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A call to arms for Black business.

THE STATE OF AFRICAN AMERICAN BUSIness has been pendulous as political leaders from both parties conspire to get Americans behind their drive to create a so-called level playing field. Last year, in the fallout from this war, minority businesses inevitably experienced a number of setbacks and turning points.

On the positive side, they benefited directly from augmented loan programs under the direction of the Small Business Administration's Administrator Phil Lader, and took advantage of international trade missions initiated by the late Commerce Secretary Ron Brown. But at the same time, Republicans proposed downsizing the federal government by eliminating certain programs and agencies. The Commerce Department was one of two minority-business-friendly agencies facing the budget guillotine. The other was the SBA. Both survived but with major cuts in funding.

This was in the wake of the U.S. Supreme Court decision in Adarand vs. Pena, which last year imposed more stringent standards for federal set-asides. Now the minority business community is alarmed that the SBA's 8(a) program is again on the hot seat, threatened by the Meyers Bill, sponsored by Rep. Jan Meyers (A-Kansas), currently chair of the House Small Business Committee. The Meyers' Bill (H.R. 3994) would eliminate any type of racial or gender quotas in the 8(a) program, which mandates that federal agencies set goals specifying the contracts targeted to socially and economically disadvantaged small businesses. Last year, minority businesses secured $4.5 billion in U.S. contracts through 8(a), the nation's largest federal procurement program.

Attempts to dismantle the 8(a) program, or the Commerce Department for that matter, send a message that a Republican-controlled Congress does not understand minority business, says Joan Parrott Fonseca, director of the Department of Commerce's Minority Business Development Agency. "We have to keep benchmarking and looking at programs and improving them--looking for a way to empower through economic development."

Minority- and women-owned businesses can no longer be content to wait for administrative decrees. They have to be more proactive, says Ed Howlette Jr., president and CEO of NexGen Solutions Inc., a Washington, D.C.-based SBA 8(a)-certified firm that develops custom software and sets up both national and international wide area networks (WANS).

"We have to stand up and speak out. This means making phone calls, sending letters and attending meetings [with members of Congress]," explains Howlette, who belongs to the Washington, D.C.-based National Coalition of Minority Businesses (NCMB). This nonpartisan advocacy group is composed of roughly 60 minority CEOs, including 11 BE 100s CEOs.

Most small business owners, however, contend that their days are spent trying to pay bills and meet payrolls, with little time left to battle Capitol Hill. This is an increasingly weak excuse considering how recent policies, involving such issues as environment and worker safety, the minimum wage, pension plans taxes, health insurance and compliance paperwork, directly affect the cost of doing business.

If small black business owners want to grow their firms, they must be more proactive on a local and national level. This means forming coalitions with other businesses, minority banks, churches and civic groups, and coming up with creative solutions to help small businesses turn a profit, hire more workers and pay decent wages. In turn, both employer and employee can reinvest dollars into the community.

No doubt this is a call to arms for black business. As African American entrepreneurs look to help build and cross President William Jefferson Clinton's "bridge" into the 21st century, they must learn to mobilize their forces, strengthen their economic position and wield their political power.


Business start-ups reached a record high in 1995, with some 819,477 new firms. The total number of U.S. businesses is about 22.5 million. The majority of those enterprises, all but 14,000, had 500 or fewer employees and under $25 million in sales revenues--the SBA's definition of a small business. These include corporations, partnerships and sole proprietorships.

According to the SBA's Office of Advocacy, small businesses employ 53% of the private workforce, contribute 47% of all sales and are responsible for 50% of the private gross domestic product. Small business-dominated industries produced roughly 75% of the 2.5 million new jobs created during 1995.

Throughout the next decade, some of the fastest growing sectors will be medical and dental laboratories, residential care (housing for the elderly, group homes and drug rehab centers), credit reporting, equipment leasing, child day care services and job training. Jobs in some of the highest paying service sectors--such as architectural and engineering firms--will rise about 30%.


In this heated presidential election year, there has been a bipartisan fight for the small business vote. Both the Dole/Kemp and Clinton/Gore camps tout their pro small business records, each promising to sign laws to help make small businesses more productive and profitable and to create more and better paying jobs.

Who'll make good on these promises depends on who you talk to. According to a poll by the National Federation of Independent Business (NFIB), the nation's largest bipartisan trade association representing over 600,000 small enterprises, (mostly conservative white males) business owners favor Dole over Clinton two-to-one, primarily because of the current administration's tax policies. Their biggest concerns were the economy/jobs, tax reform and government spending.

"Cash flow tends to be the No.1 problem of small business," says Jack Faris, NFIB president and CEO. "We have to pay out so much in taxes, worker compensation, health insurance and compliance fees, that it's harder for us to thrive."

Ironically, while the polled owners felt that President Clinton had done a poor job with the economy, most said that Congress has the most influence on the overall performance of the economy and the level of government spending.

Faris concedes that the Clinton administration has provided some relief over the past year, but that "it has been more like pouring a bucket of water on the Chicago fire." He adds that government regulation and red tape continues to be the biggest hindrance to small business owners in growing their business and hiring new people.

Conversely, NCMB members have been more disappointed with the Republican-controlled Congress and Dole's stance on minority programs. "Every President since Nixon [who created the 8(a) program] has signed legislation to support minority enterprises," says Weldon H. Latham, the coalition's general counsel and senior partner at the Washington, D.C., law firm of Shaw, Pittman, Potts & Trowbridge. "Dole is the only major party nominee for President ever to propose legislation that would end programs supporting minority-and women-owned businesses," he says, referring specifically to the Dole/Canady Bill. The bill seeks to prohibit any consideration of race, ethnicity or gender in federal contracting, employment and education.

Commenting on the Meyers Bill, Latham notes that over the years: "Rep. Meyers has supported affirmative action for white women. Now she wants to do away with a program that sets aside 3% of the federal procurement budget for 20% of the population."

Most people don't realize that during the past year, anywhere from 5,700 to 6,000 firms participated in the 8(a) business development program, but of those, only 2,700 actually worked on an 8(a) contract. "So, this is not a government handout; it's not a giveaway," declares the SBA's Lader in defense of 8(a). "For every one of these contracts, valuable goods and services were provided."

Lader insists that his agency has been working hard to expand the number of potential contracts for participants to bid on. "We also realize that there are a lot of firms that participate in the program that really don't get sufficient help," he says. "We want to enhance the competitive skills those businesses need to ensure they are viable outside the program after their participation period of nine years."

The NCMB is asking its members to blanket congressional leaders and White House administrators with phone calls, letters, e-mails and faxes stating their demands. "We need to jam up Rep. Meyers' communications mechanisms, so that her bill does not get passed. That's why it's important that we get out and vote, and that African Americans are chairs of various congressional committees," says Latham. "We must rethink our way of doing things." [See "Musical Chairs on the Hill," this issue].

Latham says that more black businesses need to belong to trade associations so that they are kept abreast of key issues and informed when a letter writing campaign is launched. "Since we haven't done a lot of letter writ-ing, we don't know the effect it can have," he says, adding that the voices of other lobbying groups are heard loud and clear, especially the NFIB and the National Foundation of Women Business Owners.

NexGen's Howlette says that minority- and women-owned businesses have had a major impact on this administration, which has met regularly with members of the NCMB. The same can't be said for members of the Republican-controlled Congress. "But we also have to make sure that whenever we have a forum to voice our concerns that not just 20 people show up, whereas other interest groups are squeezing into the room."


At least two pieces of legislation signed this year affect small business: the Small Business Job Protection Act and the Kennedy-Kassebaum Bill. The latter allows workers to keep their health insurance despite job changes or pre-existing medical conditions. It also gives small businesses some provisions to help pay for health insurance, says Bennie L. Thayer, president of the National Association for the Self-Employed, which represents some 320,000 small businesses nationwide. Finally, the bill raises the tax deductibility of health insurance for the self-employed from 30% to 40% in 1997 and up to 80% by the year 2006.

The Small Business Job Protection Act is intended to offset the costs to small businesses of hiking the minimum wage. The act was aggressively supported by Senator Carol Moseley-Braun (D-Illinois), who notes that it increases the level of investment by small businesses that can be expensed, rather than capitalized and depreciated, from the current $17,500 level to $25,000. It also raises the maximum number of shareholders for Subchapter S corporations from 35 to 75 and allows charitable organizations to be shareholders in S corporations. In addition; It permits tax-exempt organizations to offer 401 (k) plans.

To stimulate job creation, the bill creates the Work Opportunity Tax Credit. This encourages employers to hire people from groups suffering from high unemployment, such as those who are on government assistance, or who have limited education, according to Sen. Moseley-Braun, who sits on the Finance and the Banking, Housing and Urban Affairs committees. Now that the welfare reform bill has been passed, this is a particularly vital issue for black businesses since they bear a disproportionate burden of providing jobs in their communities.


Alleviating the barriers to raising and accessing capital remains at the top of the agenda for minority- and women-owned businesses. NexGen's Howlette recalls his own experiences starting out four years ago. Trying to obtain a $20,000 line of credit, he was rejected by five majority-owned banks, even though he was given a guaranteed 80% loan commitment from the state of Maryland.

Industrial Bank in Washington, D.C. (No. 4 on the BE FINANCIAL 2s list), gave NexGen the money it needed. Since then, the bank has increased the company's line of credit to $250,000, has granted a second SBA-guaranteed term loan for $125,000 and is now considering an additional raise on their line of credit.

Ironically, those big banks that once turned Howlette away are now courting his business. But "we're staying put and keeping our money in Industrial," he exclaims. "They stuck with us in the beginning, so we are going to stand by them until the end."

Showing its resilience, the SBA doubled its loan volume from 1993 to 1995. Last year, $7.8 billion in 7(a) guaranteed loans went to 55,590 small business owners, a 52% increase over 1994. Of those, 13,400 loans worth $1.4 billion went to women-owned enterprises, up 86%; and 10,370 loans worth $1.6 billion went to minority-owned enterprises, up 53%. (The SBA's 7(a) program guarantees bank loans of up to $750,000 to creditworthy small firms.) Much of this volume came through the agency's LowDoc (low documentation) and prequalification loan programs.

Still, impediments to small business lending continue, says Mary Ann Mitchell, president of the National Black Business Council. And more black entrepreneurs must sacrifice to pay their bills, by, for example, capping into personal lines of credit to meet payroll expenses and overhead costs. To remove these barriers as well as the attitudinal ones set up by banking's old-boy network, black business owners must team up with private equity investors. They must also tap nontraditional sources that understand that small companies can become big businesses, such as AT&T's Credit Corp. and IBM's ICC Corp.

Howlette stresses that minority- and women-owned businesses need to take greater advantage of technology to help them level the playing field. "The government is already processing information online. [See "Doing Business the Paperless Way," this issue]. And eventually, everyone will be buying, selling and marketing over the Net." NexGen is the creator of CommerceNotes, which enables entrepreneurs who use IBM's Lotus Notes software tO obtain EDI capabilities at a fraction of the cost.

As they forge ahead into the 21st century, black businesses must find flexible, creative and efficient ways to expand their products and services. Not only must they learn ways to outpace the big boys, but to keep step with their global partners. Now, as the presidential battle comes to an end, it remains to be seen which policies will become casualties of war. Still, the reality is that small business owners are responsible for ensuring that their businesses and their communities thrive.


Here are five ways to make an impact:

1. Contact congressional leaders and White House administrators through letters, phone calls, faxes and e-mail about key issues affecting black businesses.

2. Join trade associations or small business advocacy groups.

3. Partner or form coalitions with other black businesses and community organizations.

4. Collaborate with black or majority banks that have special programs geared toward minority businesses.

5. Encourage corporations to create internal programs to with firms that value black businesses.


When Joan Parrott-Fonseca became director of the Minority Business Development Agency (MBDA) at the Commerce Department last year, she was the first woman to head the agency since its creation in 1969 and the third person to assume the post in two years. Fonseca had come from the General Services Administration, where she served as associate administrator for the Office of Enterprise Development.

Today, Commerce is still trying to recover from the death of Secretary Ron Brown this spring. The full ramifications of the tragedy have yet to be determined, with Brown's successor, Mickey Kantor, taking charge amidst hostile fire in this pivotal election year.

Operating under the threat of extinction from a Republican-controlled Congress, Fonseca has refurbished the MBDA's image by forging stronger relationships between minority businesses and the private sector (financial institutions). She has also sought to include as many minority firms as possible on trade missions.

For minority entrepreneurs, MBDA provides fee-for-service management and technical assistance and other business development services, mainly through its Minority Business Development Centers The goal is to establish 100 of these centers nationwide to provide hands-on assistance in such areas as bonding, bid estimation, financing, marketing, franchising and import/export. Center personnel also help firms locate contract and subcontract opportunities with federal, state and local government agencies. For the coming year, MBDA has identified several areas For continued development: capital formation, construction, international trade, rural programs, Internet delivery systems and franchising.

MBDA programs suffer from the perception that they duplicate SBA programs, which is far from the truth Both agencies do serve minority businesses, many of which fall into the small business category However, each agency has a unique mission and range of services.

While MBDA provides help for minority businesses, the S3A, created in 1953 as an independent agency of the federal government, aids, counsels, assists and protects the interest of the entire small business community. It administers a $29 billion loan and $4 billion venture-capital portfolio and a variety of assistance programs. SBA's cornerstone is the 7(a) Guaranteed Business Loan Program, which guarantees bank loans of up to $750,000 to creditworthy small businesses that cannot get the loans otherwise on reasonable terms However, most black businesses have benefited from the agency s microloan and minority prequalification programs; the latter is a way for minority borrowers to "prequalify" for a 7(a) loan before going to a bank or commercial lender Minority businesses have also taken advantage of the 8(a) program, which mandates that federal agencies designate a portion of their contracts for socially and economically disadvantaged small businesses.

Like Fonseca, SBA Administrator Phil Lader was appointed to his post a little over a year ago A South Carolina businessman, educator and member of the President's Cabinet, Lader understands firsthand the needs of small business. While loans to minorities and women have increased under his administration, much more needs to be done.

Although SBA and MBDA are interested in remaining separate, they are planning to collaborate in such areas as Empowerment Zones and Business Resource Centers In fact, Fonseca stresses that even though the two are sister agencies, the MBDA must remain a separate entity to ensure the progression of black businesses. Quoting the late Ron Brown, Fonseca warns that "It would be a unilateral disarmament of small black businesses if Commerce/MBDA was
COPYRIGHT 1996 Earl G. Graves Publishing Co., Inc.
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Copyright 1996, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:B.E. Special Report on Small Business; includes tips on what to do, and a related article on Minority Business Development Agency - MBDA, and the SBA
Author:Shakespeare, Tonia L.
Publication:Black Enterprise
Article Type:Cover Story
Date:Nov 1, 1996
Previous Article:1996 small businesses entrepreneurs of the year: who are among the nation's most promising small businesses? Meet the award winners of B.E.'s...
Next Article:Warning signs that your business is failing.

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