Build Diversity and Create Equity By Offering Small Businesses Sustainable Opportunities

By Glen Shumate, Crain's 

It's often said that small businesses are the foundation of the American economy. What isn't routinely recognized is the fact that small businesses owned by women and minorities face significant barriers to long-term economic success, namely access to capital and access to contracting opportunities.

White business owners were more likely to get a bank loan in their first year of business, use business credit cards in their first year and have more capital to start a business than Black business owners, according to a report published by the Stanford Institute for Economic Policy Research in 2016.

Access to capital is a significant barrier to small companies, one that can be addressed with programs that help minimize the risk in lending for banks and other creditors. The Small Business Association Office of Capital Access, for example, offers microloans, surety bonds and other financing tools to small, minority- and female- owned businesses. However, data show that in 2019, only 3% of 7(a) loans, the SBA's primary small business loan program, were awarded to Black-owned small businesses. These disparities persist, including in the federal Paycheck Protection Program recently launched to help business owners withstand pandemic-related challenges.

Public sector disparity studies, like the one published by Cuyahoga County on Nov. 4, show that minority and female contractors receive disproportionately less business from the county than majority-owned firms. The study found that "all minority-owned construction firms have revenue shares below their firm representation shares."

These barriers exist despite the fact there are long-established programs and initiatives to address these gaps. We can and must do more to help minority- and female-owned businesses achieve equity in contracting. The key is to create long-term partnerships between project owners and small minority- and female-owned businesses that provide sustainable opportunities for contracts, income and business growth.

Why is sustainability important? Consistent contracting opportunities over time help small businesses gain experience, establish a qualified workforce, build credit, become more competitive and potentially transform from a subcontractor to a prime contractor.

Two of the more effective tools for supporting equitable and sustainable opportunities are the Small Business Administration's (SBA) 8(a) program and Job Order Contracting.

The SBA's Minority Small Business and Capital Ownership Development Program, known as the 8(a) program, facilitates and strengthens relationships between established SBA businesses and small socially- and economically-disadvantaged businesses. The goal of the 8(a) program is to ensure at least 5% of federal contracting goes to disadvantaged businesses. In 2019, the federal government awarded $18.5 billion in contracts to 8(a) companies.

Locally, both Coleman Spohn and Ozanne Construction participated in the 8(a) programs leading to long-term success. The first generations of these businesses struggled through significant challenges. Now, Coleman Spohn and Ozanne Construction have seen the benefits of consistent and intentional opportunities through programs like 8(a).

Job Order Contracting (JOC) allows a small minority-owned enterprise to bid for a long-term contract that covers numerous small construction and maintenance projects, eliminating the need to bid each project. While in use at some state of Ohio agencies, higher education institutions and within the Cleveland Clinic, it is not yet standard practice.

The benefits of JOC to institutions are clear. According to Gordian, JOC offers administrative cost savings to both the owner and the contractor, and projects are much more likely to be completed on time (94%) compared to design-build (73%) or design-bid-build (63%) projects.

Long-term partnerships benefit owners and small companies, particularly minority- and female-owned companies that too often face high barriers to business success. Creating sustainable opportunities and improving cash flow and payment terms for minority- and female-owned companies is a moral and economic imperative.

We all benefit from a diverse and inclusive construction industry. The more opportunities there are for people of color to participate in the construction industry, the stronger our economy will be. More people of color will have the opportunity to train for and get good-paying jobs. More local and small minority- and female-owned businesses will have the opportunity to thrive, hire more people and grow. And more young people can be inspired when they see people who look like them working on the job sites in their communities.

Let's utilize these tools to help make all of this a reality. It is time that we, as trade associations, developers, project owners and allies of small business, become intentional about ensuring the tools are used successfully.