Black Business Numbers Increase, but Lack of Capital Is Still Problem : Finance: Census figures reflect the rise, but black leaders say most businesses are mom-and-pop operations that lack money to grow.
The number of black-owned firms in the City of San Diego has increased noticeably during the past decade, but most of the growth has been at family-owned businesses with few paid employees and relatively small gross revenue, according to recently released U.S. Bureau of the Census figures.
A lack of comparable data makes it difficult to track that growth, but an estimated 300 new companies appeared from 1983 to 1987, according to Census reports. In 1987, 1,729 black-owned firms reported $58.2 million in revenue. Countywide figures for 1983 are not available, but in 1987, the county’s 2,481 black-owned firms reported $105 million in revenue.
The 1987 Census data, released last week by the Greater San Diego Chamber of Commerce, underscores the “glaring gap” between San Diego’s relative handful of large, black-owned companies and the thousands of small, struggling companies that can’t secure capital needed in order to grow, said Harold K. Brown, president and co-founder of the San Diego Black Economic Development Task Force.
Black-owned firms in the city reported average annual revenue of just $33,600 in 1987, compared to a $42,400 countywide average and a $49,500 average statewide. Those averages probably have not changed significantly since the 1987 Census report, Brown said.
Given that low level of average revenue, most of San Diego’s black-owned companies are “mom and pop shops,” said Brown, who also is associate dean for external relations at San Diego State’s College of Business Administration. “But at $33,600 (in average annual gross revenue) you’re hardly able to support the owners, much less any employees. These (small companies) aren’t the type that generate new jobs.”
The 1987 Census data that was culled from federal income tax filings indicates that most black-owned companies are, in reality, “an individual working out of his house,” said Max Schetter, a vice president with the Greater San Diego Chamber of Commerce.
Besides being small, the 285 black-owned firms identified in San Diego in 1987 had woefully small payrolls.
In 1987, the city’s black-owned firms had a combined payroll of $8.4 million for their 647 total employees. Countywide, 447 black-owned firms with 1,535 employees reported a combined payroll of $17.6 million.
San Diego’s ranking nationally for black-owned businesses “appears low given that San Diego’s total population ranking was 17th for metropolitan areas and fifth among counties in 1987,” according to the chamber report.
But the low ranking--San Diego was 28th on a list of 100 large cities, and the county was 31st on a list of the 100 largest metropolitan areas--was caused in part by San Diego’s relatively small black population. Blacks accounted for 12% of the nation’s population in 1987, but, in San Diego, blacks accounted for just 6% of the population.
The Census figures indicate that most small, minority-owned businesses are unable to find capital needed to hire new employees, buy supplies and lease or buy adequate space, Brown said. That cash shortage is troublesome because “capital is the name of the game in our capitalistic society,” Brown said.
“The problem historically has been that lending institutions in San Diego have redlined not only black community but black businesses when it comes to (making loans),” said Abdur Rahim Hameed, chief executive of A.L. Meadows Construction, one of the county’s larger black-owned businesses. Hameed is active in the Black Contractors Assn. of San Diego, an organization that seeks to channel more construction-related spending into black-owned business.
Data gathered during 1987 suggests that construction companies “had far higher compensation per employee than other black-owned companies,” according to the chamber of commerce report. Countywide, employees in construction-related businesses earned an average of $22,500 per year, contrasted with $11,500 for the average employee at a black-owned company. Employees at black-owned retail companies, for example, earned an average of just $6,500 annually.
“We have to hitch our buggy to that (construction) engine” because it represents such a significant chunk of the county’s overall economy, said Bobby Glanton-Smith, president of the local chapter of Recycling Black Dollars, a Los Angeles-based organization that was founded in 1988 to help black business owners “recapture” consumer dollars spent by blacks.
The organization’s “primary focus is to create a better relationship between the black business community and black consumers,” Glanton-Smith said. “We advocate business development to the extent whereby we have greater control over our own destiny.”
Brown believes that minority businesses would benefit from the creation of a Minority Enterprise Small Business Investment Company, a federally sponsored program that “acts like a venture capital firm.”
Brown and others, who hope to establish a MESBIC by early 1992, are now raising $2 million that would be used to invest in promising firms. The MESBIC would pump “in the neighborhood of $100,000 to $200,000” into deserving firms that need capital to hire employees, buy equipment or market themselves to prospective customers, Brown said.
A MESBIC would “obviously fill a gap in the capital crisis in San Diego,” said Jo Ann Price, president of the National Assn. of Investment Companies, a Washington-based trade association. The 150 investment companies now operating in the U.S. have invested $1 billion in small businesses that otherwise would have been unable to obtain financial backing, Price said.
Some minority firms also have beaten the capital crunch by turning to California Southern, a state-backed small business development corporation. While the state-backed loan guarantee program has been active elsewhere in California for nearly 20 years, California Southern opened its doors to San Diego and Imperial counties just under two years ago.
In that time, the small business development company has guaranteed “close to $3 million in loans,” said California Southern President Mike McCraw. “We’ve done everything from small manufacturing companies to service companies.”
California Southern’s loan-default rate is just 3%, which McCraw described as “commendable given the fact that we’re guaranteeing loans that are substandard by normal banking criteria.”
California Southern makes loan guarantees regardless of race, but “we’re acutely aware of the lack of conventional financing for the black and Hispanic communities,” McCraw said.
Brown also hopes to establish a Center for Black Economic Development and Research that would “fill the real need for information about blacks and other minorities in San Diego. . . . There’s so much we don’t know about the needs of the (minority) business community.”
BLACK-OWNED FIRMS IN SAN DIEGO COUNTY
Selected Services: 57.6%
Wholesale trade: 1.5%
Manufacturing: 1.5%
Agriculture: 2.3%
Transportation and Public Utilities: 3.6%
Construction: 6.4%
Finance, Insurance and real estate: 9%
Retail trade: 12.8%
Source: U.S. Dept. of Commerce, Bureau of the Census. Economic Research Bureau of the Greater San Diego Chamber of Commerce.
BLACK-OWNED FIRMS IN METROPOLITAN AREAS
Number Revenue Rank Metropolitan Area of Firms (in $1,000) 1 New York 28,063 $1,234,910 2 Los Angeles 23,932 $1,300,336 3 Washington, D.C. 23,046 $951,945 4 Chicago 15,374 $908,500 5 Houston 12,989 $372,256 6 Atlanta 11,804 $747,367 7 Philadelphia 10,249 $612,995 8 Detroit 9,852 $514,324 9 Baltimore 8,593 $331,493 10 Dallas 7,857 $234,823 31 San Diego 2,481 $105,104
Source: U.S. Dept. of Commerce, Bureau of the Census. Economic Research Bureau of the Greater San Diego Chamber of Commerce.
