Investing in small, struggling businesses operated by blacks and hispanics is a risky proposition, but Urban National Corp. is making money at it--$1 million in 1981.

Financing only minority-run firms too new or too small or too broke to borrow in the commercial market, Urban National has made itself the most profitable minority-oriented venture capital corporation in the nation, and claims to be more profitable than any black-run bank.

"We are the best at what we do," says Edward Dugger III, 32, a black Harvard graduate who is Urban National's president and chief executive officer.

Urban National was created to rush in where conventional bankers fear to tread. A venture capital company by definition finds investment opportunity where others see risk, and Urban National has the additional mandate of developing and assisting minority entrepreneurs.

The company was set up by corporate and institutional sponsors such as Mobil Oil Corp. and Harvard University to overcome "obstacles to minority participation in American mainstream economic life." But according to its annual report it is "an economic venture, not a social program." That means it doesn't give money away, it invests on hard-nosed terms and imposes itself as a management partner of the firms it supports.

In the past 10 years, Urban National has backed black-owned radio stations, a Hispanic-run furniture company, a computer-printer firm run by a Chinese, and a wide variety of other firms founded, operated, or taken over by members of ethnic minorities. It now has a stake in 24 minority-run enterprises with nearly 1,500 employes--half of them minorities--and total annual sales of more than $100 million.

"Without Urban National I would not have gotten started," said Ragan A. Henry, president of Broadcast Enterprises National Inc., a Philadelphia-based chain of black-operated radio and television stations. "I had bank commitments for $3.5 million, but they were conditioned on my raising another $1 million on my own." Urban National put up $300,000 to help him buy his first two stations.

"I was not exactly underprivileged," said Jeffrey Chuan Chu, a Chinese-born computer scientist whom Urban National installed last year as head of the bankrupt Sanders Technology Co. in Amherst, N.H. But, he said, Urban National furthered its objectives by choosing him to run a firm it was bailing out, because "you can count on two hands the number of Chinese who are senior corporate executives or partners in the big law firms."

Urban National combines altruism of purpose with pragmatism in its methods. It is not in business to support doomed ventures or to coddle well-intentioned amateurs.

"We only go into about 5 percent of the deals that are proposed to us," Dugger said in an interview. "We are in this to realize capital gains in order to perpetuate what we are doing. The funds will dry up if we don't show a profit."

Urban National takes an equity position in every firm it supports. That means it cashes in if the venture succeeds but loses its investment if the business fails, which has happened at least three times.

Urban National lost more than $1 million in a West Coast sporting goods company that went broke when a prolonged drought affected skiing, hunting and fishing. It dropped $302,000 in the San Francisco Gold Co., a manufacturer of women's sportswear that lasted only a few months after it was set up by a black entrepreneur from Cleveland; and the company wrote off its investment in the Farmington Corp., a restaurant near Boston, though it later formed a limited partnership with a developer to build an office park on the restaurant's land.

Burned by those experiences, Dugger said, Urban National has developed a cautious approach to investments and inserts itself as a management partner of the firms it aids. "We control the quality of the deal," he said. "We find minority group people who are competent but have little experience at making the transition from hotshot in a corporate structure to independent entrepreneur. We ask them, do you have what it takes to operate without the corporate support system? Do you really understand the capital markets? Are you prepared to have us replace you if the company outgrows you? Think about it now. Some of them get angry , and they walk, but they usually find they can't get better terms elsewhere."

He said he often tells prospective entrepreneurs, "don't go the venture capital route if you don't need it. If you can get conventional financing, do it. Ours is very expensive money," because the price is a share of the business.

The shareholders in Urban National are the corporations and institutions that launched it in 1972 with an initial capital of $10 million: Harvard, Mobil, the Ford Foundation, Aetna Life & Casualty Insurance Co., Salomon Brothers, Yale, Massachusetts Institute of Technology, Gulf Oil, the United Church of Christ pension fund, and 15 others.

They appoint Urban National's board of directors, which now includes such prominent business figures as Robert H. B. Baldwin, president of Morgan Stanley & Co., Robert Holland Jr., a partner in McKinsey & Co., and John H. McArthur, dean of the faculty at Harvard Business School.

"You can't find another group of directors of any venture firm that's equal to ours," Dugger said. "The strength of that board is intended to provide the informal network of power, access and influence that minority businessmen don't have."

A pie chart in Urban National's annual report shows the racial composition of the enterprises in which it has invested: Afro-American, 62.6 percent; Asian American, 12 1/2 percent; Hispanic, Indo-American and Native American, 8.3 percent each.

"We have a definite bias toward blacks," Dugger said, "because we view them as the most economically disadvantaged minority group." But, he said, "we will look at just about anything if it has venture potential, meets our economic requirements and is in a growing market."

Dugger said that when Urban National was formed, minority business in the United States consisted mostly of small family-owned retail stores, funeral parlors and other traditional enterprises requiring little technological input and lacking growth opportunity.

In 1968, according to Urban National's figures, there were "only about 600 minority individuals of all ancestries holding MBA degrees in the entire United States." Last year, when Urban National conducted a survey to determine the investment and entrepreneurial plans of black executives, it confined its questionnaire to "1,000 of the nation's most distinguished black MBAs."

Urban National's mission, Dugger said, is to help those potential entrepreneurs understand "the hard realities of equity financing" and combine their managerial talents with the latest developments in technology and marketing. To do that, he said, the company is seeking $15 million to $25 million in new capital from institutional investors.