Small businesses will prosper in '90s despite woes.

Small businesses will prosper in '90s despite woes

Raising money to grow remains one of biggest hurdles

Small businesses in Los Angeles County will be stronger than ever in the 1990s despite the difficulties they face in raising money, obtaining health insurance, conforming to pollution regulations and other obstacles, experts said last week.

L.A. County "could well be called a nation of shopkeepers," said a recent report issued by the economics department of Wells Fargo Bank. Of 212,971 total businesses in the county, 200,452 of them, or 94.1 percent, employ 50 people or less. The report, interpreting the latest figures released by the U.S. Department of Commerce, also found that small business represents 96 percent of the number of businesses in the services sector, the largest employer in the county.

Photofinishing laboratories grew the most during the years of 1980-1987 at 14.5 percent said the report. Computer and data processing services were second with 13.4 percent growth, and equipment rental and leasing in third place with 12.4 percent growth.

Some big companies are now recognizing small business as a viable market as the number of such businesses continues to grow at a rapid pace, the report said.

"The research we've done shows the California small business market growing at 12 percent a year," said Kathleen Flynn, a spokeswoman for Pacific Bell. Fifty percent of California businesses have fewer than five employees and 80 percent have fewer than 20, according to Pacific Bell research.

Pacific Bell two weeks ago announced that it would sell its Centrex telephone system to small businesses that need as little as two phone lines. Previously the service was available only to customers with 20 or more lines.

The Pacific Telesis subsidiary concurrently announced a new 800 number service, Custom 800, that it developed to target small business customers. Custom 800 allows for smaller territories and other cost-cutting measures aimed to limit the cost of 800 service for small businesses.

Security Pacific Corp. at the same time announced a new $2.4 billion loan program aimed at small- and minority-owned businesses. The 10-year program means an average of $240 million a year will be loaned mainly to small businesses, or about 68 percent more than the amount of loans guaranteed by the L.A. district office of the U.S. Small Business Administration.

The bank holding company, although it was under federal pressure to start such a program, emphasized the new lending would "provide additional value to shareholders."

Finance will continue to be a problem for small business, however.

Banks not only want collateral and other guarantees when funding a business, but large loan requests -- small loans generate small fees and require the same amount of work to process.

A recently announced Small Business Administration program to get banks to fund smaller requests of around $20,000 has been met with no success, according to the women's program coordinator at the local SBA office.

Venture capital is also scarce. Entrepreneurs with outstanding ideas have less hope to receive institutional venture capital, said Franz von Bradsky, president of Los Angeles Venture Association, a forum for entrepreneurs to present their ideas to potential investors. Last year, venture capital firms funded significantly less money in the United States: $2.5 billion vs. $4.25 billion in 1987, said von Bradsky.

"Institutional venture capital is the very tip of the investment iceberg in getting businesses started," said von Bradsky, who notes that venture capital firms can receive thousands of unsolicited business plans each year. "There are other attractive investment vehicles where insurance companies can invest their money and get better returns," he said.

Von Bradsky emphasized, however, that those with great ideas and proven management expertise or past success can always find financing, sometimes from individual venture capitalists.

But on the whole, small businesses tend to get their start-up money from friends and relatives, he noted.

While starting is difficult, tens of thousands of new fictitious business applications are filed each year with the L.A. County Clerk's office.

Of those, 5,177 failed in Southern California in 1989, according to The Dun & Bradstreet Corp. That figure was down 23 percent from 1988, when 6,795 businesses failed in the area.

Small businesses in Los Angeles face increasingly strict air quality regulations.

Small restaurants, for example, will be hurt by a recent mandate from the South Coast Air Quality Management District to significantly reduce the pollution they produce with charbroilers. The mandate calls for equipment that may cost up to $45,000 per restaurant to reduce charbroiler pollution by the year 2001. In the past, such pollution control laws have drawn ire from small furniture manufacturers and trucking companies, two other small business-dominated industries.

Fees and paperwork are a big pain for small business, said Jack Kyser, chief economist for the Los Angeles Chamber of Commerce.

"You need permits for air quality. You have the city fees, the county fees and the state fees. It's daunting," said Kyser. "Business license fees are going up."

Health insurance costs, a thorn in the side even for big business, are "lurking out there" for small business, noted Kyser, as well as child care issues.

Women- and minority-owned businesses, the majority of which are small, will continue to thrive in the county, said Kyser.

In the Los Angeles area, there are at least four organizations targeting women business owners -- the Association of Black Women Entrepreneurs, California Women Business Owners, the National Association of Women Business Owners and Women in Construction -- listed by the City of Los Angeles Commission on the Status of Women. (The May 7 issue of the Business Journal will list the top women-owned businesses in the county.)

"You're starting to see an `old girls' network," commented Kyser. "In the minority category you have this entrepreneurial spirit in the Asian and Hispanic communities and the impact from aerospace industry because the federal government has rigorous minority purchasing requirements."