Should I Certify My Minority or Women Owned Business?
Historically, minorities and women have faced challenges when it comes to starting up and operating small businesses. From economic barriers like lack of startup funding to insufficient opportunities for skill development to limited access to business networks and accessing national or regional markets, the playing field is anything but level for minority and women business owners. Fortunately, the federal government and states have established programs that earmark economic benefits for these groups. Entities seeking benefits under these programs must be certified and must apply separately to the federal and state programs. The most common qualifying businesses are Minority Business Enterprises (“MBE”) or Women Owned Small Businesses (“WOSB”). The two are often collectively known as Minority Women Owned Businesses (“MWOB”).
How to Become a Certified MWOB?
Some applicants pursue certification strictly for financial gain, others look to demonstrate diversity in their business community, and some desire to combine those two purposes. Establishing a business (LLC, partnership, corporation, or franchise) can be a time-consuming endeavor that comes with many cost considerations, so business owners should conduct a cost-benefit analysis to determine if pursuing MWOB status is right for their company.
Qualifying for an MWOB?
An MWOB must be certified before it can qualify for Federal or Arkansas benefits. A table of threshold information for qualifying individuals is provided here.
|Qualifying Status||Federal (see 12 CFR § 4.62)||National Minority Supplier Development Council||Arkansas (see §15-4-303)|
Sub-Continent Asian American
|At least 25% Asian-Indian
At least 25% Asian-Pacific
At least 25% Black
At least 25% Hispanic
At least 25% Native American
Sub-Continent Asian American
|Disabled||Physical or Mental Impairment||See federal and state requirements||Service-Disabled Veteran as designated by the U.S. Department of Veterans Affairs|
A necessity for MWOB certification is that the business is 51% unconditionally owned and managed by one or more qualifying persons. A focus of the certification process is to vet any agreement or practice that would violate the ownership rules, and applicable statutes (federal 12 CFR § 4.62 and Arkansas ACA 15-4-314) require that operating control is placed with the 51% MWOB qualifying owners.
The goal of application is to obtain a state or federal MWOB certification number. This number designates your business as an MWOB on government procurement contracts or can be used by your corporate patrons to apply for tax credits. Though the actual application for a certification number can be free, but the application process requests that your business is certified by an authorized Third-Party Certifier (“TPC”) which can run about $500 depending on the type of certification.
Applying for an MWOB?
Information and certification approval requirements fall to the National Minority Supplier Development Council (“NMSDC”), but individual business entities work with one of 23 regional affiliates that issue the certifications. The Southern Regional Minority Supplier Development Council (“SRMSDC”) supports Arkansas, Alabama, Mississippi, and Louisiana. The SRMSDC can be used to certify businesses both in Arkansas and for federal status, but additional certification options for businesses in Arkansas can also be found through the Arkansas Economic Development Commission (“AEDC”). Once obtained, the certification number can be used on federal procurement contracts and to apply for an AEDC number for Arkansas procurement contracts.
What Empowers MWOBs?
Federal benefits are granted and administered through a couple of different instruments. MBEs are empowered by the U.S. Small Business Act and the Community Development Financial Institutions Fund under the U.S. Department of Treasury. Working in collaboration with MBEs is the Minority Business Development Agency (“MBDA”) that reports to the U.S. Department of Commerce which was recently made permanent by the Minority Business Development Act of 2021. WOSBs are granted federal entitlements under the 2015 National Defense Authorization Act (NDAA) Sec. 825 with federal contracting programs administered by the U.S. Small Business Administration.
The Arkansas Economic Development Commission handles both MBEs and WOSBs, and qualifying groups are entitled to benefits by the Office of State Procurement. The statute and agency are empowered by Arkansas HB1832 that generated the Arkansas New Markets Tax Jobs Act, and New Markets Tax Credit (NMTC) programs ACA §15-4-3603 and 3605 cover tax credit programs that benefit MWOBs.
The Cost-Benefit Analysis of Becoming an Official MWOB
There are over $450 billion in funds up for grabs on federal contracts as well as additional monies for Arkansas procurement contracts. The primary benefits of MWOBs include:
- The business name appears in several databases for companies and organizations seeking MWOB partnerships,
- Your customer or your customer’s customer may have a Corporate Responsibility Program that incentivizes ethical sourcing. Savvy consumers are motivating companies to embrace social issues and may lead to significant revenue for MWOBs that address those issues,
- The business has access to state and federal contracts that have a built-in preference for MWOB participants,
- Registered client partners may be incentivized by tax credits to purchase MWOB products and services, and
- Government procurement contracts come with accelerated payments to improve business cash flow.
These benefits can be tricky to obtain, however, and businesses should take care that their purpose(s) for becoming an MWOB meet specific requirements for pursuing anticipated benefits. Factors to consider include:
- Wealth requirements which vary by state and federal program. Arkansas has requirements that restrict the wealth of owners; whereas, federal and state procurement contracts tend to seek out companies with enough capital to support performance on the contracts,
- Both state and federal programs offer tax incentives to potential MWOB clients, but often only larger companies can afford to register as MWOB partners because annual dues can be as much as $5,000, making membership expense a barrier to registration of MWOB clients,
- MWOB certification can incur hidden expenses in addition to the application fee that may include costs associated with conforming to GAAP accounting requirements, site visits, and administrative costs associated with compliance, and
- A business should review the extent of its geographic reach and capacity constraints. Many contracts fall outside the ability of a company to provide on-site services, effective supply logistics, or proper oversite.
Final Considerations for MWOB Certification
Deciding to certify as an MWOB is a personal decision as much as it is a business decision. You don’t need a government agency to tell you who you are if you are a minority or woman owned business, and you are free to advertise or post your business as a MWOB whether you are certified or not. However, certification will open doors to certain program benefits available only to qualifying businesses and to which only qualifying businesses have access.
As a certified WOSB/MWBE, ourselves, the attorneys at The Law Group of Northwest Arkansas LLP can assist you with any questions you may have on creating an MWOB as a part of your business formation or business improvement plan. Call us at 479-316-3760 or contact our office to discuss your needs and find out if your business is right for Minority Women Owned Business certification.
Additional Resources for Minority and Women Owned Business Certification
- National Minority Supplier Development Council
- Southern Regional Minority Supplier Development Council
- Arkansas Economic Development Commission MWBE Certification
- National Women Business Owners Corporation
- Vets First Verification Program at U.S. Dept of Veterans Affairs
- National Veteran Owned Business Association’s Certified Veteran’s Business Enterprise™ (VBE) and Certified Service-Disabled Veteran’s Business Enterprise™ (SDVBE) programs
- Federal Procurement Data System
- U.S. Small Business Act
- Community Development Financial Institutions Fund at the U.S. Department of Treasury
- U.S. Small Business Administration Federal Contract Program
- Minority Business Development Agency at the U.S. Department of Commerce