question 1

Passage 12

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-
(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 pro-
duced 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 re-create the disappointing results of the original SBA

1. Which of the following best states the central idea of the passage?

A The use of MESBIC's for aiding minority entrepreneurs seems to have greater potential for success than does the original SBA approach.
B There is a crucial difference in point of view between the staff and directors of some MESBIC's.
C After initial problems with management and marketing, minority businesses have begun to expand at a steady rate.
D Minority entrepreneurs wishing to form new businesses now have several equally successful federal programs on which to rely.
E For the first time since 1960, large corporations are making significant contributions to the development of minority businesses.