In addition to new marketing and sales opportunities, becoming certified as a Minority Business Enterprise may allow your company access to grants and tax-saving opportunities that can add to your bottom line.
Keep reading to learn how MBEs work, how to get certified, and how to get the best value from MBE certification.
What is MBE certification?
MBE certification is a process of gaining official government recognition that a business is majority-owned by someone from a racial minority group. The MBE program is administrated by the United States Small Business Administration. While minority businesses are not required to get certified, there are several important benefits of the certification program.
There are no specific tax breaks for minority businesses, but MBEs do have increased access to several programs that can lead to financial benefits, including an ultimate reduction in taxes. MBE businesses may also qualify for special grant programs, government contracts, and business opportunities.
As a general benefit, some large corporations may set aside a specific budget or goal for working with MBEs for tax and social justice reasons, which could bring added sales your way. You may also get access to MBE directories and local programs designed to boost minority-owned enterprises.
MBE and related programs were created to help overcome some of the systematic challenges minority-owned businesses face in the United States. Additional programs target other groups, including women-owned small businesses and service-disabled, veteran-owned small businesses. According to the National Conference of State Legislatures, at least 38 states, Washington D.C., and Puerto Rico have state-level MBE programs.
How to get certified
The National Minority Supplier Development Council (NMSDC) is a large nonprofit responsible for certifying new Minority Business Enterprises. If you think you qualify, you should find your local NMSDC affiliate. In Southern California, for example, you would work with the Southern California Minority Supplier Development Council (SCMSDC).
- Review certification criteria: Before starting the hard work of gathering forms and contacting a certification council, you should review the requirements one more time to ensure your eligibility. The criteria for certification is as follows:
- United States citizens.
- Minority businesses must be at least 51% minority–owned, managed and controlled. For the purposes of NMSDC’s program, a minority group member is an individual who is at least 25% Asian-Indian, Asian-Pacific, Black, Hispanic or Native American. Minority eligibility is established via a combination of document reviews, screenings, interviews and site visits. Ownership, in the case of a publicly owned business, means that at least 51% of the stock is owned by one or more minority group members.
- Must be a for-profit enterprise and physically located in the U.S. or its trust territories.
- Management and daily operations must be exercised by the minority ownership member(s).
- Gather required documentation: Depending on your business, you could be required to submit over a dozen forms to get certified, though the list of forms varies by business registrationj type. These include standard IRS forms you may already have, financial statements, business organization information, and a completed application. You’ll need to provide a birth certificate or similar government document to verify minority status.
- Complete the online application: The application officially puts your business into consideration for MBE status. Like a college application or job application, take the time to fill it out completely and accurately. It would be a shame to get turned down because of an error on a form.
- Pay application fee: Fees vary based on your business’s annual revenue. Costs range are higher for larger firms and vary by region. In Southern California, fees range from $300 to $1,200. In the New York and New Jersey Region, fees are $400 to $1,500. Check with your regional MSDC for your relevant application and recertification fees.
- Upload required documentation: Scan and upload any required documents through the online certification website. Try a photo-to-document scanner app for your smartphone if you don’t have a scanner.
- Application audit: Once everything is turned in, someone from your regional MSDC will review the application for completeness and contact references.
- Site visit: An NMSDC Certification Specialist will visit your business as part of the certification process. The specialist confirms that the company exists and operates as described in the application. Note: these may be virtual during the COVID-19 pandemic.
- Certification Compliance Committee review: After the initial application review and site visit, a committee reviews the application and site visit documents. Based on the submission, they will make a recommendation to the Board of Directors regarding certification.
- Board of Directors Certification: The final step is approval by the board. Once they give final approval, your business is MBE certified. Congrats!
It can take up to 90 days from when you apply until you get approved, so plan ahead if you’re going to apply for any loan, grant, or other programs based on MBE status. Certification is good for one year before going through an annual recertification process.
If you meet the key criteria for MBE certification (U.S. citizen with a for-profit business and qualifying minority status), you can get the ball rolling on the certification program by gathering the necessary documents and following these steps with your regional minority supplier development council.
The benefits of MBE certification
The benefits of going through the Minority Business Enterprise certification process most directly come from networking and business growth opportunities, but that’s not all.
According to the Mountain Plains Minority Supplier Business Council, you can plan on these benefits after certification:
- Count towards the minority spending goals: Many of the largest businesses in the United States have supplier diversity programs that target a minimum amount of purchasing from minority-owned businesses. That means large corporations are always on the hunt for a reliable minority-owned business to partner with on a wide range of needs. You have to be a certified MBE to earn these dollars through business procurement programs.
- Attend exclusive networking events: Regional MSDC organizations regularly host member and community events. These include banquets, golf tournaments, and other networking events. You may find MBE events similar to a local chamber of commerce but specific to minority-owned businesses.
- Get listed in supplier databases: Businesses can’t always attend an MBE networking event to find suppliers but may still want to work with diverse businesses. MBE businesses are listed in supplier databases where regional and national businesses can search for the product or service you’re selling.
There are no specific tax breaks for being an MBE, but there are tax benefits for other businesses to work with an MBE. That could help drive more business to your company if you’re certified. This is partially thanks to the 8(a) Business Development program, which is a federal government goal to spend at least 5% of federal contracting dollars with small, disadvantaged businesses.
But while you may not get any MBE-specific tax deductions or credits, certified MBEs are in a better position than most to take advantage of tax and grant programs targeting low-income areas with diverse populations.
The New-Markets Tax Credit (NMTC) is a credit (remember, credits directly lower your tax bill, while deductions reduce your taxable income) for investing in designated community development entities (CDEs). That’s a lot of acronyms! As an MBE, your business can double as a CDE. If your business is a CDE, this federal program allows you to invest in your own business to claim the tax credit.
Government programs also offer tax breaks for businesses that operate in economically distressed areas. If your for-profit business moves into such an area, you could earn additional tax savings.
There are also government and private grant programs for minority businesses. Having MBE certification may not always be a requirement, but it can’t hurt when trying to prove your business qualifies for the program. Some minority businesses can also access special government-backed loans not available to others.
How Bench can help
Getting every tax credit and deduction you qualify for isn’t always straightforward. If you do your taxes yourself, you could miss out on valuable tax breaks with a huge value for your business. It would be a shame to miss out on hundreds or thousands of dollars in tax savings because you didn’t know about a tax rule.
When you work with Bench, you have access to a team of tax experts dedicated to maximizing your credits and deductions. Minority business owners can rest easy when working with Bench—we make sure your bookkeeping and accounting needs are met and that your taxes are prepared accurately with the best possible result. Learn more.
Don’t miss out on big business benefits
Minority business owners may have an uphill battle in several ways when running a company. Still, you can resist those headwinds with the support of minority business programs, including the vital Minority Business Enterprise certification.
If your business may qualify, investing in the MBE process could be a big win for your company that pays off for years to come.