Banking on the man from Hope: small black-owned businesses are looking to the Clinton Administration to help open access to much-needed capital.
It's easy to identify the top concerns of African-American entrepreneurs: "Capital, capital and capital," says Anthony Robinson, president of the Minority Business Enterprise Legal Defense and Education Fund (MBELDEF) in Washington, D.C. "Access to capital remains issues Nos. 1, 2 and 3 for the minority business community." And access denied remains the most difficult challenge facing black entrepreneurs.
Nearly a year into the administration of President Bill Clinton, the economy remains troubled and growth is slow. After two prolonged battles between the President and Congress over how best to improve the economy, African-Americans aren't sure that Clinton can carry out his campaign commitments to minority business. Even worse, those commitments seem relatively low on his list of economic priorities. "Until he gets the words minority business out of his mouth, these businesses won't necessarily feel included in his message," says Harriett Michel, president of the National Minority Supplier Development Council Inc. in New York City.
To compound these concerns, Clinton's budget problems delayed key appointments to the Small Business Administration (SBA) and the Minority Business Development Agency (MBOA). This was most unfortunate, since funding for the SBA continues to shrink and its poorly managed programs enrage frustrated entrepreneurs.
African-Americans'discomfort about the nation's real commitment to black economic development is not unfounded. Self-employment - the first step on the path to entrepreneurship - accounted for 8% of white workers in 1992, according to Bureau of Labor statistics. For Hispanics, the rate was 5.2%, while for blacks, just 3.5%. The reality is that these numbers are little changed from 10 years ago.
Nevertheless, many African-American entrepreneurs believe that with Clinton in the White House their aganda will enjoy a higher priority than it has had for more than a decade. "At least give the man a year's time to get his ideas through Congress, and then implemented," says Dolores Ratcliffe, president of the Los Angeles-based Association of Black Women Entrepreneurs and the owner of Corita Communications. Joseph Gaskins, vice chairman of the National Coalition for Black Economic Development, in Maryland agrees: "I'm very optimistic. There is hope - that's what's been missing for so long."
Several Clinton appointees in high positions - including African-Americans who are key officials of the Department of Commerce and SBA - are pledging to reform federal programs to foster minority-owned businesses. Speaking before the National Urban League in August, Commerce Department Secretary Ronald H. Brown promised to "work to bring new, future-oriented businesses into the urban core; to encourage the expansion of business formation for minority entrepreneurs and other central-city residents; to help businesses in the inner city expand into growth industries; and to export products they produce to other countries."
Adds Dayton J. Watkins, Clinton's choice as acting deputy associate administrator for Finance, Investment and Procurement, "It appears that in the past, there was no commitment on the part of the President, and his administration including SBA to improve, to concentrate, and to focus on minority-business development in America. Now that's different, because of Clinton's leadership for minority-business development."
Money Is Still Tight
Unfortunately, neither the economy nor Congress is helping Clinton open up opportunities for small businesses. In fact, Clinton lost his first battle with Congress over a mild economic-stimulus package, after the nation showed signs of a slow recovery from the recession in the beginning of 1993.
Everyone now recognizes that this recovery is among the weakest of any in the post-World War II era. And one crucial statistic remains strongly negative: business loans. Last July, the Federal Reserve Board reported that business loans were down 3.5% from a year earlier. Meanwhile, capital remains "less available, due to the overall economy," notes Harold D. Brittain, director of programs for the National Association of Investment Companies (NAIC) in Washington, D.C.
NAIC represents specialized small business investment companies, or SSBICs. These venture capital firms (formerly called MESBICs, or minority enterprise small business investment companies) enjoy federal interest-rate subsidies and lend venture capital to both new and established small minority firms. Many credit NAIC's lobbying for helping to secure one of the few benefits small businesses won from the federal budget compromise in August: a change in federal tax rules to encourage investments in new ventures.
This change halves the capital-gains taxes on investments held in certain small businesses for at least five years, and allows all capital gains to be deferred on funds that are rolled over into SSBICs. The NAIC invested just $88.5 million in minority, women-owned and other specialized small businesses last year, a 40% drop from a 1989 peak of $147.6 million. "We hope to increase the private capital in the SSBIC industry by 50% to 100% within the next five years," says Brittain. The current level of private capital is $200 million.
Small Business Gains, Losses In '93
The 1993 budget compromise also creates nine "empowerment zones" in six cities and three rural areas, at a cost of $2.5 billion in tax incentives and $720 million in grants for eligible businesses in the designated areas. On a smaller scale, the plan also created 95 additional "enterprise communities," 65 in urban areas and 30 in farm country, which will share $280 million in grants.
The plan stresses hiring people who live in the zones, rather than helping them and other disadvantaged people create new businesses. "These are basically tax incentives going to major corporate entities," says minority-business advocate Anthony Robinson of the MBELDEF. "I don't see [these zones] benefiting minority businesses."
Nevertheless, enterprise zones are popular with many states and communities. Their advocates strongly believe that they are beneficial to community businesses. The Denver Enterprise Zone, created by the state in 1986, encompasses an inner-city neighborhood called Five Points and has fostered the development of minority businesses, creating "hundreds of jobs" in its small-business incubator, according to Robert Ortlip, the zone's administrator. "There are no big employers in Five Points, but there are a lot of small businesses, and in those areas there's been a lot of job creation," he says.
Clinton's program for small business also calls for an accounting change, allowing them to write off investments of up to $17,500 in equipment purchases, rather than depreciating them. "That's a real benefit to us," says Kathy Kendrix of K and k Consultants, a public relations firm in Portland, Ore. Although her fledgling, home-based enterprise only has sales of about $25,000, she notes that, "We have a lot of equipment - computers, telephones, fax machines - and the tax credit is important to us."
Clinton's reform plan also extends the tax credit for employers who hire the disadvantaged. But these boons to struggling businesses come at the expense of successful ones. The budget compromise's huge tax increases raise the current maximum personal tax rate of 31% to as much as 39.6% on incomes over $250,000. This could jump as high as 44%, if you factor in the loss of certain deductions for individuals in this income bracket.
Clinton has cast the increases as falling on the wealthy, emphasizing that the corporate rate was raised only one point, to 35%. however, the fact is that two-fifths of all American businesses, or 1.6 million, file as sole proprietorships, partnerships and Subchapter S corporations. Their owners pay business taxes as individuals - and higher taxes mean less cash to invest in the business. The administration acknowledges that 300,000 small businesses will see their taxes raised.
"I'm not rich," says Dwight Redd, president of Criticare Professional Nurses Inc. in Billings, Mont., and one of only 6,000 African-Americans in that state. Profits on his $1.3-million business, combined with his wife's income as a nursing coordinator at a hospital, propel him into Clinton's new top bracket. "But that's not really my income," he protests. "Most of the profits of the company need to be reinvested." Converting his incorporation from Subchapter S to the conventional C form wouldn't help: "Then I've got double taxation, first on the business and then on me," he notes.
Clinton's Program For
African-American entrepreneurs are banking on Ron Brown's influence and commitment as a positive sign of the administration's support. Meanwhile, Brown's nomination for directorship of the troubled MBDA drags on. Established by President Nixon in 1969, and originally funded at $70 million, the agency's budget was a mere $38 million in fiscal 1993. Seeking an unspecified increase in funding, Brown plans to add six business assistance centers to the 107 currently in existence. The centers provide management and technical consulting to minority-owned firms throughout the nation.
Brown also proposes to beef up financial assistance to minority-owned firms, although specific sums haven't been announced. This increased funding would allow the MBDA and the Economic Development Administration to provide micro-loans, help establish joint ventures with larger companies, guarantee loans, work with states to provide revolving loans and strengthen compliance with the set-aside programs of federal agencies.
On the bright side, Brown has appointed several African-Americans to senior positions in his department, including James V. Hackney as counsellor to the secretary, and Larry Parks as senior advisor for economic development. Brown supports the creation of community development banks, a key element of candidate Clinton's commitment to minority business - their capital would be pledged to making loans in disadvantaged areas for home ownership and business development. Unfortunately, questions of capitalization and their relationship to existing minority banks have stalled this idea.
Under the watchful eye of successful entrepreneur and SBA director Erskine Bowles, Clinton has named two African-Americans to key SBA positions: Dayton J. Watkins, a former entrepreneur, and Cassandra Pulley- Robinson, a Washington, D.C., consultant. The deputy administrators are specifically charged with fixing the agency's biggest problems, most notably the troubled 8(a) program.
This program, which has received an onslaught of criticism for its cumbersome minority-business certification and loan process, remains snarled in red tape. Although certified 8(a) firms won contracts of $4.3 billion in fiscal 1992, up 10.3% from the previous year, the certification process itself has worsened. By law, the process must be completed in 90 days, but the SBA admits it actually takes 140.
Delays are also chronic in the SBA's guaranteed-loan program, which in the year ending Sept. 30, 1993, was responsible for funneling $6.3 billion to the nation's small businesses. However, since time is money to every entrepreneur, the time it takes to get SBA funding can kill a business.
"Theoretically, we shouldn't even be in business right now, thanks to the SBA," says an embittered Dana Greene, president and founder of Incontacare, a small medical-products distributor in Riverdale, Md. "They gave us just enough to fail." In 1989, Greene received $37,000 of a promised $150,000 loan. Caught up in the bureaucratic reorganization of the MESBIC program, the balance came three years later. Meanwhile, the business, which employs three other African-Americans and expects sales this year of $750,000, would have gone belly up except for a high-interest bank loan pledged against the SBA's promised low-interest note.
Moreover, amid overall federal budget cutting, SBA programs, administered by the agency's Minority Small Business and Capital Ownership Development office, are budgeting $30.8 million in fiscal 1994, down .65% or .7% from 1993 appropriations. Watkins, acting deputy associate administrator, estimates that the SBA's total budget for 1994 should be below expenditures for 1993.
Meanwhile, the will of the private sector to support minority businesses remains weak. According to the National Minority Supplier Development Council, U.S. corporations spent $17.9 billion with minority-owned businesses in 1991, the last year for which data are available. Although that is up from $15.2 billion in 1990, it is still only about 1% of total corporate spending on suppliers, a percentage which has been unchanged for years. The council notes that minorities account for 25% of the U.S. population, 9% of business ownership and 4% of gross receipts of all American companies.
Also delayed by President Clinton's budget problems with Congress is his plan for national health care insurance - a perennial concern of small and minority-owned businesses. The plan would impose a hefty tax on cigarettes, and some form of mandatory participation funded by employers - "a tax, in essence," notes Gaskins.
In addition to his leadership of the National Coalition for Black Economic Development, Gaskins owns MBG Contractors Co., a $5-million construction-management company in Upper Marlboro, Md. His 10 employees pay for their own health insurance, although they receive a group rate. Gaskins can't afford to supply coverage unless the workers carry the costs. If Uncle Sam mandates coverage, Gaskins says, his workers will shoulder part of the burden. "If you try to tax the employer for that package, you would end up with a decrease somewhere else," he says. "If you don't have the money to pay out, you can't pay out. So it will only bring the hourly wages down, or the salary (of employees) down, or the total payroll down."
Small-business advocates have Voiced this argument to Clinton's health care task force, but h flies in the face of Clinton's desire to provide universal coverage. With the matter unresolved as this article went to press, most black businesspeople are taking a wait-and-see attitude.
Life Goes On
Despite the inability of the government to act swiftly on minority-business concerns, as well as the lingering effects of recession, "Life goes on here," notes Duane McKnight, a partner in Syndicated Communications Venture Partners II, LP of Silver Spring, Md. "I don't see the (federal) budget having a significant effect one way or the other in terms of black business," says the venture capitalist, whose firm invests solely in minority communications companies. "What it still comes down to is that black business needs access to more capital."
Be polled minority- and small-business experts to identify the hottest areas for growth. There was wide agreement on five industries: health care, communications, technology, the environment and services. In most cases, the cost of entry is low, being limited to a home office and lots of targeted marketing at prospective clients.
The hot button of the '90s is taming the high costs of health care, and savvy entrepreneurs can capitalize on this trend by working the financial side of the industry.
"For hospitals and doctors, getting your money is going to be the big issue," says Dwight Redd, president of Criticare Professional Nurses Inc. in Billings, Mont. He recommends that fledgling business people is to specialize in the areas of reimbursement or case management.
Federal and state agencies like Medicare - and, probably, any new health care scheme President Clinton comes up with - make payments based on the paperwork submitted by providers. "If you're familiar with the paperwork involved in getting people the maximum reimbursement, you're going to be a hot commodity," Redd says.
Medical case management is the opposite side of this coin. Case managers - often registered nurses, because of their knowledge of medical procedures - represent insurance companies, monitoring bills from hospitals and physicians to make sure the companies don't overpay.
From cellular telephones to television stations, from cable to personal communications devices, the communications industry is "continually evolving, which means new opportunities will always be there for those who look for them," says Duane McKnight, a partner in Syndicated Communications Venture Partners II LP in Silver Spring, Md.
"The Federal Communications Commission has incentives for minorities to own communications properties," he adds. "Also, you don't have to be a large company to find opportunities."
"If you have the eye and the mind of an artist, and technical competence, there are lots of slots for people in desktop publishing, computer consulting, desktop video, multimedia production, producing commercials for television," says Paul Edwards, co-author of Making It On Your Own. As telephone companies begin to compete with cable television operators to provide interactive home video, demand for producers and programmers will explode.
The U.S. Environmental Protection Agency (EPA) has an Office of Small and Disadvantaged Business Utilization to help minority- and women-owned firms enter a number of rapidly growing fields like hazardous waste removal, cleaning up leaks from underground storage tanks, mitigating radon and abating asbestos and lead-based paint.
You need specialized health and safety training to gain entree to these fields, but the EPA provides grants for such training through the Washington, D.C.-based National Association of Minority Contractors. For information contact her at U.S. E.P.A. (A149C), 401 M St. SW, Washington, D.C. 20460; 703-305-5300.
As two-income households become the American norm, every conceivable service is being offered to free up time for those who can afford it. Shrewd entrepreneurs are recasting pet-sitting services as "pet day-care" in the suburbs, and personal-errand services have become a small industry.
"The cleaning-services industry is becoming increasingly specialized," notes Edwards, whose newest self-employment book, written with his wife, Sarah, is The Best Home Businesses for the '90S (Jeremy P. Tarcher Inc., Los Angeles, 1991 267 pp., $10.95). "There are companies now that specialize in acoustical tile, power washing and specialized floor treatments" for commercial buildings, and others doing similar things for the home market.
The following sources should provide you with the information and contacts you need to survive in today's economy.
* Minority Business Enterprise Legal Defense and Education Fund, 220 I St. NE, Suite 240, Washington, DC 20002; 202-543-0040. This organization provides information and legal assistance in support of the development of minority-owned businesses. * National Association of Minority Contractors, 1333 F St. NW, Suite 500, Washington, DC 20004; 202-347-8259 This group regularly disseminates crucial information, including news about procurement opportunities, to minority contractors.
* The National Federation of Independent Business, 600 Maryland Ave. SW, Suite 700, Washington, DC 20024; 202-554-9000. The NFIB is the nation's largest advocacy group for small and independent businesses.
* National Minority Business Council, 235 E. 42nd St., New York, NY 10017; 212-573-2385. This organization offers minority-owned firms help in the areas of procurement, training, education, international trade, advocacy and communications.
* National minority Supplier Development Council, 15 W. 39th St., New York, NY 10018; 212-944-2430. Committed to matching minority-owned businesses with procurement opportunities, the NMSDC's database includes more than 15,000 vendors.
* U.S. Small Business Administration, 409 Third St. SW, Washington, DC 20416; 800-827-5722 or 202-205-7713 The SBA provides information ranging from how to start a business to sources of technical and financial assistance.
* Small Business Service Bureau, 554 Main St., P.O. Box 15014, Worcester, MA 01615-0014; 508-756-3513.
* The National Association of Investment Companies, 1111 14th St. NW, Suite 700, Washington, DC 20005; 202-289-4336. Compiles a useful $10 directory of about 150 venture capital firms.
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|Title Annotation:||B.E. Report on Small Business; includes related article on five industries with the greatest potential for growth: health care, communications, technology, environment and specialized services and; includes list of business service organizations|
|Date:||Nov 1, 1993|
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