The state of small black business - includes related article on small business financial assistance

Black Enterprise, Nov, 1997 by Wendy M. Beech

An anti-affirmative action firestorm is brewing in the small black business community. To stay competitive, these firms must build alliances, use technology and enxercise their voice.

THE 21ST CENTURY IS QUICKLY approaching, but will small black businesses be able to compete successfully in the new millennium when many traditional challenges still persist? That is the question many African American entrepreneurs are asking themselves and the government agencies that claim to support their enterprises.

"For a lot of firms, just trying to get a commercial line of credit from banks still remains a problem," says Donald J. Todd, owner of Don Todd Associates Inc., a construction management company in San Francisco.

Gaining access to capital is just one of many die-hard problems that small black businesses have faced over the last decade. To overcome this challenge, many have participated in augmented loan programs such as the Small Business Administration's 7(a) Guaranteed Business Loan Program. This program guarantees bank loans of up to $750,000 to creditworthy small enterprises that have had difficulty getting loans through normal lending channels. However, in fiscal year 1997, African American-owned firms received a mere 3% (about $237 million) of the more than $8 billion awarded. This is a decrease from fiscal year 1996, in which small black-owned companies received $259 million in 7(a) loans.

Some small black business owners say persistent loan discrimination is making fair access to capital difficult. However, Frank R. Gittens, a business financial consultant at Arizona's Bank One, the third largest lender to small businesses, insists banking institutions have become more small business-friendly. He says money is available, but many small black enterprises are ill-prepared to access it. "African American business owners call daily, but they really don't have a clue as to how much money they want to borrow," says Gittens. "They don't have a business plan or financial projections. They should because the days are gone when banks extend a loan just because you're a good, trustworthy person with an entrepreneurial idea. You have to ascertain how much you need to borrow in order to run your business successfully."

In addition to reduced access to loan dollars, African American entrepreneurs have also experienced a firestorm of anti-affirmative action policies. One of the hardest hit areas has been in federal procurement.

In 1995, the Supreme Court's ruling in the Adarand Construction v. Pena Case restricted the use of race as a consideration in awarding federal contracts. Now, in an attempt to comply with this decision, many of the nation's contracting programs that were originally designed to help minority businesses secure projects are eliminating the race factor.

In fact, California's Proposition 209, also known as California's Civil Rights Initiative (CCRI), prohibits consideration of race, gender or ethnicity in all areas of the state's system of public contracting, as well as employment and education.

In last November's election, voters voted in favor of the Initiative. The American Civil Liberties Union and other groups challenged the constitutionality of CCRI. But last April, the 9th Circuit Court of Appeals upheld the measure, enacting it into state law.

Now the Clinton Administration has announced proposals to revise the nation's largest contracting initiative, the SBA's hotly debated 8(a) program.

The proposed changes to the 8(a) program will, among other things, expand the definition of those who quality, opening up contract bidding to more white-owned companies (see "Is 8(a) Doing the Two-Step?" Newspoints, this issue). In fiscal year 1996, a total of 6,115 companies participated in 8(a). Of these firms, all but 27 were owned by racial or ethnic minorities.

"You still have to qualify as socially disadvantaged, and there is a strict test for that," explains SBA administrator Aida Alvarez of the proposed changes. "But there will be more flexibility and more participants, so we think that's a good thing," she says.

But good for whom? asks Deborah Proctor, president of Acorn Services Inc., a $10 million contract food services business in Florham Park, New Jersey. "Just getting to the table has been difficult enough," says Proctor, who has received four contracts through 8(a) worth a total of $4.5 million. "I've been in the 8(a) program for four years now, and it has allowed me to bid on contracts that I may not have been able to otherwise."

African American participants already lag behind the other businesses that participate in 8(a). In fact, Asian American-owned firms appear to be the program's front-runners. They have more than doubled their share of contracts from 10.5% in 1986 to 23.7% in 1996. Blacks, on the other hand, have lost one-quarter of their contract dollars, dropping from 50.5% in 1986 to 36.7% in 1996. Hispanic-owned firms have hovered around 30% for the 10-year span.

"So when they introduce white companies into 8(a)," contends Todd, "there is going to be even less for black-owned firms." Total federal contract actions for fiscal year 1996 totaled $198 billion. Those in the 8(a) program accounted for 3.2% (or $6 billion) of all federal contracts.