America is growing and changing, inching ever closer to a true melting pot of people, places, and business — and the restaurant industry is no exception. In recent years, we’ve seen minority owned business continue to flourish, despite obstacles in their way. So, how have things changed in the last decade? What do these changes mean for these businesses when attempting to obtain the financing they need to achieve their dreams?
Let’s look at where things are now. According to Babson College’s State of Small Business in 2016, the proportion of minority owned business in the United States breaks down like so:
| Minority ownership | % of Total Businesses |
|---|---|
| Black | 6.3% |
| Latinx | 13.5% |
| Asian-American/Pacific Islander (AAPI) | 6.2% |
But the real story for minority owned business in the United States is in the growth pattern, particularly in regard to the restaurant industry. In fact, just between 2007 and 2012, we saw the rate of Black- and Latinx-owned businesses in particular rise sharply in comparison to the overall business environment.
| Minority ownership | Restaurant Industry Growth Rate | Overall Industry Growth Rate |
|---|---|---|
| Black | 49% | 35% |
| Latinx | 51% | 46% |
| AAPI | 18% | 24% |
US Census Bureau statistics 2007 and 2012, as reported by the National Restaurant Association.
As a result of the steady growth in recent years, fully four in 10 restaurant businesses are now majority-owned by minorities. But in the overall economy, only 29 percent of businesses are owned by minorities. The disparity can in part be attributed to the large participation of AAPI community in the American restaurant industry over time. While the rate of growth in AAPI restaurant ownership has slowed in recent years, that community has traditionally already held a larger share of the industry space than their Black and Latinx colleagues, upwards of 23% of the market — double that of Latinx-ownership and up to 7.5 times that of Black-ownership.
Promoting Minority Owned Business
Part of the recent rise in quantity of both Black- and Latinx-owned restaurants nationwide may be attributed to the significant organizing and self-promotion these communities have launched to support restaurants as a self-owned/operated business opportunity.
For instance, Black Restaurant Week is now an annual event across the United States, a visible opportunity for Black-owned restaurants to offer special deals on prix fixe menu meals to bring in new customers and raise awareness. It brings visibility not just to a wide range of cuisine types and styles in the community, but also shines a spotlight on their growing economic success within the country’s Black community. It’s just one method of sustainable support that helps strengthen traditionally challenged communities and open opportunities for future generations.
Latino Restaurant Week has also been an annual event in select areas of the country, originating in New York City in the 1990s. Not as widespread a phenomenon as Black Restaurant Week, but hitting major metropolitan areas nonetheless, the event draws thousands of patrons every year. In October 2016, Boston launched its own Latino Restaurant Week as well, showcasing 10 Latinx-owned and inspired restaurants for 10 days of special menu offers.
Awareness within the communities for minority restaurant owners may be growing, but what about the money? It’s one thing to continue to grow your business once it’s on its feet, but how do minority-owned businesses get to that place?
Financing Minority Owned Business
According to a study conducted at Brigham Young University in 2014, it’s harder than you’d think. Compared to their white business-owner counterparts, minority small business owners seeking loans are regularly:
- provided with less information on loan terms.
- questioned more aggressively about their personal finances.
- given less help by loan officers with the application process.
“There is a general belief among Americans that we’re the land of opportunity and that anyone can pull themselves up by their bootstraps,” said Glenn Christensen, Associate Professor of marketing at BYU. “It is a land of opportunity, but that opportunity is not always equally accessible.”
The data backs this up, even on the Federal level. According to their weekly lending report, the Small Business Association (SBA) extends financing largely in a disproportionate manner to minority owned business in its standard 7(a) and 504 programs.
7(a) provides short- or long-term, small business loans that can be used for operational expenses, accounts payable, inventory, cash flow, the purchase of land or building structures, equipment, FF&E, renovation costs, and to start a business or expand an existing one.
| Minority ownership | % of Dollar Value | % of Total Loans |
|---|---|---|
| Black | 2% | 4% |
| Latinx | 6% | 8% |
| AAPI | 23% | 13% |
2017 SBA statistics, as reported 3/31/17.
504 is much more narrow in scope, providing long-term, small business loans that can be used to acquire fixed assets for expansion or modernization. Fixed assets include land, existing building structures, long-term use equipment, or renovated facilities.
| Minority ownership | % of Dollar Value | % of Total Loans |
|---|---|---|
| Black | 2% | 2% |
| Latinx | 6% | 7% |
| AAPI | 22% | 14% |
2017 SBA statistics, as reported 3/31/17.
However, there are a number of sources for your minority-owned business to consider — including avenues for other small business loans, grants, and other cash financing programs — but three of the most prevalent are as follows:
SBA 8(a)
Another aspect of the work being done by the Small Business Association, the SBA 8(a) Business Development Program can provide assistance to your qualifying minority-owned business through one-on-one counseling, training workshops, management, and technical assistance. While not a direct financing option, the program aggressively opens doors to government contracts and joint ventures that can have big benefits for small businesses otherwise unable to compete in the larger market.
In order to qualify for the 8(a) program, your business must be at least 51% owned by one of the following minority groups: African American, Hispanic American, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. Other groups can apply for this program if they can prove that they have been discriminated against or are at an economic disadvantage, including Alaska Native corporations, Indian tribes, Native Hawaiian organizations, and community development corporations.
MBDA
Another avenue for minority business owners to pursue is Minority Business Development Agency (MBDA) at the U.S. Department of Commerce. MBDA maintains over 30 business centers nationally whose purpose is to assist minority-owned businesses with access to capital, contracts, and new markets. They employ specialists available to help growing restaurants and other businesses apply for grants.
Neither one of the above are direct sources of cash funding, but assistance programs that can drive minority-owned business toward opportunities available in the grant and loan environment.
MCA
Merchant cash advance (MCA) companies like Rewards Network can provide assistance to minority owned business where traditional bank lenders may fall short. Restaurants that finance their business through Rewards Network receive cash upfront in exchange for the purchase of future receivables — credit card sales that will occur over time. When those credit card sales actually occur, Rewards Network receives a set percentage of that total.
And Rewards Network only receives money, in the form of the receivables it purchased, to the extent that your business generates credit card sales. Rewards Network’s merchant cash advances are not loans, as such there is no set monthly repayment amount, like with a small business loan. The cost to your business is a set percentage of credit card sales based entirely on the ebb and flow of your business. For minority-owned business establishments like restaurants that experience seasonal changes, this is a distinct advantage.
Merchant cash advances don’t have the same limitations that small business loans do in terms of what a restaurant can use the money to fund. Anything from improvements and renovations, to regular expenses, payroll, and simple cash flow can be financed with a merchant cash advance.
The added benefit of a Rewards Network merchant cash advance is the marketing services we provide restaurants, included automatically with every financing offer at no extra cost. The value of high income, frequent diners we drive through your doors can be as high as 4-6% of your top line revenue, consistent month after month without fear of churn or attrition.
Want to get a sense of how much cash Rewards Network could provide your minority owned business?
Quotes are provided for informational purposes; actual funding amounts and associated terms are subject to Rewards Network’s due diligence and your execution of a receivables purchase agreement.
