% 0.7% 12.0% 2.5% 27.4%

All Respondents 54.6% 9.0% 8.8% 0.9% 0.7% 11.4% 2.7% 27.7%

Publicly Held* 26.5% 6.7% 2.8% 2.6% 1.2% 14.0% 11.8% 27.5%
26 

Sources of Capital Used by Size of Firm and Employment

MBDA’s analysis of the 2002 SBO also revealed that larger minority firms (with annual gross 

receipts of $500,000 or more) performed better in their growth of gross receipts between 1997 

and 2002 compared to smaller minority firms (with receipts under $500,000) during the same 

period. However, larger minority firms had a smaller rate of decline (-3%) in average gross 

receipts between 1997 and 2002, compared to larger non-minority firms (-9%) during the same 

period.37 

Strategic Growth Initiative (SGI) firms are larger minority businesses with annual gross receipts 

of $500,000 or above. The Minority Business Development Agency has identified SGI firms, 

and those with high-growth potential, as businesses that offer the greatest opportunity for 

economic impact and employment. 

Larger firms had a greater need of capital, regardless of its source, to start or acquire the business 

compared to smaller firms. A greater proportion of larger minority firms operating in 2002 used 

personal savings; credit cards; outside investors; and bank, government, and guaranteed loans to 

start or acquire the business compared to smaller minority firms operating in the same year. 

However, larger minority firms used bank loans to a lesser extent (23.3% of firms), compared to 

larger non-minority firms (29.2% of firms).38 (Table 8)

In general, employer firms owned by minorities and non-minorities were more 

likely to use less costly sources of capital, such as bank loans, to start or acquire the business 

compared to non-employer firms owned by minorities and non-minorities. However, fewer 

minority employer firms (18% of firms) used bank loans for the same purpose compared to nonminority employer firms (23.5%).39

Personal savings continued to be the most prevalent source of capital used to start or acquire a 

minority-owned business, which eventually generated $500,000 or more in gross receipts in 

2002, followed by bank loans and credit cards. 

 

37 U.S. Department of Commerce, Minority Business Development Agency, The State of Minority Business 

Enterprise. Standard errors for these business measures were not available, therefore,a statistical significance test 

could not be performed. 

38 These differences are statistically significant at a 90% confidence level. 39 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

For firms operating in 2002, larger minority firms (with receipts of $500,000 or more) 

and minority employer firms were more likely to use bank loans than credit cards to 

start or acquire their businesses. These firms may have benefited from lower-cost 

capital sources and as result grew their receipts to $500,000 or more and acquired 

employees by 2002. However, larger minority firms used bank loans at lower rates 

compared to non-minority firms of similar size. Further research is necessary to 

identify factors that may have influenced the access to bank loans by larger minority 

firms compared to non-minority firms of the same size.
27 

Table 8: Sources of Capital Used to Start or Acquire the Business by Size of Firm, 200240

Larger firms owned by Asians used personal savings at greater rates (73.2% of firms) compared 

to larger firms owned by any other group, including non-minorities. 

Larger African American and Hispanic firms, which operated in 2002, used credit cards to a 

greater extent to start or acquire the business (13% and 12%, respectively) compared to larger 

firms owned by any other group. (Table 8) 

The data suggests a relationship exists between less costly sources of capital used to start or 

acquire minority businesses and the firms’ receipts size and employer status. As discussed 

before, the SBA study also suggested a correlation exists between the size of firms, and their 

survival, expansion, and contraction rates. 

Firms with sound business plans, more experienced management, and greater capital resources 

may be better positioned to attract investors and secure bank or government loans to start a 

business. In addition, larger minority firms and those with employees may have benefited from 

lower-cost financial sources to start or acquire the business in the first place, and as result grew 

their receipts to $500,000 or acquired employees by 2002. 

Further research is necessary to test this theory and find out if these firms would have generated 

higher gross receipts compared to other firms that did not have the same characteristics. 

 

40 A statistical significance test for some of these differences could not be performed because standard errors were 

not available. 

Respondent 

Group

Size 

of Firm

Personal/ 

Family 

Savings

Other 

Personal/ 

Family Assets

Personal/ 

Business 

Credit Card

Business 

Loan from 

Government

Governmentguaranteed 

Bank Loan

Business

Loan from

Bank

Outside

Investor

African Larger 68.2 14.2 13.2 3.1 4.1 25 4.9

American Smaller 49.8 6.9 10 1 0.5 5.2 2.1

American Larger 66.8 17.3 12 3.1 3.9 22.1 5.7

Indian and 

Alaska Native Smaller 51.3% 9.6 12.2 0.9 n/a 7.2 1.9

Larger 73.2 13.7 9.8 2.2 2.7 25.7 5.6

Asian Smaller 60.2 8.4 9.5 0.9 0.6 8.6 2.8

Larger 69 13.9 11.6 1.9 2.3 19.1 4.4

Hispanic Smaller 50.3 6.3 9.3 0.7 0.3 4.9 1.7

Native Hawaiian Larger 66.5 15.8 n/a n/a n/a 20.3 4

and Other 

Pacific Islander Smaller 51.9 n/a 13 n/a n/a n/a n/a

Larger 71 14 n/a n/a n/a 23.3 5.1

Minority Firms Smaller 53.1 n/a 9.8 n/a n/a n/a n/a

Non-Minority Larger 64.9 14.8 n/a n/a n/a 29.2 5.4

Firms Smaller 53.5 n/a 8.8 n/a n/a n/a n/a

Classifiable Larger 65.5 14.7 7.5 1.8 2.2 28.7 5.4

Firms Smaller 53.5 8.3 8.9 0.7 n/a 9.0 2.1

All Respondent Larger 60.6 13.7 6.8 1.9 2.1 27.6 6.5

Firms Smaller 53.9 8.5 9.0 0.8 0.5 9.6 2.3
28 

Additional studies would also add insight into the factors that may have influenced access to 

bank loans by larger minority firms compared to non-minority firms of similar size. 

Sources of Capital Used by Industry 

In general, minority respondent firms in most industries used bank loans to start or acquire the 

business at lower rates compared to non-minority businesses in the same industries. 41 (Chart 2) 

Classifiable firms (minority and non-minority-owned firms)42 operating in 2002 in the retail 

trade (13%) and information (11%) industries had a higher proportion of respondent firms that 

used credit cards to start or acquire the business, compared to classifiable firms in industries with 

higher survival rates such as health care and social assistance (7%). Minority firms in the retail 

trade (14%), information (12%), and wholesale trade (12%) industries also had a higher 

proportion of respondent firms that used credit cards to start or acquire their business, compared 

to minority firms in health care and social assistance (6.8%).43 

Likewise, non-minority firms had a higher proportion of firms in retail trade (12.7%) and 

information (10.7%) that used credit cards to start or acquire the business compared to nonminority firms in health care and social assistance (7%).44

Classifiable firms in educational services (36.7%); health care and social assistance (46.5%); and 

administrative support, waste management, and remediation services (36.3%) operating in 2002 

had higher rates of respondents firms that needed no capital to start or acquire the business 

compared to classifiable firms in other industries.45 These industries may require relatively less 

capital to start operations compared to firms in other industries, such as mining and utilities. 

As discussed earlier, other studies have found that firms in the information and retail trade 

industries had lower survival rates compared to firms in other industries, while those in 

education and health services had higher rates of survival compared to firms in other industries. 

 

41 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

42 Classifiable firms are all U.S. firms excluding publicly held, foreign owned, non-profit, and other firms whose 

ownership can not be classified by gender, race, or ethnicity. 

43 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

44 Ibid. 

45 Ibid. 

Minority-owned firms operating in 2002 in selected industries used bank loans to start 

or acquire their business at lower rates compared to non-minority firms in the same 

industries. Minority firms in information and retail trade, and sectors with lower 

survival rates compared to other industries, used credit cards at relatively high rates 

compared to minority firms in other sectors. Findings suggest a correlation may exist 

between types of capital used and business survival. Further research is necessary to 

test this relationship. 
29 

Chart 2: Business Bank Loan Usage to Start or Acquire the Firm for Selected Industries, 

2002 (in percentage)46

The same industries that had lower survival rates also had a high proportion of businesses which 

used credit cards to start or acquire the business. 

We also noted earlier that entrepreneurs who use credit cards as a source of capital to start or 

acquire a business are more likely exposed to higher interest rates and, therefore, encounter 

higher operating costs compared to other entrepreneurs who may have used less costly financial 

sources, such as bank and government loans and outside investors. 

There may be a correlation between a greater use of high-cost sources of capital to start or 

acquire a business in the information and retail trade industries and their lower survival rates. 

Firms in these industries could have been negatively impacted by a higher cost of capital to start 

or acquire the business in the first place. More research is necessary to confirm this relationship. 

 

46 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

12.3

20.6

6.6

10.4

18.3

7

13.6

9

3.7

3.3

14.1

8.7

0

5

10

15

20

25

Minority Firms All Classifiable Firms

Business Loans From Bank

Percent of Respondent Firms

Wholesale Trade

Transportation and

Warehousing

Finance and Insurance

Real Estate and Rental

and Leasing

Administrative Support,

Waste Management, and

Remediation Services

Health Care and Social

Assistance
30 

Sources of Capital Used for Expansion or Capital Improvements 

As in the case of capital used to finance start-ups and business acquisitions, personal savings 

were the most cited source of capital used for the expansion or capital improvement of the 

business according to firms that responded to the 2002 SBO Characteristics of Businesses. 

An analysis of the data indicated that nearly 29 percent of minority firms that responded to the 

survey used personal savings to finance the expansion or capital improvement of the business, 

compared to 25 percent of non-minority firms. These were lower percentages compared to the 

proportion of minority (54%) and non-minority firms (56%) that used personal savings to start or 

acquire the business.47

Credit cards were the second most popular source of capital used to finance business expansions 

or capital improvements by minority firms (11%), and non-minority firms (12%), according to 

the analysis of the survey. 48 (Table 9) 

Bank loans were the third most popular source of capital used to finance business expansions or 

capital improvements. About 6 percent of minority firms used bank loans to finance the 

expansion or capital improvement of the business, compared to 10 percent of non-minority 

firms.49 These are slightly lower percentages compared to those of minority and non-minority 

firms that used bank loans to start or acquire the business. 

Similar to Asian start-ups and acquisitions, a greater proportion of Asian firms used bank loans 

to finance the capital expansion and improvement of the business compared to other minority 

groups. Asians, American Indian and Alaska Natives had the largest proportion of firms (7.3% 

and 7.6%, respectively) that used bank loans to finance the expansion or capital improvement of 

the business, compared to other minority firms, excluding Native Hawaiian and Other Pacific 

Islanders.50

 

47 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

48 Ibid. 

49 These differences are statistically significant at a 90% confidence level. 50 At the 90% confidence level, due to a larger standard error, Native Hawaiians and Other Pacific Islander firms 

could have similar rates of bank loan usage to finance capital expansions compared to Asians and American Indian 

and Alaska Natives. 

For firms operating in 20002, minority-owned firms were more likely to use credit 

cards than bank loans to expand or finance the capital improvement of the business. 

Moreover, minority firms used bank loans for the same purpose at lower rates 

compared to non-minority-owned firms. Entrepreneurs who used more costly sources 

of capital to expand or finance the capital improvement of the business would have 

faced a greater financial burden compared to those who used less costly sources for the 

same purpose. 
31 

As discussed before, Asian firms generated more than double the average gross receipts 

($296,000) of any other minority group in 2002, while African American firms grossed on 

average the lowest amount in receipts ($74,000) in the same year. Average gross receipts of 

non-minority firms surpassed $438,000 in 2002.51 

A greater proportion of Asian and non-minority respondent firms also used bank loans to finance 

the start-up, acquisition, expansion or capital improvement of their businesses, compared to other 

groups with the exception of American Indian and Alaska Natives who used bank loans for 

capital improvements at similar percentages. 

Bank and government loans offer generally lower borrowing costs compared to credit cards, 

which usually charge higher interest rates and, therefore, generate greater operating costs. The 

data suggests a correlation between less costly financing sources used by the business and firm 

size. Further research is necessary to confirm this relationship. 

Chart 3: Sources of Capital Used for Capital Expansion of Capital Improvements of the 

Business, 200252

 

51 Data derived form a 2007 Census special tabulation requested by MBDA. 

52 A statistical significance test for some of these differences could not be performed because standard errors were 

not available. 

4.9%

11.2%

0.6%

0.3%

5.1%

11.7%

0.5%

0.3%

28.9%

5.7%

56.0%

25.0%

9.7%

59.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

personal/ family

savings

other personal/ family

assets

personal/ business

credit card

business loan from

government

governmentguaranteed bank loan

business loan from

bank

none needed 

Non-Minority Firms

Minority Firms
32 

Table 9: Sources of Capital Used for Expansion or Capital Improvements, 200253

Respondent 

Group

Personal/ 

Family 

Savings

Other 

Personal/ 

Family 

Assets

Personal/ 

Business 

Credit 

Card

Business 

Loan from 

Government

Governmentguaranteed 

Bank Loan

Business 

Loan 

from 

Bank

Outside 

Investor

None 

Needed

African 

American 29.1 4.8 11.5 0.7 0.3 4.1 1.3 56.3

American 

Indian and 

Alaska Native

30.8 7.1 15.5 0.7 0.3 7.6 1.3 52.7

Asian 31.4 5.3 10.6 0.6 0.4 7.3 1.5 53.6

Hispanic 26.5 4.4 10.9 0.5 0.3 5.2 1.3 58.4

Native Hawaiian 

and Other 

Pacific Islander

28.6 5.6 13.6 1.2 0.9 5.6 S 55.3

Minority Firms 28.9 4.9 11.2 0.6 0.3 5.7 n/a 56

Non-Minority 

Firms 25 5.1 11.7 0.5 0.3 9.7 n/a 59

All Respondents 25.5 5 11.4 0.5 0.3 9.2 1.2 58.5

Publicly held, 

and other firms 9.3 2.4 3.5 1 0.6 11.1 4.2 56.3

Sources of Capital Used by Size of Firm and Employment

We further analyzed the use of capital for the expansion or capital improvement of the business 

by receipts size and firms with employees. Trends by receipts size and employer firms may 

provide more information regarding their possible correlation to less costly sources. 

An analysis of the data showed that a much greater proportion of larger firms (with gross receipts 

of $500,000 or more) operating in 2002 used bank loans to finance the business expansion or 

capital improvement compared to smaller firms (with receipts under $500,000) operating in the 

same year. (Table 10) 

 

53 Available standard errors from which the reliability of the estimates in this table can be determined can be found 

in Table 9b in the Appendix section. 

Larger firms and employer firms were more likely to use bank loans to finance the 

expansion and capital improvement of the business compared to smaller firms and nonemployer firms. However, larger minority firms and minority employer firms operating 

in 2002 were less likely to use bank loans and more likely to use credit cards for the 

same purpose compared to non-minority firms of the same size and with employees. 

Further research is necessary to identify factors which may have influenced the access 

to bank loans and other capital by larger minority firms compared to non-minority 

firms of similar size. 
33 

In addition, a greater proportion of larger firms operating in 2002 also used bank loans to finance 

the expansion or capital improvement of the business compared to their use of credit cards for 

the same purpose, regardless of group ownership.54 

However, larger minority firms used credit cards at greater rates (11.8% of firms) compared to 

larger non-minority firms (9.8% of firms).55 Larger firms owned by African Americans (14.3%), 

American Indians and Alaska Natives (13%), Hispanics (13.2%), and Native Hawaiian and 

Other Pacific Islanders (17.5%) also used credit cards at greater rates compared to larger firms 

owned by non-minorities (9.8%). (Table 10) 

Table 10: Sources of Capital Used to Finance Expansion or Capital Improvement of the 

Business by Size of Firms, 2002

Respondent 

Group

Size of 

Firm

Personal/ 

Family 

Savings

Other 

Personal/ 

Family 

Assets

Personal/ 

Business 

Credit Card

Business 

Loan from 

Government

Government 

guaranteed 

Bank Loan

Business 

Loan 

from Bank

Outside 

Investor

None 

Needed 

African Larger 28% 6.5 14.3 1.8 2.1 24.7 1.7 43.2

American Smaller 29.2 4.8 11.5 0.6 0.2 3.7 1.3 56.6

American Larger 28.1 9.8 13.0 1.1 n/a 29.7 n/a 40.7

Indian and 

Alaska Native Smaller 30.9 7.0 15.6 0.7 n/a 6.7 1.3 53.2

Larger 27.5 6.7 10.2 1.2 1.1 22.6 2.4 47.2

Asian Smaller 31.8 5.2 10.7 0.5 n/a 5.7 1.4 54.3

Larger 26.8 6.7 13.2 1.6 1.1 27.4 2.4 41.8

Hispanic Smaller 26.4 4.3 10.8 0.5 0.2 4.0 1.3 59.2

Native Larger 27.4 n/a 17.5 n/a n/a 23.4 n/a 42.0

Hawaiian and 

Other Pacific 

Islander

Smaller 28.7 n/a 13.4 n/a n/a n/a n/a 55.9

Minority Larger 27.4 n/a 11.8 n/a n/a 24.7 n/a 44.7

Firms Smaller 29 n/a 11.2 n/a n/a n/a n/a 56.7

Non-Minority Larger 21.2 n/a 9.8 n/a n/a 30.2 n/a 48.8

Firms Smaller 25.9 n/a 11.9 n/a n/a n/a n/a 60.1

Moreover, a greater proportion of larger firms owned by African Americans, Hispanics, and 

Native Hawaiian and Other Pacific Islanders used credit cards to finance business expansions or 

capital improvements, compared to smaller firms owned by these same groups. This was not the 

case for firms owned by Asians and American Indians and Alaska Natives. 56

In addition, a greater proportion of minority employer firms (14.3%) said they used credit cards 

to finance the expansion or capital improvement of the business compared to non-minority 

employer firms (13.3%). On the other hand, a lesser proportion of minority employer firms 

 

54 Standard errors for related business measures were not available; therefore, a statistical significance test could not 

be performed. 

55 These differences are statistically significant at a 90% confidence level. 56 Standard errors for related business measures were not available; therefore, a statistical significance test could not 

be performed. 
34 

(15.5%) used bank loans for the same purpose compared to non-minority employer firms 

(21.3%).57 

In summary, MBDA found a correlation between the need for capital and the receipts size and 

employment status of the business. Larger and employer firms needed more capital to expand or 

finance the capital improvement of the business, compared to smaller or non-employer firms, 

regardless of ownership group. 

MBDA also found a correlation between the use of less costly sources of capital--such as bank 

loans--to finance the expansion or capital improvement of the business, and the firm size and 

employment status. A greater proportion of larger and employer firms used bank loans to 

finance the expansion or capital improvement of the business instead of credit cards, while a 

greater proportion of smaller respondent firms used credit cards instead of bank loans for the 

same purpose. 

As indicated earlier, smaller firms and those in the services industry generally lack the collateral 

to access traditional bank loans, but could benefit from guaranteed loan products. Minority 

firms, which were highly concentrated in the services sector and smaller in size compared to 

non-minority firms, may have depended more on credit cards to start or expand their business, 

possibly because some of them may have lacked the collateral to obtain a traditional loan, among 

other possible factors. However, larger minority firms, which may have had the collateral to 

obtain a traditional loan, were less likely to use bank loans compared to non-minority firms of 

similar size. 

Further study is necessary to identify factors that may have influenced the access to bank loans 

by minority firms compared to non-minority firms of similar size. In addition, more studies 

could also add insight as to why more larger firms owned by African Americans, Hispanics, and 

Native Hawaiian and Other Pacific Islanders depend more frequently on credit cards to expand 

the business or make capital improvements, compared to smaller minority firms owned by the 

same groups. 

In the next section we will discuss the use of capital for the expansion and capital improvement 

of the business by industry. 

 

57 Standard errors for related business measures were not available; therefore, a statistical significance test could not 

be performed. 
35 

Sources of Capital Used by Industry 

A greater proportion of minority firms in retail trade (14%) and information (14.3%) used credit 

cards to finance their business expansion or capital improvement compared to minority firms in 

industries with higher survival rates, such as health care and social services (8.5%, excluding 

Native Hawaiian and Other Pacific Islanders). Non-minority firms in retail trade (15%) and 

information (14.6%) also had a higher proportion of firms that used credit cards for the same 

purpose compared to non-minority respondent firms in health care and social services (10%).58 

In addition, a relatively low proportion of classifiable firms in educational services (8.7%) and 

health care and social assistance (9.9%), responded they used credit cards for the same purpose.59 

Firms in these industries also exhibited higher survival rates compared to firms in other 

industries according to Knaup’s study. 

Classifiable firms, in most industries, were more likely to use bank loans to finance the 

expansion or capital improvement of the business compared to minority firms in the same 

industries. Average gross receipts for classifiable firms in all industries in 2002 were higher 

compared to minority firms in the same industries. (Chart 4) 

For respondent firms in manufacturing, a larger proportion of classifiable firms used bank loans 

(18.5%) to finance the expansion or capital improvement of the business compared to minority 

firms (11.3%) in the same industry.60 As stated before, firms in manufacturing also had higher 

survival rates compared to other industries. 

In summary, respondent firms in retail trade and information used credit cards to start, acquire, 

expand, or finance the capital improvement of the business at relatively high rates. High 

dependency on credit cards as a source of capital may place a business at a disadvantage since 

this kind of capital usually carries higher interest rates compared to others, such as bank loans. 

Firms in retail trade and information industries also exhibited lower survival rates compared to 

other industries, according to the studies previously discussed in this report. 

 

58 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

59 Ibid. 

60 Ibid. 

Once again, firms in industry sectors with lower survival rates, such as retail trade and 

information, used credit cards to expand or finance the capital improvement of the 

business at relatively high rates compared to firms in other industries. The findings 

suggest a correlation may exist between firms with lower survival rates and their use of 

more costly sources of capital to finance the expansion or capital improvement of the 

business. Further research by industry is necessary to add insight into this 

relationship. 
36 

Chart 4: Usage of Business Bank Loans to Finance Expansion or Capital Improvement for 

Selected Industries, 200261

The data analysis may suggest a correlation between less costly sources of capital used to start, 

acquire, expand, and finance capital improvements of the business and a stronger business 

performance by industry. High average gross receipts and survival rates were measures for 

business strong performance in this report. Further analysis by industry and minority group 

would add insight into this relationship. 

 

61 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

18.5

16

10

15.6

5.6

10

14.2

11.7

6.5

11.3

13.1

7

8.1

3.8

7.5

3.3

7.7

5.3

4.2

6.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Minority Firms All Classifiable Firms

Business Loans From Bank

Percent of Respondent Firms

Construction

Manufacturing

Wholesale Trade

Retail Trade

Transportation and

Warehousing

Professional, Scientific, and

Technical Services

Administrative Support,

Waste Management, and

Remediation Services

Health Care and Social

Assistance

Accommodation and Food

Services

Other Services
37 

Business Ownership and Structure: Home-Based, One Owner, and Franchised 

Minority firms (43% of firms) were less likely to be home-based compared to non-minority firms 

(52%).62 Asian firms were the least home-based in 2002, among all groups of firms with only 

28.2 percent of their businesses home-based. (Chart 5) 

Minority firms (2.7% of firms) were more likely to be franchised compared to non-minority 

firms (1.8%).63 Asian firms had the highest proportion of franchised businesses (3.9%) among 

all other group of firms, excluding Native Hawaiian and Other Pacific Islanders.64

Compared to non-minority firms (64.4%), minority firms had higher rates of family-owned firms 

with only one owner (70.7%).65 Asian-owed firms reported lower rates (64.8%) of familyowned businesses with one owner compared to other minority groups. 

Many home-based firms are start-ups, smaller firms, or lifestyle businesses that were launched to 

replace an individual’s salary and not for the purpose of creating wealth. Start-ups firms that 

operate from the home have the advantage of lower operating costs and therefore, a greater 

likelihood of staying in business.66 

It is interesting that minority firms were less likely to be home-based compared to non-minority 

firms since minority firms were smaller in size, generating about a third of the receipts grossed 

by non-minority firms in 2002. In addition, minority firms experienced a much greater growth in 

number (30%) between 1997 and 2002 compared to non-minority firms (6%).67 The growth 

could suggest that many minority firms were start-ups in 2002. Unfortunately, the survey data 

did not distinguish how many of the home-based firms started operations in 2002. 

 

62 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

63 These differences were statistically significant at a 90% confidence level. 64 Due to a larger standard error, Native Hawaiians and Other Pacific Islander firms could have greater rates of 

franchised businesses compared to Asians at a 90% confidence level. 65 These differences were statistically significant at a 90% confidence level. The two 2002 survey forms provided 

slightly different response options to the question about family ownership. The difference in response wording may 

have caused different interpretations by respondents. Therefore, firms that reported being family-owned and also as 

having only one owner were counted in both categories; they were not reclassified as nonfamily-owned businesses. 

66 Headd, 51-61. 

67 Data derived from a 2007 Census special tabulation and the 1997 Survey of Minority-Owned Business 

Enterprises. 

Minority firms operating in 2002 were less likely to be home-based and owned by one 

individual and more likely to be a franchised business compared to non-minority firms. 

Minority firms owned by one individual may have not benefited from the additional 

experience, education, and resources multiple owners can offer to grow a business. On 

the other hand, franchises may have offered additional managerial and marketing 

resources to minority entrepreneurs who operated franchised businesses. 
38 

As discussed before, larger, well financed firms with multiple owners have better survival rates 

compared to smaller, poorly financed companies.68 The higher rates of single ownership may 

have placed minority family-owned firms at a disadvantage compared to non-minority familyowned firms that had lower rates of single ownership. Minority firms owned by one family 

member would have not benefited from the additional experience, education, and resources 

multiple owners can offer to grow a business. 

Minority firms were also more likely to be franchised compared to non-minority firms in 2002. 

Generally speaking, franchises offer name recognition, management and marketing training, and 

other support services to the franchise owner. For some entrepreneurs, franchises are a good 

option to start a business. 

Asian firms, which had the largest average gross receipts in 2002 compared to other minority 

firms, also had the lowest rate of home-based firms compared to any other group of firms, and 

the lowest percentage of single ownership when family-owned compared to other minority firms. 

These firms also had the highest percentage of franchised business (excluding Native Hawaiian 

and Other Pacific Islanders). 

Chart 5: Firms Operated as Home-Based, Family-Owned, or Franchised, 200269

 

68 Headd, 51-61. 

69 Available relative standard errors from which the reliability of the estimates in this chart can be determined can be 

found in Table 14b in the Appendix section. Standard errors for business measures of minority and non-minority 

firms were not available; therefore, a statistical significance test could not be performed, with the exception of 

measures for franchised businesses for which a test was performed. The two 2002 survey forms provided slightly 

different response options to the question about family ownership. The difference in response wording may have 

caused different interpretations by respondents. Therefore, firms that reported being family-owned and also as 

having only one owner were counted in both categories; they were not reclassified as nonfamily-owned businesses. 

1.9

22.1

2.1 2.7

53.1 51.9

74.6

2.3

14.4

76.2

14.9

55.5

64.8

3.9

28.2

72

17.7

44.9

53.2

71.6

3

18.7

70.7

18.1

42.5

64.4

1.8

24.3

0

10

20

30

40

50

60

70

80

90

Home-based Family-owned Family-owned, One

Owner

Franchised

African American American Indian and Alaska Native 

Asian Hispanic

Native Hawaiian and Other Pacific Islander Minority Firms 

Non-Minority Firms 
39 

In the next section, we will analyze respondent firms that were home-based, family-owned with 

one owner and franchised, by receipts size and employment. 

Business Ownership and Structure by Size of Firm and Employment

Larger firms (annual gross receipts of $500,000 or more) in 2002 were less likely to be homebased or have only one owner if family-owned, and more likely to be franchised compared to 

smaller firms (annual gross receipts of under $500,000). This was the case for all minority 

groups of firms, non-minority firms, and all U.S. firms.70 (Table 11) 

Table 11: Firms Operated as Home-Based, Family-Owned, or Franchised by Size, 200271 

 

70 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

71 Ibid. 

Respondent 

Group Size of 

Firms 

Homebased 

Not 

Homebased 

FamilyOwned 

Not 

FamilyOwned 

FamilyOwned, 

One Owner 

Franchised Not 

Franchised 

African Larger 8.5 87.2 23.0 17.0 56.1 8.0 87.8 

American Smaller 54.2 39.1 14.2 4.7 75.1 2.2 89.3 

Larger 17.0 79.1 31.8 16.0 48.7 4.3 90.9 American 

Indian and 

Alaska Native Smaller 57.1 37.1 14.2 3.7 77.3 1.8 91.7 

Larger 5.7 91.4 29.1 21.0 46.2 10.0 86.8 

Asian Smaller 30.5 65.3 21.3 7.8 66.7 3.2 92.0 

Larger 12.3 84.1 30.4 15.0 51.8 4.5 91.1 

Hispanic Smaller 46.7 47.7 17.1 4.5 73.1 1.9 90.6 

Larger 79.3 18.3 22.0 55.7 n/a 92.5 Native Hawaiian 

and Other 

Pacific Islander Smaller 55.1 39.9 17.0 59.1 n/a 91.8 

Larger n/a 88.0 28.9 18.0 49.3 n/a 88.5 

Minority Firms Smaller 44.6 49.9 17.4 n/a 71.9 n/a 90.8 

Larger n/a 87.0 32.1 24.0 41.7 n/a 92.0 

Non-Minority 

Firms Smaller 56.3 40.1 23.5 n/a 66.9 n/a 94.6 

Larger 10.3 87.1 31.8 23.3 42.4 5.2 91.7 

Classifiable 

Firms Smaller 54.5 41.6 22.6 6.6 67.6 1.6 94.0 

Larger 9.5 87 30.1 28.0 38.2 4.9 91.1 

All Respondent 

Firms Smaller 53.8 42.1 22.7 7.3 66.4 1.6 93.8 

Larger minority firms operating in 2002 were more likely to be franchised and less 

likely to be owned by only one individual when family-owned, while smaller minority 

firms operating in the same year were more likely to be home-based. Larger minority 

and family-owned firms that had multiple owners would have benefitted from the 

additional human resources to grow and stay in business. 
40 

A greater proportion of larger minority, family-owned firms were owned by only one individual 

(49.3%) compared to larger non-minority, family-owned firms (41.74%).72

Among employer firms, a greater proportion of minority firms were franchised (14.3%) and 

owned by one owner (59.1%), compared to non-minority firms (13.3% franchised, 54.5% owned 

by one owner). However, a lesser proportion of minority employer firms (17.2%) were homebased compared to non-minority employer firms (23.8%).73 

The findings support the assumption that franchised businesses tend to be larger in size of 

receipts, and home-based firms are most likely smaller firms. In addition, the correlation 

between larger firms that are family-owned and single ownership could imply that some of these 

larger businesses do in fact have a greater proportion of multiple owners, and, therefore, may be 

benefiting from the additional human resources to grow and stay in business. Further research is 

necessary to test these assumptions.

Business Ownership and Structure by Industry

A greater proportion of classifiable firms in construction (68%), information (62%), and arts and 

entertainment (62%) were operating in 2002 from the home, compared to firms in other 

industries operating in the same year. The same is true for minority firms in these industries: 

construction (58%), information (58%), and arts and entertainment (58%).74

A smaller proportion of firms in industry sectors with high survival rates, such as manufacturing, 

and health care and social assistance, responded that their firms were home-based, 35 percent 

and 44 percent, respectively. A notable exception were respondent firms in educational services, 

which also had a high survival rate; however, 57 percent of their firms were home-based.75

Of the firms in industries with low survival rates, only 46 percent in retail trade and 62 percent in 

information were home-based.76 

Among franchised firms, classifiable respondent firms in the management of companies and 

enterprises industry had the greatest proportion of franchised businesses (14%), followed by 

those in accommodation and food services (12%).77

 

72 These differences were statistically significant at a 90% confidence level. The two 2002 survey forms provided 

slightly different response options to the question about family ownership. The difference in response wording may 

have caused different interpretations by respondents. Therefore, firms that reported being family-owned and also as 

having only one owner were counted in both categories; they were not reclassified as nonfamily-owned businesses. 

73 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

74 Ibid. 

75 Ibid. 

76 Ibid. 

While firms in information and retail trade had low survival rates, firms in information 

were more likely to be home-based compared to those in retail trade. 

Findings suggest that the business structure of a firm, be them home-based or not, was 

not correlated to the firm’s survival rate. 
41 

For minority respondent firms, a greater proportion of firms in accommodation and food services 

(12%), and management of companies and enterprises (11%),78 were most likely to be 

franchised, compared to minority firms in other industries. 

In this section we analyzed respondent firms in industries with high or low survival rates and 

their business characteristics according to the 2002 survey to try to offer additional insight 

regarding their business performance. In summary, we found no correlation between homebased firms and survival rate of firms by industry. 

 77 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

78 The data does not include figures for Native Hawaiian and Other Pacific firms because responses for these firms 

were suppressed in the Census report. 
42 

Customer Categories 

Minority and non-minority firms operating in 2002 had a variety of customers that accounted for 

10 percent or more of their sales. Most minority firms (44.4%) and non-minority firms (50.5%) 

sold goods or services to household consumers and individuals. Businesses and organizations 

were the second most popular customer group of minority (22.6%) and non-minority firms 

(33.9%).79 

However, minority firms were less likely to generate 10 percent of their receipts through sales to 

businesses (22.6%) compared to non-minority firms (33.9%).80 (Chart 6) 

Chart 6: Percentage of Firms with Sales by Customer, 200281

 

79 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

80 These differences are statistically significant at a 90% confidence level. 81 Customers represented 10 percent or more of the firm’s sales. A statistical significance test for some of these 

differences could not be performed because standard errors were not available. 

In 2002, minority firms were less likely to sell goods and services to businesses and 

organizations, but more likely to export compared to non-minority firms. The 

participation rate of minority firms in global commerce can contribute to reverse the 

national trade imbalance. Business development services, such as those provided by 

MBDA, are vital in facilitating additional contracting opportunities for minority firms 

in the private and public sector, as well as the global economy and, therefore, 

supporting the growth and expansion of minority businesses. 

2.5

1.8

1.2

2.7

5.5

22.6

44.4

23.0

5.2

33.9

50.5

18.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0

federal government

state and local

government

export sales

other

businesses/organizations

household

consumers/individulas

all others

Minority Firms Non-Minority Firms 
43 

A larger percentage of minority firms (2.5%) responded that export sales accounted for 10 

percent or more of their sales of goods and services, compared to non-minority businesses 

(1.2%).82 A greater proportion of minority firms also generated 10 percent or more of their 

receipts in sales to the federal, state, and local governments, compared to non-minority firms.83 

An overview of customers by minority group indicated American Indian and Alaska Native 

respondent firms had the highest proportion of firms with 10 percent or more of their sales to 

household consumers/individuals (47.4%) compared to any other minority group, excluding 

Native Hawaiian and Other Pacific Islanders.84 (Chart 7) 

Chart 7: Percentage of Firms with Sales by Customer, 200285

American Indian and Alaska Natives and Native Hawaiian and Other Pacific Islanders also had a 

greater incidence of sales to businesses and organizations (28.2% and 26.8%, respectively) and 

the federal government (3.8% and 4.7%, respectively), compared to any other minority 

respondent group. 

 

82 These differences are statistically significant at a 90% confidence level. 83 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

84 Due to a relatively large standard error, Native Hawaiians and Other Pacific Islander firms could have similar 

rates of sales to household consumers/individuals compared to American Indians and Alaska Natives at a 90% 

confidence level 

85 Customers represented 10 percent or more of the firm’s sales. Available relative standard errors from which the 

reliability of the estimates in this chart can be determined can be found in Table 15b in the Appendix section. 

8.3

3.2

43.9 43.9 44.6 44.9

2.5 3.1 3.8 2.3 4.7

7.6

4.2 4.8

7.5

3.6

1.5

1.5 2.7

28.2

19.8

23.7

22.7

26.8

47.4

20.4

23 26.7

20.9 21.8

0

5

10

15

20

25

30

35

40

45

50

African American American Indian

and Alaska Native 

Asian Hispanic Native Hawaiian

and Other Pacific

Islander

federal government state and local government

export sales other businesses organizations

household consumers individulas all others
44 

In addition, Asian firms had the highest percentage of firms with 10 percent or more of their 

sales in exports (3.2%) compared to any other minority group, excluding Native Hawaiian and 

Pacific Islanders.86 (Chart 7) 

As mentioned before, one of the weaknesses exhibited by minority-owned firms included having 

a narrow portfolio of customers and products according to Professor Greenhalgh from the Tuck 

School of Business at Dartmouth. Certainly, having a diverse customer base may help a firm 

stay viable because the loss of a major customer would create less of a negative impact on the 

business. Further research is necessary to determine if minority firms indeed have adequate 

diversity of customers. 

Although minority firms were more like to generate receipts through sales to the federal 

government (2.7% of firms), compared to non-minority firms (1.8%), in absolute terms, a much 

smaller number of minority firms received federal contracts compared to non-minority firms. In 

2002, there were 3.9 million minority firms in the United States, compared to 18.5 million nonminority firms.87 

In addition, in fiscal year 2006, 50 percent of the federal agencies rated by the SBA did not meet 

their small business contracting goals as of August that year.88 The small business contracting 

goals include contracts to small and disadvantaged firms and those certified under the 8(a) 

program, of which many are minority firms. 

Minority firms were also less likely to sell goods and services to other businesses and 

organizations compared to non-minority firms. Through brokering and business development 

services programs, such as those facilitated by the Minority Business Development Agency, 

minority-owned firms can benefit in securing additional federal and public sector contracting 

opportunities. 

The greater participation rate of minority firms as exporters suggests that a larger proportion of 

minority firms are engaged in export trade compared to non-minority firms. This finding may 

have implications regarding the contributions minority firms can make to the national trade 

imbalance. It also supports the theory advanced by John Owens and Robert Pazornik in their 

paper,89 which proposed that minority firms may have a unique competitive advantage in 

international trade, especially in developing economies and in those geographic areas where 

minorities may have cultural and family ties. 

 

86 Due to a relatively large standard error, Native Hawaiians and Other Pacific Islander firms could have similar 

rates of export sales compared to Asians at a 90% confidence level. 

87 The number of non-minority firms represents MBDA estimates derived from a 2007 Special Tabulation from the 

U.S. Census. 

88 August 2007 press release issued by the Small Business Administration: SBA Scores Federal Small Business 

Procurement Efforts.

89 John Owens and Robert Pazornik, Minority Business Enterprises in the Global Economy: The Business Case. 

Prepared in collaboration with the Minority Business Development Agency (2003). 
45 

Customer Categories by Size of Firm and Employment 

Household Consumers/Individuals 

In this section, MBDA analyzed the data by receipts size of firm and customers served to 

identify any trends. Larger respondent firms (with gross receipts of $500,000 or more) and 

smaller respondent firms (with gross receipts under $500,000) had about an even proportion of 

their firms with 10 percent or more of their sales to household consumers/individuals in 2002. 

Chart 8: Percentage of Firms with Sales to Household Consumers/Individuals, 200290

However, larger minority firms (46% of firms) and minority employer firms (50.6%) were less 

likely to have 10 percent or more of their receipts generated through sales to household 

consumers and individuals compared to larger non-minority firms (50.4%) and non-minority 

employer firms (55.5%).91 

 

90 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

91 Ibid. 

Larger minority firms had a greater proportion of receipts generated through export 

sales, and sales to other businesses, organizations, and the federal, state and local 

governments, compared to smaller minority firms. The more a minority firm included 

among its customers other businesses and organizations, federal, state or local 

governments, and international clients, the greater the chances the firm generated 

$500,000 or more in gross receipts in 2002. 

40.9

44

37.8

47.8 48.7

43.4

50.4 50.6

44.2

46

37.2

46.2

44.4 44.7

0

10

20

30

40

50

60

Larger

Smaller

Larger

Smaller

Larger

Smaller

Larger

Smaller

Larger

Smaller

Larger

Smaller

Larger

Smaller

African

American

American

Indian and

Alaska

Asian Hispanic Native

Hawaiian and

Other Pacific

Minority

Firms 

Non-Minority

Firms 
46 

Other Businesses/Organizations 

A greater proportion of larger firms had 10 percent or more of their receipts generated through 

sales to other businesses and organizations compared to smaller firms operating in the same year. 

Larger minority respondent firms (receipts of $500,000 or more) were less likely to generate 10 

percent of their receipts through sales to businesses (34.2% of firms) compared to lager nonminority firms of the same size (46.7%).92 

Chart 9: Percentage of Firms with Sales to Business/Organizations, 200293

Larger minority firms (34.2%) and minority employer firms (27.6%) were less likely to have 10 

percent or more of their receipts generated through sales to business and organizations compared 

to larger non-minority firms (46.7%) and non-minority employer firms (41.4%).94 

 

92 These differences are statistically significant at a 90% confidence level. 93 A statistical significance test for some of these differences could not be performed because standard errors were 

not available. 

94 Ibid. 

32.6

19.5

52

27.2

31.6

21.9

39.1

22.1 21.9

32.5

46.7

34.2

22.9

36.6

0

10

20

30

40

50

60

Larger

Smaller

Larger

Smaller

Larger

Smaller

Larger

Smaller

Larger

Smaller

Larger

Smaller

Larger

Smaller

African

American

American

Indian and

Alaska Native 

Asian Hispanic Native

Hawaiian and

Other Pacific

Minority Firms Non-Minority

Firms 
47 

Federal Government 

A greater proportion of larger firms had 10 percent or more of their receipts generated through 

sales to the federal government, compared to smaller firms operating in the same year. Larger 

firms owned by American Indians and Alaska Natives and African Americans had the largest 

proportion of their firms (3.2% and 10.7%, respectively) with sales of 10 percent or more to the 

federal government, compared to any other group of larger firms operating in 2002.95 

Chart 10: Percentage of Firms with Sales to the Federal Government, 200296

Minority employer firms (4.2%) were also more likely to have 10 percent or more of their 

receipts generated through sales to the federal government compared to non-minority employer 

firms (2.6%).97 However, a much smaller number of minority employer firms received federal 

contracts compared to non-minority employer firms. In 2002, there were about 630,000 minority 

employer firms, compared to 4.5 million non-minority firms.98 

In addition, in fiscal year 2006, 50 percent of the federal agencies rated by the SBA did not meet 

their small business contracting goals as of August this year. The Minority Business 

Development Agency should continue to play its vital role in facilitating federal contracting 

opportunities for minority firms with the federal government. 

 

95 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

96 Ibid. 

97 Ibid. 

98 The number of non-minority firms represents MBDA estimates derived from a special tabulation by the U.S. 

Census released in 2007. 

2.3

6

2.1

4.7

2.9 3.4

13.2

10.7

0

2

4

6

8

10

12

14

Larger Sm aller Larger Sm aller Larger Sm aller Larger Sm aller

A fric an A m eric an A m eric an Indian

and A las k a Native 

Asian Hispanic
48 

Export Sales

A greater proportion of larger firms generated 10 percent or more of their sales in exports 

compared to smaller firms. Larger Hispanic and Asian firms operating in 2002 were most likely 

to export (6.4% and 4.9% of their firms, respectively) compared to other larger firms. In 

addition, a greater proportion of smaller Hispanic and Asian firms operating in 2002 were more 

likely to have 10 percent or more of their sales in exports, compared to other smaller firms 

operating in the same year. 99

Chart 11: Percentage of Firms with Export Sales, 2002100

Minority employer firms (3.3%) were also more likely to have 10 percent or more of their 

receipts generated through export sales compared to non-minority employer firms (1.5%).101 

As indicated before, most firms regardless of receipts size, generated 10 percent or more of their 

receipts in sales to household consumers/individuals. However, larger firms had a greater 

proportion of their firms with receipts of 10 percent or more generated through export sales, sales 

to other businesses/organizations, and sales to the federal, state and local governments, compared 

to smaller firms for all groups of firms. 

The data suggests that the greater the likelihood a minority firm has among its customers other 

businesses and organizations, federal, state or local governments, and international clients, the 

greater the chances the firm generated $500,000 or more in gross receipts in 2002. Further 

research may be necessary to explore this relationship. 

In the next section we will review respondent firms by industry and the customers they serve. 

 

99 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

100 Ibid. 101 Ibid. 

2.1 2.3

4.9

3.1

6.4

2.5

1.5 1.5

0

1

2

3

4

5

6

7

Larger Smaller Larger Smaller Larger Smaller Larger Smaller

African American American Indian and

Alaska Native 

Asian Hispanic
49 

Customer Categories by Industry 

Classifiable firms and minority firms in retail trade were more likely to generate receipts through 

sales to household consumers/individuals compared to those in other industries. 

Minority firms in the management of companies and enterprises102 industry had the highest 

proportion of firms (13%) with sales to the federal government, compared to minority firms in 

any other industry. In comparison, only 3 percent of non-minority firms in the same industry had 

sales to the federal government.103 

In addition, classifiable and minority firms in educational services and health care and social 

assistance had the largest proportion of firms with sales to state and local governments compared 

to those in other industries. 

Minority firms in manufacturing (49%), professional, scientific, and technical services (47%), 

information (46%) and wholesale trade (46%) were more likely to sell to other businesses or 

organizations, compared to minority firms in other industries.104 However, a larger proportion 

of non-minority firms in manufacturing (64.5%), wholesale trade (63.5%), information (61.1%), 

and professional, scientific, and technical services (56.1%) had sales to other businesses or 

organizations, compared to minority firms in the same industries.105

Classifiable and minority firms in wholesale trade were the most likely to export, compared to 

those in other industries. However, a much larger proportion of minority firms in wholesale 

trade (17.7%) had export sales, compared to non-minority firms in the same industry (4.9%).106 

As discussed before, in addition to their higher rate of sales to households and consumers, firms 

in retail trade had the largest proportion of firms that used credit cards to start, acquire, expand, 

or finance capital improvements of the business compared to firms in other industries. 

Generally, sales to household consumers and individuals could suffer more variability compared 

to sales to the government. Consumers’ tastes and needs change and are also influenced by 

fashion and price, among other factors, on a yearly basis. The less predictable customer base and 

 

102 These are firms that hold the securities of an enterprise and/or administer, oversee, and manage other 

establishments of the company (except government establishments). 

103 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

104 Ibid. 105 Ibid. 106 Ibid. 

A less predictable customer base could have contributed to the retail trade industry low 

survival rate, among other factors. Firms in retail trade were more likely to generate 

receipts through sales to household consumers. Those in educational services and 

health care and social assistance, industries with higher survival rates, were more 

likely to sell goods and services to state and local governments. 
50 

greater use of costlier capital sources by retail trade firms, compared to non-retail industries, 

could have contributed to the retail trade industry low survival rate, among other factors. 107

Federal, state, and local governments have tended to be fairly stable customers for minority firms 

and often repeat their purchases on a yearly basis. Firms in the educational services and health 

care and social assistance industries enjoyed a higher rate of sales to state and local government 

customers. These firms also had a lesser need for capital to start or expand the business, 

compared to firms in other industries. The stability of these firms’ customer base and their lesser 

need for capital may have contributed to their higher survival rate compared to firms in other 

industries.108 

Further research may be necessary to confirm the relationship between the survival rates of firms 

in certain industries and their customer base. 

In general, minority firms benefited from a wide variety of customers in 2002. Although small 

in absolute numbers, a larger proportion of minority firms had the federal government among 

their clients, while non-minority firms benefited from having a greater percentage of firms that 

generated receipts through sales to businesses and organizations, as well as household consumers 

and individuals. The larger the firm, for any group, the greater the incidence the group of firms 

in that size sold goods and services to businesses and organizations, the federal government, and 

internationally. 

 

107 Standard errors for these business measures were not available; therefore, a statistical significance test could not 

be performed. 

108 Knaup, 50-56. 
51 

Owner’s Education

The Census 2002 Survey of Business Owners released in 2006 also includes a report on the 

Characteristics of Business Owners. This report surveyed about 20.5 million owners of the 16.7 

million businesses that responded to the survey by gender, racial, and ethnic group. About 15 

million were owners of non employer firms. 

According to the analysis of the data, Hispanic business owners were disproportionately less 

educated than any other group of business owners. Only 23 percent of Hispanic business owners 

who responded to the survey indicated they had received a bachelor’s degree or a more advanced 

degree. Among all minority groups, Asians had the highest proportion of business owners who 

had received at least a bachelor’s degree, 51 percent. (Table 12) 

Table 12: Educational Attainment of Business Owners, 2002109

Owner's Group 

H.S. or less 

education 

Technical, Some College 

or Associate Degree 

Bachelor’s 

Degree 

Master’s 

Degree 

Item not 

reported

All Respondent Firms 27% 31% 23% 17% 2% 

African American 29% 37% 17% 15% 2% 

American Indian and 

Alaska Native 32% 39% 15% 11% 2% 

Asian 26% 22% 27% 24% 2% 

Hispanic 44% 30% 13% 10% 2% 

Native Hawaiian and 

Other Pacific Islander 30% 39% 17% 12% 2% 

Minority business owners were more educated compared to the minority population in general. 

In 2002, of a population age 25 and over, only 10 percent of Hispanics had earned a bachelor’s 

or higher degree, 11 percent of American Indian and Alaska Natives, 14 percent of African 

Americans, and 44 percent of Asians/Pacific Islanders.110 

 

109 Available relative standard errors from which the reliability of the estimates can be determined can be found in 

Table 12b in the Appendix section. 

110 U.S. Census Bureau, A Half-Century of Learning: Historical Statistics on Educational Attainment in the United 

States, 1940 to 2000, http://www.census.gov/population/www/socdemo/education/introphct41.html, 

(accessed January 15, 2008). 

In 2002, Asian business owners were more likely to have a higher education, while 

Hispanic business owners were less likely to hold a bachelor’s or master degree. The 

disparity in college attainment by minority group may have contributed to that group’s 

business performance. Through executive training, technical assistance, and other 

educational programs, MBDA is increasing the business management knowledge of 

minority entrepreneurs and helping them succeed.
52 

As discussed before, the level of educational attainment of an entrepreneur may influence 

business survival.111 In his study, Brian Headd found that business owners with a college 

education had companies that were more likely to continue operating after four years in business. 

On the other hand, entrepreneurs with high school or less education were more likely to close 

business operations unsuccessfully. 

The disparity in college attainment by minority group may be a contributing factor to that 

group’s business performance. Lack of education in business management, finance, marketing, 

and accounting, among other areas, can pose a greater difficulty for success for most 

entrepreneurs. Through executive training, technical assistance, and other educational programs, 

MBDA is contributing to increasing the business management knowledge of minority 

entrepreneurs and helping them succeed. 

 

111 Headd, 51-61. 
53 

Owner’s Age

According to the analysis of the data from the Characteristics of Business Owners, more than 

half of all sole proprietors, regardless of race or ethnicity, are in the 35-to-54 age bracket. This is 

followed by entrepreneurs who are 55 years old and older. 

Hispanic firms have a larger proportion of entrepreneurs who are under 35 years old (22%) 

compared to other firms, excluding Native American and Other Pacific Islanders.112 All 

respondent firms, which include sole proprietors of any race or ethnicity, had the highest 

percentage of business owners age 55 and above, (31%) compared to other firms. 

Table 13: Age of Business Owners, 2002113

Owner's Group Under 35 35-54 

55 and 

above 

Item not 

reported

All Respondent Firms 14% 53% 31% 3% 

African American 17% 55% 24% 4% 

American Indian and 

Alaska Native 17% 55% 24% 3% 

Asian 18% 58% 21% 3% 

Hispanic 22% 56% 18% 3% 

Native Hawaiian and 

Other Pacific Islander 21% 54% 21% 3% 

It is not surprising to find that most entrepreneurs are in the 35-to-54 age bracket, followed by 55 

or older. As described in the beginning of this paper, a factor that may support the survival of a 

business is the age and experience of the business owner.114 

Businesses owners under 35 were more likely to close operations within four years compared to 

entrepreneurs age 55 and above. 115 

The lower educational attainment and relatively younger age of Hispanic business owners may 

pose a greater challenge to remain in business compared to other business owners. Without 

adequate education or business experience, entrepreneurs may be at a greater disadvantage to 

succeed in a knowledge-based economy and highly competitive global business environment.

 

112 Native Hawaiians and Other Pacific Islander firms could have similar proportion of business owners under 35 

years old compared to Hispanics at a 90% confidence level. 113 Available relative standard errors from which the reliability of the estimates can be determined can be found in 

Table 13b in the Appendix section. 

114 Headd, 51-61. 115 Ibid. 

In 2002, minority business owners were younger compared to their non-minority 

counterparts. The younger age of minority entrepreneurs may have posed a greater 

challenge to remain in business. Studies indicate owners age 34 and under are more 

likely to close operations within four years compared to those 55 and above. 
54 

CONCLUSION 

A firm’s business performance may be impacted by many factors, including the life cycle stage 

of the firm,116 its industry survival rate, sources and cost of capital used,117 number of owners, 

and the owner’s education118 and age, among other factors. 

Minority firms have been growing at a fast pace but their growth in gross receipts lagged behind 

their increase in number of firms between 1997 and 2002. The decrease in average gross 

receipts of minority firms was possibly led by a greater growth in number of firms with receipts 

under $500,000 compared to those that generate $500,000 or more in receipts during that same 

period. Moreover, average gross receipts of minority firms continued to fall behind those of 

non-minority firms, $167,000 compared to $438,000, respectively in 2002.119 

In this second analysis of the 2002 Survey of Business Owners (SBO), MBDA analyzed data on 

business and business owners’ characteristics from respondent firms to identify factors that could 

have impacted the business performance of minority firms in 2002. 

We found a greater proportion of minority businesses operating in 2002 used more expensive 

sources of capital, such as credit cards, to start or acquire the business, compared to non-minority 

businesses. Minority firms were also less likely to use bank loans to start, acquire, expand or 

finance the capital improvement of the business compared to non-minority firms. The costlier 

sources of capital used by minority entrepreneurs to start, acquire, expand, or finance the capital 

expansion of the business is likely to have negatively impacted their growth. 

We also found that capital source influenced the size of firms. A correlation was found between 

a firm’s receipts size and the use of capital. Larger minority firms with gross receipts of 

$500,000 or more were more likely to use lower-cost capital sources to start, acquire, expand, or 

finance the expansion of the business compared to smaller minority firms with receipts under 

$500,000. The use of lower cost financing sources to start or acquire a business in the first place 

may have provided an advantage to minority firms that eventually grew in size and generated 

$500,000 or more in gross receipts in 2002. Further research is necessary to explore this 

relationship, as well as to identify factors that may have influenced the use of more costly 

sources of capital by minority firms compared to non-minority firms. 

Different to all minority firms, average gross receipts of minority employer firms increased 

between 1997 and 2002. Additionally, employer firms have a greater survival rate compared to 

non-employer firms according to Brian Headd’s study. 

The behavior of minority employer firms is particularly important for advocates of minorityowned business enterprises. As Headd points out “firms that manage to survive do grow.” Thus, 

 

116 Bernard and Slaughter, 18-27 117 U.S. Department of Commerce, Minority Business Development Agency, Accelerating Job Creation and 

Economic Productivity, Expanding Financing Opportunities for Minority Businessess, (2003). 118 U.S. Department of Commerce, Economics and Statistics Administration and the Minority Business 

Development Agency. Keys to Minority Entrepreneurial Success: Capital, Education, and Technology, 2. 119 Data from MBDA’s analysis of a 2007 special tabulation of minority-owned firms operating in 2002 and the

1997 Survey of Minority-Owned Business Enterprises, both produced by the U.S. Census Bureau. 
55 

entrepreneurs with the fundamentals to manage their business successfully would have the 

greater potential for survival and growth. Compared to minority firms with no employees, 

minority employer firms would offer a greater potential for continued growth in revenues and 

new jobs, as well as a sustained, long-term impact on the nation’s economy and well-being. 

Another significant finding is that a greater proportion of minority firms generated 10 percent or 

more of their sales through exports compared to non-minority firms. Minority firms have a 

unique competitive advantage120 and opportunity to contribute to reversing the international trade 

imbalance through their export activity. In coordination with the International Trade 

Administration, the U.S. Patent and Trademark Office, and the Overseas Private Investment 

Corporation among other partners, MBDA can continue to contribute to increasing the level of 

export sales of minority businesses through trade missions and MBDA’s international businessto-business linkage program. 

It is vital that minority firms expand and diversify their sales to other businesses and 

organizations and to federal, state, and local governments. Through business development and 

brokering services, such as those provided by MBDA and its network of funded centers, minority 

firms can benefit from securing additional procurement opportunities with the public and private 

sectors. 

The lower educational attainment of minority business owners, with the notable exception of 

certain Asian entrepreneurs, may have impacted their firms’ business performance. Franchised 

businesses could be a viable option for minority entrepreneurs who stand to benefit from the 

management training and “turn-key” operations that franchisors provide. In addition, 

educational and business support programs, like those facilitated by MBDA and the Tuck 

School of Business at Dartmouth, among other partners, can help bridge the opportunity gap 

particularly for minorities with lesser educational attainment including, African Americans, 

American Indian and Alaska Natives, Hispanics, and Native Hawaiian and Other Pacific 

Islanders. 

Today, one third of the nation’s population is minority and by the year 2050 this group will 

represent more than half the people living in this country. Unquestionably, the future economic 

success of our nation in the global market will depend on the growth and expansion of minority 

owned businesses. 

The findings in this report provide an opportunity for the public and private sectors to understand 

better the characteristics of minority business enterprises. We acknowledge the immense value 

of the Census’ Survey of Business Owners without which this analysis would not have been 

possible. 

MBDA’s objective is that the report would lead to greater collaboration and the reengineering of 

existing programs and services, which would result in the growth and expansion of minority 

business enterprises more effectively. Moreover, the findings, combined with existing literature, 

shed light on public policy opportunities for federal, state, and local government decision 

makers. 

 

120 Owens and Pazornik, 1. 
56 

ACKNOWLEDGEMENTS 

This publication was prepared under the direction of the Minority Business Development 

Agency’s (MBDA) Chief Knowledge Officer Ivonne Cunarro. We would like to acknowledge 

U.S. Census Bureau’s Economic Census Branch Chief Lee Wentela, Business Investment 

Branch Chief Valerie Strang and Statistician Anthony Caruso, Economic Statistics 

Administration’s Economist Sabrina Montes, Tuck School of Business at Dartmouth Professor 

Leonard Greenhalgh for their review and valuable feedback. We would also like to thank 

MBDA’s Associate Director for Management Edith McCloud, Office of Business Development 

Chief Efrain Gonzalez, Office of Performance and Program Evaluation Director Jerry Miller, 

Program Analyst Melda Cabrera, Office of Legislative, Education and Intergovernmental Affairs 

Chief Bridget Gonzales, Texas and Atlanta Regional Director John Iglehart and his team, San 

Francisco Regional Director Linda Marmolejo, New York Regional Director Heyward 

Davenport, Boston Regional Enterprise Director Richard Torborg, Business Development 

Specialist Bernice Martinez, Program Analyst Donald Powers, and interns Yaou Dou, and Nam 

Nguyen for their contributions, support and editing of this document. 
57 

REFERENCES 

Bates, Timothy. “The Urban Development Potential of Black-Owned Businesses,” Journal of the 

American Planning Association, 72-2 (2006), 229. 

Bernard, Andrew B. and Matthew J. Slaughter. The Life Cycle of a Minority-Owned Business: 

Implications for the American Economy. Prepared in collaboration with the Minority Business 

Development Agency. 2004. 

Greenhalgh, Leonard. Lectures from the Tuck Executive Program at Dartmouth held in 

partnership with MBDA, 2003-2007. 

Headd, Brian. “Redefining Business Success: Distinguishing Between Closure and Failure,” 

Small Business Economics 21 (2003): 51-61. 

Knaup, Amy E. “Survival and Longevity in the Business Employment Dynamics Database,” 

Monthly Labor Review, Volume 128 (2005), Number 5. 

Owens, John and Robert Pazornik. Minority Business Enterprises in the Global Economy: The 

Business Case. Prepared in collaboration with the Minority Business Development Agency. 

2003. 

The Boston Consulting Group. The New Agenda for Minority Business Development. Kauffman 

Foundation, 2005. 

U.S. Census Bureau. 2002 Economic Census: Survey of Business Owners Company Summary. 

2006. http://www.census.gov/csd/sbo/index.html (accessed in 2007).

U.S. Census Bureau. 2002 Economic Census: Survey of Business Owners Characteristics of 

Businesses and Characteristics of Business Owners. 2006. 

http://www.census.gov/csd/sbo/index.html (acessed in 2007). 

U.S. Census Bureau. 1997 Economic Census: Survey of Minority Owned Business Enterprises. 

2001

U.S. Census Bureau, A Half-Century of Learning: Historical Statistics on Educational 

Attainment in the United States, 1940 to 2000. Internet release April, 2006.

http://www.census.gov/population/www/socdemo/education/introphct41.html, 

(accessed January 15, 2008).

U.S. Department of Commerce, Economics and Statistics Administration and the Minority 

Business Development Agency. Keys to Minority Entrepreneurial Success: Capital, Education, 

and Technology. Patricia Buckley. 2002. 
58 

U.S. Department of Commerce, Minority Business Development Agency. Accelerating Job 

Creation and Economic Productivity, Expanding Financing Opportunities for Minority 

Businesses. 2003 

U.S. Department of Commerce, Minority Business Development Agency. The State of Minority 

Business Enterprises, An Overview of the 2002 Survey of Business Owners, Number of Firms, 

Gross Receipts, and Paid Employees. 2006 

U.S. Small Business Administration, Office of Advocacy. Dynamics of Minority-Owned 

Employer Establishments, 1997-2001. Ying Lowrey. 2005. http://www.sba.gov/advol (accessed 

in 2007).
59 

APPENDIX: GLOSSARY OF TERMS

All U.S. Firms: All firms surveyed in the Census’ 2002 Survey of Business Owners. Include 

firms owned by American Indians, Asians, African Americans, Hispanics, Non-Hispanics, 

White, and publicly owned. 

Classifiable Firms: All U.S. firms except publicly held, foreign owned, non-profit, and other 

firms whose ownership cannot be classified by gender, race, or ethnicity. These include firms 

owned by minorities and non-minorities. 

Minority Firms: Firms owned by American Indian and Alaska Natives, Asians, African 

Americans, Hispanics, and Native Hawaiian and Other Pacific Islanders. See methodology for 

more information on data derivation. 

n/a: Not available. Many of the cells in the tables included in the report show this designation 

because statistics necessary to derive the data were suppressed in the Census’ 2002 SBO to 

protect the privacy of individual firms or for quality standards, among other factors. 

Non-Minority Firms: Firms owned by individuals who are not American Indian and Alaska 

Natives, Asians, African Americans, Hispanics, or Native Hawaiian and Other Pacific Islanders. 

See methodology for more information on data derivation. 
60 

APPENDIX: ADDITIONAL TABLES

Table 4b: Relative Standard Error Estimate (Percent) for Number of Employer Firms, 

Receipts of Employer Firms, and Number of Employees 

Table 7b: Standard Error Estimate (Percent) for Percentage of Respondent Firms which 

Used Sources of Capital to Start or Acquire the Business, 2002

Respondent 

Group

SE of 

Estimate 

(percent) 

for

Personal/ 

Family 

Savings

SE of 

Estimate 

(percent) 

for Other 

Personal/

Family 

Assets

SE of 

Estimate 

(percent) 

for

Personal/

Business

Credit 

Card

SE of 

Estimate 

(percent) for

Business 

Loan from 

Government

SE of 

Estimate 

(percent) for

Governmentguaranteed 

Bank Loan

SE of 

Estimate 

(percent) 

for

Business 

Loan 

from Bank

SE of 

Estimate 

(percent) 

for

Outside 

Investor

SE of 

Estimate 

(percent) 

for

None 

Needed

African 

American .3 .2 .3 .1 0 .1 .1 .4 

American Indian 

and Alaska 

Native 

1.0 .3 .4 .1 .1 .4 .2 .7 

Asian .3 .1 .1 0 0 .1 .1 .3 

Hispanic .3 .2 .1 0 0 .1 .1 .3 

Native Hawaiian 

and Other 

Pacific Islander

1.3 1.7 .7 .7 .2 .8 .5 1.7 

Minority Firms n/a n/a n/a n/a n/a n/a n/a n/a 

Non-Minority 

Firms n/a n/a n/a n/a n/a n/a n/a n/a 

All Respondents .1 0 0 0 0 0 0 0 

Publicly Held* .2 .1 .1 .1 .1 .1 .2 .3 

Group Year

RSE of 

Estimate 

(percent) 

for Number

of Firms

RSE of Estimate 

(percent) for 

Annual Gross 

Receipts ($1,000s)

RSE of Estimate 

(percent) for 

Employees

African 2002 1 1 3 

American 1997 2 3 4 

American Indian and 2002 2 4 3 

Alaska Native 1997 4 7 13 

2002 1 2 1 Asian 1997 1 4 5 

2002 1 3 3 Hispanic 1997 1 4 3 

Native Hawaiian 2002 7 10 10 

and Pacific Islander 1997 12 5 10 

2002 0 1 1 

Total Minority 1997 1 3 3 

2002 n/a n/a n/a Total Non-Minority 1997 n/a n/a n/a 

2002 0 0 0 All Firms 1997 0 0 0 
61 

Table 9b: Standard Error of Estimate (Percent) for Percentage of Respondent Firms which 

Used Sources of Capital for Expansion or Capital Improvements, 2002

Respondent 

Group

SE of 

Estimate 

(percent) 

for

Personal/ 

Family 

Savings

SE of 

Estimate 

(percent) 

for Other 

Personal/ 

Family 

Assets

SE of 

Estimate 

(percent) 

for

Personal/ 

Business 

Credit 

Card

SE of 

Estimate 

(percent) for

Business 

Loan from 

Government

SE of Estimate 

(percent) for

Governmentguaranteed 

Bank Loan

SE of 

Estimate 

(percent) 

for

Business 

Loan from 

Bank

SE of 

Estimate 

(percent) 

for

Outside 

Investor

SE of 

Estimate 

(percent) 

for None 

Needed

African 

American .2 .2 .3 0 0 .1 .1 .3 

American 

Indian and 

Alaska Native

.8 .2 .4 .1 .1 .2 .2 .7 

Asian .2 .1 .1 0 0 .1 .1 .2 

Hispanic .3 .1 .2 0 0 .1 .1 .4 

Native 

Hawaiian 

and Other 

Pacific 

Islander

1.4 .8 1.2 .4 .4 1.0 S 1.5 

Minority Firms n/a n/a n/a n/a n/a n/a n/a n/a 

Non-Minority 

Firms n/a n/a n/a n/a n/a n/a n/a n/a 

All 

Respondents 0 0 0 0 0 0 0 0 

Publicly held, 

and other 

firms

.1 .1 .1 0 0 .1 .1 .1 

Table 12b: Standard Error of Estimate (Percent) for Educational Attainment of Business 

Owners, 2002

Owner's Group 

Less than 

High School 

High 

School

Technical 

Degree 

Some 

College 

Associate 

Degree 

Bachelor’s 

Degree 

Master’s 

Degree 

Item not 

reported

All Respondent 

Firms 0 0 0 0 0 0 0 0 

African 

American 0 0 0 0 0 0 0 0 

American 

Indian and 

Alaska Native 

0 1 0 1 0 0 1 0 

Asian 0 0 0 0 0 0 0 0 

Hispanic 0 0 0 0 0 0 0 0 

Native Hawaiian 

and Other 

Pacific Islander 

1 1 1 1 1 1 1 0 
62 

Table 13b: Standard Error of Estimate (Percent) for Age of Business Owners, 2002

Owner's Group Under 25 25 to 34 35 to 44 45 to 54 55 to 65 

65 and 

over 

Item not 

reported 

All Respondent 

Firms 0 0 0 0 0 0 0 

African 

American 0 0 0 0 0 0 0 

American 

Indian and 

Alaska Native 0 0 0 1 0 0 0 

Asian 0 0 0 0 0 0 0 

Hispanic 0 0 0 0 0 0 0 

Native Hawaiian 

and Other 

Pacific Islander 1 1 2 1 1 1 1 

Table 14b: Standard Error of Estimate (Percent) for Percentage of Respondent Firms 

Operated as Home-Based, Family-Owned, or Franchised, 2002 

Respondent Group

SE of Estimate 

(percent) for

Home-Based

SE of Estimate 

(percent) for

Family-Owned

SE of Estimate 

(percent) for

Family-Owned, 

One Owner

SE of Estimate 

(percent) for

Franchised

African American .5 .3 .4 .1 

American Indian 

and Alaska Native 1.0 .8 .8 .2 

Asian .3 .2 .3 .1 

Hispanic .3 .2 .3 .1 

Native Hawaiian 

and Other 

Pacific Islander

2.1 1.3 1.4 .8 

Minority Firms n/a n/a n/a n/a 

Non-Minority 

Firms n/a n/a n/a n/a 

Table 15b: Standard Error of Estimate (Percent) for Percentage of Respondent Firms with 

Sales of 10 Percent or More to Customer Categories, 2002 

Respondent Group

SE of 

Estimate 

(percent) for

Federal 

Government

SE of 

Estimate 

(percent) for

State and 

Local 

Government

SE of 

Estimate 

(percent) 

for Export 

Sales

SE of Estimate 

(percent) for

Other 

Businesses/ 

Organizations

SE of Estimate 

(percent) for 

Household 

Consumers/ 

Individuals

SE of 

Estimate 

(percent) 

for All 

Others

African American .1 .2 .1 .2 .3 .3 

American Indian 

and Alaska Native .3 .4 .1 .8 .9 .6 

Asian .1 .1 .1 .2 .4 .2 

Hispanic .1 .2 .1 .1 .3 .2 

Native Hawaiian 

and Other 

Pacific Islander

.5 1.0 1.0 1.2 1.4 1.2 
63 
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