Sep 14 2016
USCIS’ recent proposed rule to allow International Entrepreneurs to jump-start their start-up venture places a steep minimum capital funding of $345,000. If the proposal is ultimately accepted and promulgated as a final rule (which we won’t know for a few months anyway), then any foreign entrepreneur wanting to start their venture would need to meet a minimum private financing amount of $345,000 or more. The other alternative would be to procure financing of $100,000 from a government funding source. Seems pretty straightforward right?
When I first wrote about this development, I commented that this proposal was truly reserved for the 1% of entrepreneurs in the U.S. While there are some nice soundbites, the proposal makes private capital funding a deciding factor, overlooking an important fact that women and minorities are at a greater disadvantage of accessing capital. If you can’t access capital, you would have a difficult time qualifying for the International Entrepreneur Parole proposed by USCIS.
According to the American Immigration Council, immigrant women entrepreneurship had increased more than 40% from 2000 to 2010. Yet, immigrant women still face significant challenges in obtaining access to capital including gender bias and discrimination according to a 2011 report.
Of the immigrant women interviewed, many faced gender bias and difficulties securing start-up capital. Many women also reported that banks were hesitant to provide start-up funds due to the small size of their businesses.
The U.S. Small Business Administration commissioned a follow-up report in 2013 arriving at similar results in finding that women and minority-owned businesses encountered far greater obstacles in securing capital.
Studies indicate that women entrepreneurs have less access to financial capital or make less use of it than male entrepreneurs. … On the equity side, women typically have limited social interaction with venture capital firms, and are under-represented among fast-growth and high-tech businesses. They also rely more on informal funding methods and self-financing.
On the other end of the spectrum are minority-owned businesses who are disproportionately impacted by lack of access to capital, according to a 2012 report by the Kaufman Foundation.
MBEs [Minority-Business Enterprises] rely more heavily on financial institutions for loans than all other borrowing sources combined. However, when compared to white-owned firms, MBEs typically encounter higher borrowing costs, receive smaller loans and see their loan applications rejected more often. Black- and Latino-owned MBEs are the most likely to experience such negative results. Although lower owner net worth, credit ratings, firm age, size and other risk factors account for some of the differences in access to credit, studies consistently show that black- and Latino-owned firms with identical firm and owner traits (other than race) and credit histories gain less access to bank credit than matched white-owned firms.
The Minority Business Development Agency, a division within the U.S. Department of Commerce issued similar results in an earlier report in 2010.
A review of national and regional studies over several decades indicates that limited financial, human, and social capital as well as racial discrimination are primarily responsible for the disparities in minority business performance. Inadequate access to financial capital continues to be a particularly important constraint limiting the growth of minority-owned businesses. The latest nationally representative data on the financing of minority firms indicates large disparities in access to financial capital. Minority-owned businesses are found to pay higher interest rates on loans. They are also more likely to be denied credit, and are less likely to apply for loans because they fear their applications will be denied. Further, minority-owned firms are found to have less than half the average amount of recent equity investments and loans than non-minority firms even among firms with $500,000 or more in annual gross receipts, and also invest substantially less capital at startup and in the first few years of existence than non-minority firms.
According to the National Minority Supplier Development Council, minority businesses contribute to over $400 billion in revenue in the U.S. , employing over 2.2 million people. “The lack of access to capital also trickles down to bank loans and lines of credit.”
Moreover, it’s unclear how this proposed rule aligns with President Obama’s objective to increase access to capital to greater entrepreneurs, including minorities and women. While the proposal offers an additional, alternate criterion for “partially satisfying” some of the funding, this alternate criterion is so vague as to make it appear more like an afterthought. Revising the alternate criterion by making it clearer, by enumerating what those factors might be, would go a long way towards transparency.
In addition, I would also urge USCIS to propose a rule that would enable F-1 students who seek to start their own companies more time with their Optional Practical Training (OPT), irrespective of capital funding amounts, as a supplemental program, in order to encourage entrepreneurship in the U.S.