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Federal efforts to aid minority businesses began in the
1960′s when the Small Business Administration (SBA)
began making federally guaranteed loans and government-
sponsored management and technical assistance
available to minority business enterprises. While this
program enabled many minority entrepreneurs to
form new businesses, the results were disappointing,
since managerial inexperience, unfavorable locations,
and capital shortages led to high failure rates. Even 15
years after the program was implemented, minority
business receipts were not quite two percent of the national
economy’s total receipts.

Recently federal policymakers have adopted an
approach intended to accelerate development of the
minority business sector by moving away from directly
aiding small minority enterprises and toward supporting
larger, growth-oriented minority firms through intermediary
companies. In this approach, large corporations
participate in the development of successful and stable
minority businesses by making use of government sponsored
venture capital. The capital is used by a
participating company to establish a Minority Enterprise
Small Business Investment Company or MESBIC. The
MESBIC then provides capital and guidance to minority
businesses that have potential to become future suppliers
or customers of the sponsoring company.

MESBIC’s are the result of the belief that providing
established firms with easier access to relevant management
techniques and more job-specific experience, as
well as substantial amounts of capital, gives those firms
a greater opportunity to develop sound business foundations
than does simply making general management
experience and small amounts of capital available.
Further, since potential markets for the minority busi-
nesses already exist through the sponsoring companies,
the minority businesses face considerably less risk in
terms of location and market fluctuation. Following
early financial and operating problems, sponsoring
corporations began to capitalize MESBIC’s far above
the legal minimum of $500,000 in order to generate
sufficient income and to sustain the quality of management
needed. MESBIC’s are now emerging as increasingly
important financing sources for minority enterprises.

Ironically, MESBIC staffs, which usually consist of
Hispanic and Black professionals, tend to approach
investments in minority firms more pragmatically than
do many MESBIC directors, who are usually senior
managers from sponsoring corporations. The latter
often still think mainly in terms of the “Social Responsibility
Approach” and thus seem to prefer deals that are
riskier and less attractive than normal investment criteria
would warrant. Such differences in viewpoint have produced
uneasiness among many minority staff members,
who feel that minority entrepreneurs and businesses
should be judged by established business considerations.
These staff members believe their point of view is closer
to the original philosophy of MESBIC’s and they are
concerned that, unless a more prudent course is followed,
MESBIC directors may revert to policies likely
to re-create the disappointing results of the original SBA
approach.