Special Message to the Congress on Minority Enterprise.

To the Congress of the United States:

From its start, America has prided itself on being a land of opportunity.

In recent years, we have done much to press open new doors of opportunity for millions of Americans to whom those doors had previously been barred, or only half open. In jobs, housing, education, old obstacles are being removed. But for Blacks, Mexican Americans, Puerto Ricans, Indians and other minorities who have known discrimination, economic opportunity must also increasingly be made to mean a greater chance to know the satisfactions, the rewards and the responsibilities of business ownership. Such opportunities are not only important in themselves; they also help make possible the economic and social advances that are critical to the development of stable and thriving communities on which the social and economic vitality of the Nation as a whole depend.

Despite a long history of frustration and lost potential, minority Americans want business ownership--and they should. Potential minority entrepreneurs are eager to join the mainstream of the Nation's commerce. Many need help in getting started--and increasing numbers are getting that help. A working coalition of the Government, the private sector and minority communities is moving rapidly to provide disadvantaged Americans with opportunities to own and control their own successful businesses.

The principal need of minority business today is for a greater supply of investment capital. Technical assistance, training, promotion and business opportunities are all fundamentally related to investment capital, that centripetal force which draws together the people, skills, equipment and resources necessary to operate a profitable business.

The coalition of public and private sectors and minority interests supporting disadvantaged business enterprise must be strengthened now, if we are to achieve the goal of generating the additional investment capital needed.

Today, therefore, I am turning to the Congress for its cooperation and help. I urge the approval by the Congress of the following:

--first, the Minority Enterprise Small Business Investment Act of 1972;

--second, a budget request for the office of Minority Business Enterprise of $63.6 million for fiscal 1973;

--third, a variety of other small business legislation currently pending in Congress which will directly and collaterally aid minority enterprise.

THE PRESSING NEED

The Nation's Black, Spanish-speaking and Indian and other minorities constitute about one-sixth of the American population. Yet in 1967--the last year for which final figures are available--these American minorities accounted for well below one percent of the total business income of the Nation. Gross receipts of almost $1.5 trillion were reported in that year by all American businesses. of this amount, minority-owned firms received only $10.6 billion, or less than one percent. In the United States today, there are more than 8 million businesses; minority Americans presently own only about 4 percent of these businesses, despite the fact that they constitute almost 17 percent of our population.

These statistics starkly summarize the gross disparity of the minority enterprise imbalance, but they do not adequately outline the broader effects on our society at large. The human cost, in terms of lost potential and lowered horizons, is immeasurable.

RESPONDING TO MINORITY NEEDS

Recognizing the need for Government incentives and leadership, I took steps in my first months in office to awaken the Federal establishment and the private sector to the potential for development of minority business. First, I established the office of Minority Business Enterprise (OMBE) within the Department of Commerce to plan and coordinate comprehensive minority business development. Secondly, the Small Business Administration (SBA) undertook to increase minority participation in its many business programs. Thirdly, I directed all Federal departments and agencies to respond to the aspirations and needs of minority entrepreneurs, particularly by use of their procurement powers.

PROGRESS REPORT

I am pleased to report to the Congress that our efforts to stimulate the Federal Government and private sector have been highly productive. A comprehensive statement of accomplishments was published in January of this year entitled, "Progress of the Minority Business Enterprise Program." Let me summarize the highlights of that report for you and outline our current status.

office of Minority Business Enterprise. Only the private sector working with the Government can reverse a century's discouragement of minority enterprise; the Government cannot do it alone. The Nation's established corporations, financial institutions, professional associations, foundations, and religious organizations are indispensable to meet the demand of minority businessmen for seed capital, operating funds, suppliers, markets, expert technical and management assistance and related business essentials.

Three years ago, there were no precedents, no rule books, no methods, no blueprints on how to focus the resources of these groups on a common objective. OMBE's greatest achievement during these past three years has been to forge an alliance of Government, private sector and minority business interests. The Office has succeeded in launching a carefully contoured, integrated set of programs that will work to engage minority entrepreneurs fully in our Nation's economic life.

Gains. Since the establishment of OMBE, American minorities have gained greater access to both Government and private sector contracts and concessions, business loans and loan guarantees, technical and management assistance, and other business aid. This access has been developed without reducing programs available to non-minority small businessmen. Federal assistance, channeled through these vehicles, has been enlarged from less than $200 million in 1969 to some $700 million currently, and the $I billion threshold for fiscal 1973--five times the 1969 level--is within reach. New markets have been opened as minority suppliers and businessmen have expanded their operations and sales in unprecedented volume.

Funding OMBE and SBA. Our efforts on behalf of minority business secured substantial congressional approval, and OMBE was appropriated a supplemental budget increase of $40 million for the last six months of fiscal 1972, as I requested. I am hopeful that both the House and Senate will give favorable consideration to our present request for a fiscal 1973 OMBE budget of $63.6 million to provide urgently needed technical and management assistance to minority business. Together, these budgets will total more than $100 million. This figure offers a dramatic index of the commitment of this Administration to the purposes of an office which was originally funded for fiscal year 1972 with less than four million dollars.

OMBE is a coordinating agency of the Federal Government, and as such does not itself engage directly in business financing. Direct loans, loan guarantees, surety bonding, lines of credit, and contract set-asides are supplied by the Small Business Administration (SBA) to small businessmen, including minority businessmen.

THE IMMEDIATE NEED: MESBIC

LEGISLATION

Enactment of the Administration's proposed Minority Enterprise Small Business Investment Act of 1972 would give major impetus to the minority enterprise program, and would create a more productive mechanism to achieve its objectives.

Background. When the Congress passed the Small Business Investment Act of 1958, it recognized that small business generally lacks seed money and working capital. To give incentives for small business investment, the act empowered SBA to license "Small Business Investment Companies" (SBICs). Such companies are private investment institutions capitalized at a minimum of $150,000 from private sources. SBICs are eligible to borrow from SBA at an incentive ratio of $2 from SBA for every $1 of its private capital. Thus, a $150,000 SBIC can borrow $300, 000 from SBA for investment in its own account. Also, after it raises $1 million in private capital, a SBIC is eligible to borrow $3 from SBA for every $1 of private capital.

Because of these incentives, substantial amounts of private capital have been invested in small business through SBICs. More than 40,000 small business financings have been completed by SBICs from the program's inception, totaling $1.9 billion in risk capital. But only a small fraction of that amount has gone into minority businesses, because usually risks and costs are even higher for minority small businesses than for small businesses generally.

MESBICs

To fill the need for minority enterprise high risk capital, the SBA evolved the Minority Enterprise Small Business Investment Company (MESBIC). A MESBIC is a specialized SBIC: 1 ) it limits its investment to minority enterprises; 2) it is supported by financially sturdy institutional sponsors; 3) it is underwritten in large part by its sponsors.

In 1969 OMBE joined with SBA in launching a national network of MESBICs with SBA licensing and regulating MESBICs and OMBE promoting them. Today, 47 MESBICs operate throughout the Nation with private funds totaling in excess of $14 million. Since MESBIC seed capital has the potential of freeing $15 for investment in minority enterprises for every one privately invested dollar, more than $210 million is currently available through this program. All this is achieved at relatively low cost to the Government.

MESBICs have the potential of becoming sophisticated investment companies, knowledgeable in the peculiar problems of minority business investment, and able to bring sound business principles and practices to their tasks. Seeking a fair return on investment, MESBICs can act effectively to raise the success prospects of portfolio companies.

MESBIC Limitations. Despite the proven values of the MESBIC mechanism, it labors under burdens which endanger further development. The cost of administering minority business investments and the risk of early loss are both very high. Moreover, the short term success pattern of minority businesses has not been sufficiently encouraging to enable them to attract equity investment in normal competitive markets. But the recent successes of minority enterprises have shown that they can compete if they are given enough equity assistance to carry them through this early period.

THE MINORITY ENTERPRISE SMALL BUSINESS INVESTMENT ACT OF 1972

The primary object of my message today is to urge that the proposed Minority Enterprise Small Business Investment Act be acted on favorably and with dispatch by the House in its upcoming small business hearings. This act will restructure SBA financing of MESBICs so that they can operate on a fiscally sound basis.

Provisions of the Act. The legislation proposes a statutory definition of a MESBIC and authority to organize it as a nonprofit corporation. This status would facilitate foundation investments and tax-deductible gifts to MESBICs.

Building on our experience with SBICs and MESBICs, the act would reduce the level of private capital required to qualify for $3 to $ 1 assistance from SBA, from $1 million to $500,000; provide increased equity to MESBICs in the form of preferred stock to be purchased by SBA in place of part of the debt instruments purchased by SBA from MESBICs under current law; and lower the interest rate on SBA loans to MESBICs to three points below the normal rate set by the Treasury during the first five years of the loan.

Restructuring Effects of the Act. The immediate impact of this legislation would be to materially restructure the MESBIC program and stimulate increased private investment and gifts to MESBICs, resulting in greatly increased capital for minority business enterprises, at startlingly small Federal cost.

The legislation would: Lower the high cost of starting the investment program of a MESBIC; allow MESBICs to take advantage of full SBA financing; enable MESBICs to invest more in equity securities and to reduce interest rates to portfolio companies; provide special incentives to existing smaller MESBICs which have pioneered the program.

In the act, I am proposing a fairer partnership between the private and public sectors--a partnership that would yield enabling capital for minority enterprise. The MESBIC program is sound, practical and necessary. It equitably extends our free enterprise system by making it work for all Americans.

CONCLUSION

Opening wider the doors of opportunity for one-sixth of our people is a social necessity, which responds to an imperative claim on our conscience. It also is an economic necessity. By stimulating minority enterprise--by permitting more of our people to be more productive, by creating new businesses and new jobs, by raising the sights and lifting the ambitions of millions who are enabled to see that others who started under handicaps like theirs are writing records of economic success--we help to stimulate the whole economy.

I therefore urge the Congress to give its swift approval to the Minority Enterprise Small Business Investment Act of 1972, to my fiscal year 1973 budget request for $63.6 million for OMBE, and to our other small business proposals currently pending in the Congress.

Hard work, private risk, initiative, and equal chance at success--these are the American way. Helping ensure for all of our people an opportunity to participate fully in the economic system that has made America the world's strongest and richest nation--this too is the American way. And this lies at the heart of our program for minority enterprise.

RICHARD NIXON

THE WHITE HOUSE,

March 20, 1972.