GMAT Test Prep: RC-28192223 GMAT Reading Comprehension

Federal efforts to aid minority businesses began in the1960's when the Small Business Administration (SBA)began making federally guaranteed loans and government-sponsored management and technical assistanceavailable to minority business enterprises. While thisprogram enabled many minority entrepreneurs toform new businesses, the results were disappointing,since managerial inexperience, unfavorable locations,and capital shortages led to high failure rates. Even 15years after the program was implemented, minoritybusiness receipts were not quite two percent of the nationaleconomy's total receipts.

Recently federal policymakers have adopted anapproach intended to accelerate development of theminority business sector by moving away from directlyaiding small minority enterprises and toward supportinglarger, growth-oriented minority firms through intermediary companies. In this approach, large corporationsparticipate in the development of successful and stableminority businesses by making use of governmentsponsored venture capital. The capital is used by aparticipating company to establish a Minority EnterpriseSmall Business Investment Company or MESBIC. TheMESBIC then provides capital and guidance to minoritybusinesses that have potential to become future suppliersor customers of the sponsoring company.

MESBIC's are the result of the belief that providingestablished firms with easier access to relevant management techniques and more job-specific experience, aswell as substantial amounts of capital, gives those firmsa greater opportunity to develop sound business foundations than does simply making general managementexperience and small amounts of capital available.Further, since potential markets for the minority businesses already exist through the sponsoring companies,the minority businesses face considerably less risk interms of location and market fluctuation. Followingearly financial and operating problems, sponsoringcorporations began to capitalize MESBIC's far abovethe legal minimum of $500,000 in order to generatesufficient income and to sustain the quality of management needed. MESBIC'c are now emerging as increasingly important financing sources for minority enterprises.Ironically, MESBIC staffs, which usually consist ofHispanic and Black professionals, tend to approachinvestments in minority firms more pragmatically thando many MESBIC directors, who are usually seniormanagers from sponsoring corporations. The latteroften still think mainly in terms of the "social responsibility approach" and thus seem to prefer deals that areriskier and less attractive than normal investment criteriawould warrant. Such differences in viewpoint have produced uneasiness among many minority staff members,who feel that minority entrepreneurs and businessesshould be judged by established business considerations.These staff members believe their point of view is closerto the original philosophy of MESBIC's and they areconcerned that, unless a more prudent course is followed, MESBIC directors may revert to policies likelyto re-create the disappointing results of the original SBAapproach.
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