Certification for Minority-Owned Businesses (MBE) : Definition, Challenges and Benefit

Small minority and women-owned businesses that meet the MBE program's eligibility criteria are encouraged to apply for certification. Eligibility depends on minority status, ownership, control, size and personal net worth of the minority owner(s).

The certification process is organized in such a way that only companies that meet all the requirements of state law are eligible to participate in the program. 

Certification for Minority-Owned Businesses

The good news is that you don't have to tackle this alone. There are programs designed specifically for minority business owners that can propel their companies forward. If you haven't obtained certification as a minority-owned business yet, you're missing out on growth opportunities.

What is Minority-Owned Business Certification?

Minority-Owned Business Certification, also known as Minority Business Enterprise (MBE) certification, is the official recognition that a company is owned by individuals or groups from specific minority backgrounds, including Black Americans, Native Americans, Hispanic Americans, Asian Americans, and Pacific Islander Americans. To qualify, the individual must be a US citizen or resident. Some minority business owners seek certification for various reasons, such as enhancing their reputation, demonstrating pride in their company, publicly showcasing their ownership, serving as role models, promoting others to follow their path, and expanding their knowledge and skills.

Certificate programs are available in every state, primarily administered by local governments, although some private organizations also offer MBE certifications. These programs aim to assist minority business owners in growing their enterprises through education, mentoring, financing, and other resources. After certification, you can access these benefits through local or national organizations.

There are also several national organizations that offer support to certified minority-owned businesses:

Black Business Association (BBA): Offers events, training, networking opportunities, and helps shape policies benefiting Black-owned companies nationwide.

National Hispanic Business Group (NHBG): Provides MBE-certified Hispanic businesses with access to events, education funding, and networking opportunities.

National Minority Supplier Development Council (NMSDC): Offers access to contract opportunities, business fairs, educational programs, and networking.

Minority Business Development Agency (MBDA): Assists MBE-certified businesses with training, capital, technical assistance, and access to new markets.

US Small Business Administration (SBA): Provides government contracts and mentorship programs to minority-owned businesses certified through the 8(a) Business Development Program.

US Black Chambers: Grants access to networking and advocacy opportunities, educational webinars, podcasts, and financing for MBE-certified Black business owners.

US Hispanic Chamber of Commerce: Hosts events, offers online programs, and provides access to capital for Hispanic businesses.

US Pan Asian American Chamber of Commerce: Offers education, contracts, and investor connections to MBE-certified Pan Asian American business owners, including Pacific Islanders, South Asians, East Asians, and Southeast Asians.

In recent years, enterprise organizations have taken initiatives to diversify their supply chains and collaborate with a greater number of minority-owned businesses. However, certification can often pose a challenge, hindering suppliers from obtaining new contracts and buyers from finding suitable suppliers to fulfill diversity goals.

While official certifications bring numerous benefits to both suppliers and buyers, such as increased visibility and confidence, the process of obtaining these certifications is not always simple or feasible. This challenge is particularly true for minority-owned companies, which historically face additional growth barriers.

It's crucial to recognize the difficulties minority-owned businesses encounter, address the challenge of MBE certification, and take steps to provide easier access to new business opportunities. By doing so, enterprise organizations can gain a better understanding of potential suppliers, enhance supplier diversity programs, and make a positive impact in their communities.

Additional Struggles Faced by Minority-Owned Businesses

It's widely known that starting any small business carries the risk of failure. However, according to CNBC, black-owned businesses appear to struggle the most, with eight out of ten closing within the first 18 months. Why do these businesses face a harder time in sustaining themselves?

Inequity in Business Opportunities

Black-owned businesses, in particular, tend to start at a disadvantage compared to white-owned enterprises. These businesses are more likely to be located in areas with unfavorable business environments, leading to poorer outcomes. Additionally, while approximately 15% of white Americans hold business equity, Black Americans hold only 5%.

When combined with the fact that black-owned businesses often face a larger gap in business activity and are disproportionately concentrated in only 20% of industries, these companies face an uphill battle in achieving success.

Pandemic Challenges

While the pandemic adversely affected businesses worldwide, minority-owned businesses faced even greater difficulties in maintaining financial stability and accessing financial aid. Even before the pandemic, a larger number of minority-owned businesses were considered financially at risk. When the pandemic hit, many of these businesses struggled to secure Paycheck Protection Program (PPP) loans, with numerous rejections during the initial rounds of funding. Some businesses even faced challenges in getting banks to respond to their loan applications in the first place.

Considering these existing challenges, where does certification come into play?

The Challenge of MBE certification

Although earning certification does not guarantee increased revenue for minority-owned businesses, it does open doors to additional opportunities and contracts. However, obtaining these certifications is not a straightforward process.

Requirements for Diversity Certification

To qualify as a Minority Business Enterprise, a business must meet the following standards:

Be a for-profit business located in the United States

Be majority-owned (51%) or operated on a daily basis by an individual belonging to one of the following ethnic groups: African American, Asian American, Native American, or Hispanic American.

Cost of Certification

The cost of certification can vary depending on the agency—federal, state, or private sector—with which a company seeks certification, as well as the business's size and location. Generally, the financial fee for an MBE certification from a private sector organization ranges from $350 to $1,000. However, obtaining certification not only involves a monetary cost but also demands significant time and effort. The National Minority Supplier Development Council outlines a nine-step certification process that includes submitting various documents, undergoing accuracy audits, and hosting site visits by certification specialists.

Missed Business Opportunities

Diversity certifications provide heightened visibility for small businesses, enabling them to appear in more supplier discovery searches conducted by larger enterprises. These certifications also contribute to a more equitable procurement landscape, allowing small and diverse businesses to compete for larger contracts. Without certification, suppliers may miss out on potential business opportunities.

From the buyer's perspective, establishing and expanding supplier diversity programs can be challenging when they lack a comprehensive view of viable suppliers who can help meet their goals. Procurement teams may fail to discover certain suppliers if the lack of certification causes them to be absent from search results. As a result, organizations miss out on countless opportunities to achieve diversity goals, foster competition within their supply chains, and attain greater cost savings by not identifying these suppliers.

Benefits of Minority-Owned Business Certification

Certification as a minority-owned business is an official designation given to businesses owned by individuals from racial or ethnic minority groups. One key benefit is that certified companies gain a competitive advantage when bidding for government contracts and other business opportunities.

For example, government and corporate entities allocate a percentage of their budgets each year specifically for minority-owned businesses. Philadelphia awards 35% of its city contracts to minority, women, and disabled-owned businesses, while in 2020, Wisconsin allocated 5.4% of state agency contracts to minority-owned businesses.

Becoming a certified minority business owner qualifies you for federal and state contracts, as well as other corporate opportunities. Organizations actively seek certified minority businesses to build a diverse supply chain, establish partnerships, and stimulate economic growth. Moreover, some governments offer incentives to companies that engage certified minority businesses. In Georgia, for instance, companies that subcontract to certified minority business owners receive a tax break of 10% for up to $100k in payments to the subcontractor.