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Minority Business Enterprises and the Construction Industry Part 3

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In this four-part article, we are focusing on how to create opportunities for minority-owned construction businesses. In the first and second sections, we discussed the history of minority business enterprises (MBE) in America and the current trend of the rapid development of minority-owned businesses. Although it’s encouraging to observe this accelerated rate of success, there are still many prevalent challenges for minority-owned firms.

In this section, a Jacksonville construction lawyer will discuss some of the obstacles that MBEs face. It’s important to note that many of these challenges go beyond the business owner’s race and are issues that countless small business owners experience in the construction industry.

The Challenges of Running a Small Business

Generally, minority-owned businesses are smaller than non-minority run businesses. In fact, according to the Minority Business Development Agency (MBDA), only two percent of minority-owned firms generate over one million dollars in revenue annually. Here are three major obstacles that MBE’s need to overcome:

  • Capital: Small businesses consistently face various financial challenges. For example, if a small business owner desires to work on a lucrative project, they will often be required to provide a performance bond for the project in excess of hundreds of thousands of dollars. Without access to sufficient capital, the small business owner will not be able to gather enough funds to make a “good faith payment” and thus, will not qualify for the work.
  • Loans and Interests Rates: According to MBDA, minority-owned firms are three times more likely than a non-minority firm to be denied a loan. Further, a minority firm is typically charged at a higher interest rate than a non-minority firm. Moreover, an MBE is less likely to receive sufficient loans for a project when approved.
  • Procuring Projects: With less working capital, it should come as no surprise that the majority of minority-owned firms procure fewer contracts than their competitors. When projects are procured by a minority-owned firm, the scope of work is typically smaller and not as lucrative as non-minority firm contracts.

Networking and Public Perception

Another significant issue for many MBEs is finding opportunities and creating valuable connections in the industry. Many movers and shakers in the construction industry rely on the “comfort hire” meaning that they have worked with the contractor in the past and are comfortable working with this professional again. Although many of these challenges transcend race, it’s important for MBE’s to constantly network and build relationships with general contractors and owners. Marketability is crucial for business owners of all races and genders.

For more information on minority-owned construction businesses, please read section four.

If you would like to speak with one of our Jacksonville construction lawyers, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.