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Fighting the numbers: with usury override, New Year holds out hope for small businesses.

THE ECONOMIC CLIMate for Arkansas' small businesses in 1992 was a mixed bag.

Business failures and bankruptcies were up in the first six months of 1992, but the number of business incorporations also rose.

Another positive sign was the steady interest in entrepreneurial activity reported by the Little Rock office of the Small Business Administration, which posted a record year in loan guarantees.

According to the SBA Office of Economic Research, business failures in Arkansas totaled 280 in the first six months of 1992 (the most recent cumulative figures available). That's a 45 percent increase from the 193 failures reported during the same period in 1991.

The number of bankruptcies logged through June 1992 was 297, compared with 242 in 1991.

John Shelnutt, an economist at the University of Arkansas at Little Rock's Institute for Economic Advancement, says the increase in business failures and bankruptcies in the state is somewhat surprising since Arkansas has "bucked the trend" in other ways.

The state has seen about a 3 percent net employment growth rate this year, and it ranks among the top 10 states for personal income growth, he notes.

Shelnutt credits gains in export activity by Arkansas' businesses for those positive indicators. It's a trend projected to slow some.

"The Arkansas economy is forecast to slow down a bit partly because of the weakness of foreign markets," Shelnutt says.

Offsetting the increase in business failures and bankruptcies is an Arkansas and nationwide increase in the number of incorporations.

In the first half of 1992, The Dun & Bradstreet Corp. reports incorporations in Arkansas rose 14.5 percent, from 2,765 to 3,166. Nationwide, there was a 7 percent increase during that same period, from 322,570 to 344,847.

"The growth of new incorporations during the first half of 1992 points to a resurgence in entrepreneurial activity for the first time in several years," says Joseph Duncan, a corporate economist and chief statistician for Dun & Bradstreet.

Loans Are Up

The SBA reports that the fastest-growing sectors of small business-dominated industries include eating and drinking establishments, trucking firms, physicians' offices, computer and data processing services and recreational services.

Joseph Foglia, district director of the SBA in Arkansas, also reports a thriving entrepreneurial spirit in the state.

His agency, which helps entrepreneurs get the planning information and loan assistance they need, reports a record-setting year with 194 loan approvals.

Foglia says the program has issued 50 percent more loans than 1991.

"Our loan program has been up dramatically ... in loans that we guaranteed in the state, which has been just a phenomenal increase over last year," Foglia says.

The third and fourth quarters of SBA's 1992 fiscal year, which ended Sept. 30, show marked increases in the dollar amounts of loans. The figures suggest that confidence among new entrepreneurs and existing business owners getting loans for expansion grew steadily as the calendar year drew to a close.

The average loan amount guaranteed by the Little Rock SBA is $190,000-$200,000, Foglia says. The office has participated in loans as large as $700,000.

Currently, the SBA has about 1,800 active loans.

Of those, about 5 percent are troubled loans that have payments more than 60 days late.

Foglia estimates the SBA eventually may foreclose on half of those loans, if restructuring agreements cannot be reached.

The SBA estimates that Arkansas has some 52,000 small businesses. About 99 percent of them fall into SBA's broad definition of a small business for loan purposes.

For example, certain manufacturing businesses can have up to 1,500 employees and be classified a small business. Some construction companies can have annual receipts of up to $17 million and fall within SBA loan eligibility requirements.

In the past, Foglia says, small businesses have been stifled by Arkansas' usury law, which hampered them in obtaining long-term loans.

The maximum allowable interest rate of 5 percent over the discount rate at the time of the contract made variable loans impractical for lenders.

The Good News

The good news for small businesses in 1993 is the federal law enacted Sept. 4, 1992, that overrides the state's usury laws on SBA guaranteed loans.

Because the override did not become effective until late '92, Foglia says its stimulus won't be seen until later in the '93 fiscal year.

But he's optimistic it will increase loan demand.

"I think we're going to double our production here in loan guarantees as a result of the usury override," Foglia says. "Our program is going to be in demand among most of the banks in the state.

"It's going to help small business get long-term financing at market rates, and I think it's going to dramatically affect the state of the economy."

The override and the newly introduced microloan program -- targeted at rural, low-income and minority entrepreneurs--should greatly improve Arkansans' access to capital, says Foglia.

A Camden woman, Mary Stewart, became the first Arkansan to receive a microloan in the amount of $10,000 in September. Fourteen other Arkansans had received microloans by year's end.

Stewart operates Paper Flowers, a home-based business that produces enclosure cards for floral arrangements.

Linda Rice, public information director for the SBA in Little Rock, says she believes Bill Clinton's presence in the White House also will enhance the climate for small business.

Rice thinks Clinton as president will be sensitive to the needs of small businesses, "since he comes from a state that's full of |them~."
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Title Annotation:The Year 1992 in Review; small business developments in Arkansas in 1992
Author:Walter, Dixie
Publication:Arkansas Business
Date:Dec 28, 1992
Previous Article:Turning dirt.
Next Article:New faces, new places: the Arkansas medical community goes through changes, expansions.

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