Minority business enterprises (MBEs) 101: What qualifies as one, how to get certified, and why they’re important

Entrepreneurship is necessary for our economy. According to the Minority Business Development Agency, 15% of businesses in the United States were startups in the late 1970s. That number has dropped to only 8% in recent years.

The National Minority Supplier Development Council (NMSDC) states that 50% of the U.S. population will be made up of minorities by 2050. Minority business enterprises (MBEs) have generated over $400 billion, created and preserved 2.2 million jobs, and contributed $49 billion in local, state, and federal tax revenue.

The future health of our nation’s economy may lie with our diversifying population – and businesses owned by Indigenious, Asian, Black, and Hispanic communities must increase. However, minority-owned businesses face common challenges that increase their barriers to entry, including limited access to capital and lack of business networks.

Becoming a certified minority business enterprise (MBE) through the National Minority Supplier Development Council (NMSDC) may help to solve or decrease the impact of these challenges on minority entrepreneurs. 

What qualifies as a MBE?

The business must be at least 51% minority-owned, managed, and controlled. The NMSDC qualifies a minority group member as someone who is at least 25% Asian-Indian, Asian-Pacific, Black, Hispanic, or Native American. 

Daily operations and management must be operated by the minority ownership member. If the business is publicly-owned, at least 51% of the stock must be owned by at least one minority group member. 

The business must be a for-profit organization located in the United States. Applicants also have to be U.S. citizens.

How do MBEs get certified?

The NMSDC’s MBE application is very thorough to ensure certified MBEs are actually minority-operated. The process can take up to 3 months to complete.

The application is mostly done online, and requires several types of documentation, depending on what type of business you own. All of the information is audited, and a site visit is done by a certification specialist. The Board of Directors makes the final approval.

The Board of Directors is a diverse team of experienced leaders throughout several different industries. The 2021 board includes Melani Wilson Smith of PepsiCo, Shashi Mandapaty of Johnson & Johnson, and Harvey Butler of Barclays, and many other diversity-minded leaders.

Why should my business be MBE certified?

More often than not, BIPOC entrepreneurs start their businesses at a smaller scale compared to white entrepreneurs. According to the Stanford Institute for Economic Policy Research, minority business owners obtain less capital in the early years of their corporations than white business owners. These differences in financial capital continue to compound over time.

The biggest reason for this disparity is that minority entrepreneurs access less outside debt in their company’s founding years. Minority-owned businesses are more frequently denied loans. 

The Stanford Institute cites a few reasons for this, with the most profound being that even the most credit-worthy BIPOC borrowers don’t apply for loans because of the belief that even qualified BIPOC borrowers will be denied.

Other reasons for lack of capital are biases among white lenders against BIPOC borrowers, and differences in founder net worth and business credit scores (a lack of generational wealth in minority families). 

Becoming a certified MBE gives you access to several federal loans created to help even this imbalance.

Another benefit of being a certified MBE is that it gives you access to the diversity spending of top corporations. Many Fortune 1000 companies have supplier diversity programs with spending goals to supply their products and services from minority business enterprises.

Large corporations are always looking for minority-owned suppliers to partner with to help meet their diversity spending goal – but the supplier must be a certified MBE to count toward the goal.

Becoming a MBE also opens a variety of networking opportunities. Once you become a MBE, you will have exposure to more than 13,000 minority-owned, like-minded organizations to connect with and find business opportunities.

The NMSDC also hosts events and conferences designed to connect MBEs with prospective buyers and government agencies.

In conclusion

Companies owned by minorities are the key to the future health of the U.S. economy, but there are many factors that prevent these startups from growing into a successful company. The MBE certification is a lengthy process, but it may help you obtain additional capital and connect with other founders and businesses.