Federal efforts to aid minority businesses began in the 1960’s when the Small Business Administration (SBA) began making federally guaranteed loans and govern- ment-sponsored management and technical assistance (5) available to minority business enterprises. While this program enabled many minority entrepreneurs to form new businesses, the results were disappointing, since managerial inexperience, unfavorable locations, and capital shortages led to high failure rates. Even 15 (10) years after the program was implemented, minority business receipts were not quite two percent of the national economy’s total receipts.

Recently federal policymakers have adopted an approach intended to accelerate development of the (15) minority business sector by moving away from directly aiding small minority enterprises and toward supporting larger, growth-oriented minority firms through interme- diary companies. In this approach, large corporations participate in the development of successful and stable (20) minority businesses by making use of government- sponsored venture capital. The capital is used by a participating company to establish a Minority Enterprise Small Business Investment Company or MESBIC. The MESBIC then provides capital and guidance to minority (25) businesses that have potential to become future suppliers or customers of the sponsoring company.

MESBIC’s are the result of the belief that providing established firms with easier access to relevant manage- ment techniques and more job-specific experience, as (30) well as substantial amounts of capital, gives those firms a greater opportunity to develop sound business founda- tions than does simply making general management experience and small amounts of capital available.

Further, since potential markets for the minority busi- (35) nesses already exist through the sponsoring companies, the minority businesses face considerably less risk in terms of location and market fluctuation. Following early financial and operating problems, sponsoring corporations began to capitalize MESBIC’s far above (40)the legal minimum of $500,000 in order to generate sufficient income and to sustain the quality of manage- ment needed. MESBIC’c are now emerging as increas- ingly important financing sources for minority enter- prises. (45) Ironically, MESBIC staffs, which usually consist of

Hispanic and Black professionals, tend to approach investments in minority firms more pragmatically than do many MESBIC directors, who are usually senior managers from sponsoring corporations. The latter (50) often still think mainly in terms of the “social responsi- bility approach” and thus seem to prefer deals that are riskier and less attractive than normal investment criteria would warrant. Such differences in viewpoint have produced uneasiness among many minority staff members, (55)who feel that minority entrepreneurs and businesses should be judged by established business considerations.

These staff members believe their point of view is closer to the original philosophy of MESBIC’s and they are concerned that, unless a more prudent course is fol- lowed, MESBIC directors may revert to policies likely to recreate the disappointing results of the original SBA approach.

4. Which of the following statements about the SBA program can be inferred from the passage?

(A) The maximum term for loans made to recipient businesses was 15 years.

(B) Business loans were considered to be more useful to recipient businesses than was management and technical assistance.

(C) The anticipated failure rate for recipient businesses was significantly lower than the rate that actually resulted.

(D) Recipient businesses were encouraged to relocate to areas more favorable for business development.

(E) The capitalization needs of recipient businesses were assessed and then provided for adequately.