No segment of American industry has been pummeled by the Great Recession more than minority business. As the economy shows signs of recovery, these companies––most of which can be found in the small business sector––have been struggling to gain solid footing. Access to capital and government contracts, most assert, would stabilize their companies and eventually spur growth. Others need such lifelines to keep from joining the ranks of the more than 30,000 businesses forced to file for bankruptcy protection in the first half of 2009. Although the Obama administration has initiated small business financing programs––including freeing up more than $15 billion by increasing guarantees and lowering fees as part of the Small Business Administration’s 7(a) loan program––financial institutions, large and small, have still been reluctant to provide funding to entrepreneurs. For example, the SBA reported a 43% decline in 7(a) loan approvals from a year earlier. And critics maintain that the America’s Recovery Capital Loan Program that was part of the $787 billion stimulus program is operating at a clunker’s pace: Reports reveal that as of Sept. 1, only roughly $65 million––1,850 loans at a maximum funding level of $35,000––of the $255 million had been disbursed to small business owners. “Small firms are in such bad shape today that those who need loans are not likely to be able to qualify with respect to their credit worthiness,” says Thomas Boston, director of research and innovation of the Atlanta-based economic consulting firm EuQuant and a member of the black enterprise Board of Economists. “ What small firms need is revenue and procurement opportunities.”
Commerce Secretary Gary F. Locke is aware of such needs. In speeches to entrepreneurs, the 59-year-old former governor of Washington often recounts his Chinese immigrant father’s rise from servant to grocery store owner as well as his own track record in the statehouse of helping companies make international connections. President Obama has charged Commerce’s agencies to bolster small and minority-owned firms. Locke has assembled a high-powered team to tackle the job: Deputy Commerce Secretary Dennis Hightower, Commerce Deputy Chief of Staff Rick Wade, Small Business Administration head Karen Mills, and Minority Business Development Agency National Director David Hinson. Locke says their collective role is not only to help such companies survive and gain contracts available through the American Recovery and Reinvestment Act, but to reposition them to become players in “new economy industries” such as renewable energy. At MBDA’s recent Minority Enterprise Development Week conference, better known as MED Week, Locke talked with black enterprise’s Editor-in-Chief Derek T. Dingle about how Commerce will help minority firms participate in America’s economic rebound.
BLACK ENTERPRISE: Outline your agenda for minority business.
GARY LOCKE: It’s our view that the economic recovery will not be successful unless minority businesses also share in that recovery and are part of the turnaround and growth. It’s important for minority businesses to succeed if we want all of America to succeed. Minority businesses are such a large component of small- to medium-sized businesses in America now. In just the last four years they’ve grown from just a couple of hundred thousand to more than 4 million, employing millions and millions of Americans all across this country. SBA Administrator Karen Mills and I have been asked by the president and the vice president to help lead all of our cabinet activities to ensure that with all the stimulus money going out that minority firms are front and center in getting their fair share of those contracting opportunities. So in the next 90 days we’re going to have some 200 workshops and opportunities for minority businesses all across the country about the contracting opportunities.
B.E.: What are the specific targets for minority businesses in terms of gaining recovery contracts?
LOCKE: Well, we don’t really have firm targets. We’re going to be using the power of the administration to inform the states that we really want minority firms to be part of contracts and subcontracts whether it’s building a bridge, repairing roads, constructing dormitories and college laboratories, or modeling schools. Within the federal agencies we will be really working with all the cabinet secretaries with the money that they administer even if it is unique to that federal agency to make sure that minority businesses are considered and given the opportunity to compete and hopefully win some contracts.
B.E.: Many minority businesses often have challenges at the local level dealing with different bureaucracies, systems, and priorities. How do you monitor the distribution of contracts on the local level?
LOCKE: It all starts with data collection. For instance, the state of Washington gets a contract for road repair. We will be working with state officials to document where the money goes and to what extent minority firms were either prime contractors or subcontractors. And, of course, the vice president is having frequent telephone conversations and conference calls with the country’s mayors and governors. This is one of his key issues.
B.E.: How do you ensure that minority businesses gain the financing they need to compete and then manage these contracts?
LOCKE: We are seeing that problem––adequate capital for businesses of all sizes––all the way from GM and Chrysler. You can imagine that it’s even tougher for small- and medium-sized businesses. Minority businesses are sometimes newer and don’t have quite the credit history as other well-established firms. That’s why, for instance, under the Recovery Act higher guarantee loans and funds [were made] available for small- and medium-sized companies, including minority firms. Even within the SBA, they’re using some of this to offer up to 90% guaranteed loans. If you’re able to get a bank loan, the SBA and federal government will guarantee the bank that we will back it up. It still requires the bank to assume 10% of the risk, but by raising the guaranteed level, we’re making it a lot easier for minority firms to access that capital.
B.E.: But aren’t you concerned that, at this point, guaranteed loans are down 43% from last year?
LOCKE: Earlier in the year we saw a lot of banks just not offering loans to anybody––even if it was almost a 100% guarantee. They just weren’t offering loans because they didn’t have any money to give. There was so much scrutiny on the banks that they weren’t giving out loans even to their most trusted, longtime customers. Now, we are seeing the banks starting to free up money and by the federal government raising the guarantee behind these loans, we’re seeing a lot more receptivity and action. Companies still have to pay their monthly bills and expenses. At the same time, they are not getting timely payment for products delivered or services rendered. They are really facing a cash flow crunch and that’s where access to capital, even short-term loans, can be very, very important.
B.E.: How do you keep these companies going and, at the same time, tell them to focus on the emerging industries of tomorrow?
LOCKE: We need to focus on making sure minority firms stay viable because so many companies, especially small companies, are not able to survive in this tough economic recession. So many of the job losses we have seen in 2008 and part of early 2009 have occurred among small businesses, and we know so many of them are minority-owned businesses. So we’ve got to help them. That’s why the president is really focused on, through the Recovery Act, providing funds, guaranteed loans, and even outright grants for small- to medium-sized businesses––especially grants and loans in the emerging fields. I want to say if you’re a minority firm and you are able to hang on and survive, start thinking about these emerging industries. Be prepared to start diversifying your activities, especially involving green jobs, alternative energy, and energy efficiency. This whole new [sector] really has very few players in it and the players that are [in these fields] are all new so they don’t have a huge credit history themselves. These are not companies that have been around for 20, 30, 40 years that have such a monopoly that it’s difficult for others to enter into the field. The hallmark of many of our minority businesses is that they are aggressive; a lot of sweat, passion, hard work, ingenuity, and creativity––those same skills and strengths will help them move into these new emerging fields.
B.E.: How does Commerce help entrepreneurs redesign their companies to take advantage of the green economy?
LOCKE: The Minority Business Development Agency is the only federal agency committed to helping minority businesses grow, thrive, and succeed. We’ve been able to, in just the last year, help minority businesses gain access to some $2 billion in capital and increase their profits. We have various programs that can, for instance, take a look at their operations and suggest ways in which they can become more efficient and leaner using technology, therefore becoming more profitable.
B.E.: So how do you get small firms to access global markets?
LOCKE: We have programs to help the company sell their products all around the world. Too many small businesses export to only one country. If they are exporting to one country there really is no reason why they should not be exporting to three, four, or five. We have people in consulates and embassies all around the world that will help these companies find customers all around the world and do the background checks. All you have to do as a company is take advantage of our services, perhaps eventually travel to that foreign destination. We’ll line up all of the interviews and bring in all of these companies to meet with you and we will have pre-qualified them. Then we’ll even help you with the financing steps and all the credit issues that might be involved in selling your product to another country and receiving payment.
B.E.: Major corporations meet with Commerce officials all the time, but small businesses don’t do the same. How do you make small businesses aware of resources that can help them grow into larger entities?
LOCKE: Well, that is really a challenge for us. We are revamping our services to make ourselves a lot more accessible, relevant, and known to small businesses all around the country. We’re starting what we call one-stop business advocacy centers where you come in to one office, let’s say in Detroit, and meet with one person who will be cross trained in all the different programs and services at the Department of Commerce as well as other federal agencies like the Defense Department. That person will then be able to help manufacturers diversify, repair, or supply parts for let’s say military vehicles and equipment. We’re going to be starting these one-stop shop business advocacy centers first in Detroit and, if successful, all around the country for small business owners who are so consumed with how to find customers, meet payroll, and keep operations going that they don’t have time to go to five different Commerce Department offices in their local city. We’re also going to do it over the Internet so [business owners] don’t even have to go by car to a city.
B.E.: So you provide the infrastructure, they access the opportunities?
LOCKE: That’s right.