‘Micro’ Means Business
Valerie Holton, laid off from her clerical job about a year ago, decided not to wait for the government to bail her out or for some corporation to bring new jobs to the community. She started her own business.
With about $200 in savings, Holton bought a typewriter, began advertising and started Black L.A. Tours out of her Crenshaw home. Today, the one-woman business books occasional bus and van trips to such black historical and cultural sites as the Ebony Showcase Theatre, the Dunbar Hotel and the home of Hattie McDaniel, the first black woman to win an Academy Award.
Holton’s tour company is one of thousands of central Los Angeles “micro-businesses,” tiny enterprises that some economic experts believe will play a key role in creating jobs in riot-recovering areas and other inner cities nationwide.
Micro-businesses--generally defined as employing fewer than five people and needing less than $5,000 to start up--offer goods or services ranging from building maintenance to word processing to selling items on street corners.
Although micro-businesses are nothing new, officials are recognizing their potential in poverty-stricken areas and are starting new programs to provide them with badly needed start-up money. In the past three months alone, government agencies and corporations have pledged or provided more than $2 million to Los Angeles community organizations for micro-business loans.
“New job growth is not going to be with the large corporations, but (with) the micro-businesses that will develop on street corners in places like South-Central Los Angeles and East Los Angeles,” said Oscar Wright, a native of South-Central and regional administrator of the U.S. Small Business Administration. Nationwide, he said, about 51 million people have home-based businesses, a 56% increase in the past five years.
“Micro-business is where the action is,” said Jon Goodman, a jobs creation expert and head of the USC Business School’s entrepreneur program.
Among the micro-business programs under way in Los Angeles:
- The Small Business Administration in June provided $750,000 to the nonprofit Coalition for Women’s Economic Development, a downtown-based organization that provides loans of $1,500 to low-income women. The money is part of $45 million in federal loan funds that the SBA is providing to nonprofit groups in 30 cities.
- Disneyland last month pledged $1 million for a micro-business loan program to be run by First African Methodist Episcopal Church. A multiethnic panel will authorize loans of $2,000 to $20,000. The City of Los Angeles has also pledged to provide the church with loan money. Church officials estimate that the first phase of the program will create more than 30 businesses and 150 jobs.
- The Episcopal Diocese of Los Angeles has raised $300,000 for micro-business and personal loans of as much as $30,000. The diocese has also hired a business consultant and plans to commit $600,000 to start an economic development credit union and entrepreneur training courses this year.
Despite the optimism surrounding the development of micro-businesses, skeptics question whether they can create sufficient job growth in inner cities, where poverty, despair and unemployment have become a way of life for many. The only real hope, the skeptics say, is a long-term solution based on massive private and government investment, major reforms in the educational system, and training programs for the vast numbers of unemployed workers.
“I’m very pessimistic,” said Wayne-Kent Bradshaw, president of Family Savings Bank in Southwest Los Angeles. “People should help themselves. But I think you’re dealing with a problem that is so profound that there is no way to plant the seeds of entrepreneurship because they will be killed in the harsh environment that exists.”
Still, 1990 U.S. Census data show that micro-businesses dominate in areas of Los Angeles that were hit by the April-May riots. In South-Central, for example, 46% of businesses employed one to four people. The number was even higher in Koreatown, where businesses employing four people or fewer represented 62% of all stores, shops and restaurants. Information was not available for other areas, nor was there data on how many micro-businesses were destroyed in the riots.
Although some micro-businesses operate in areas zoned residential, a city Building and Safety Department official said his office typically does not investigate these small enterprises unless numerous nuisance complaints are filed.
Chull Huh, secretary general of the Korean Chamber of Commerce of Los Angeles, said micro-businesses can be the bridge to larger enterprises for newly arrived immigrants or first-time entrepreneurs. “It’s very important. Micro-business makes macro-business,” Huh said.
Indeed, in the bustling downtown warehouse district, Kim Hau said he began his business selling toys at a swap meet in 1979 after he became fed up with washing dishes at an Inglewood restaurant. His 88 Toys Co. Inc., which Hau said he started about five years ago with $50,000 in savings, now employs five people and last year sold more than $1 million in goods. Hau, 48, an ethnic Chinese who came to Los Angeles from Vietnam, now subleases a once-abandoned downtown warehouse and provides booth space to other entrepreneurs.
Hau was able to save his start-up money during healthier economic times. But with the current recession, start-up capital is one of the main challenges facing micro-business owners.
Kyhra Dahan and Maurice Winslow, two South-Central entrepreneurs, said they were unable to obtain bank loans because they lacked collateral or were unemployed.
“They won’t give me a loan because I don’t make enough money,” said Dahan, 37.
The single mother said she moved from her two-bedroom home into a small apartment and sold her van and pickup to raise the $10,000 that she invested in her two fledgling businesses. Dahan runs Extraordinary People, a video- and movie-casting company. She also makes flags and ties displaying the face of Marcus Garvey, a prominent early 20th-Century black activist and educator.
“When you haven’t had much business, you don’t have much in your bank account,” said Winslow, 39, an unemployed general contractor who with his wife scraped together $300 to buy plants and pots so they could sell floral arrangements from a vending stand on Crenshaw Boulevard. Acknowledging that he has a history of credit problems, Winslow said he hoped his business will be the start of a steady income and a stable life for his wife and their 17-year-old son.
“We’re tired of eating hot dogs and peanut butter-and-jelly sandwiches,” he said.
Many urban entrepreneurs, unable to qualify for bank loans, sell their possessions, use their meager savings or borrow from family and friends to start a business, said Robert Friedman, who heads the Corp. for Enterprise Development, which analyzes economic policy issues nationwide.
Part of the problem, he and others said, is that large banks have been generally unwilling to make loans of less than $100,000 for small-business endeavors because the profit margin is not great. “If you have that as a general problem for the small-business person, think what it takes for a man or woman to get $5,000 for a micro-business,” Friedman said.
Compounding the problem is that large numbers of inner-city residents--many of them recently arrived immigrants or people with low-wage jobs--have language difficulties, limited business skills and little knowledge of the banking system. “These people are the ones most likely to fall through the cracks,” Goodman said.
Felix Contreras is one such person. Broke and unable to speak English, the immigrant from Mexico said she didn’t bother to go to a bank for a loan when she wanted to buy a food vending cart three years ago. Instead, she borrowed $2,000 through a micro-business program offered by the Coalition for Women’s Economic Development. She and her husband were able to save money, and within a year, they had enough to sublease counter space at a Boyle Heights pharmacy. Their St. Louis Fountain restaurant now does a lively business, selling everything from chiles rellenos to hamburgers. “We are saving for another one,” said Contreras, 34.
To help people like Contreras, the government and the private sector need to establish more community funding programs and training courses that teach such basic business skills as accounting, banking procedures and marketing strategies, said William Marshall of the Progressive Policy Institute, a Washington think tank.
One funding strategy involves community development banks, institutions owned by small groups of investors--churches, community organizations or nonprofit foundations--that tailor their lending to the needs of inner-city residents. In Chicago, the South Shore Bank has helped revive a struggling black neighborhood. A similar community bank has been proposed for Los Angeles, but it would only provide small-business loans of $50,000 or greater, said C. Robert Kemp, chairman of Family Savings, one of about 10 local banks interested in the venture.
Another strategy relies on a “peer support” lending concept that is taking off in the nation’s inner cities and is touted by Democratic presidential nominee Bill Clinton. Pioneered in 1983 by the Grameen Bank in Bangladesh, peer support involves a group of neophyte entrepreneurs whose members receive loans one at a time. Each has a vested interest in the other’s success, because if one person is late with a payment, the next applicant cannot receive a loan. The groups meet in weekly “solidarity circles” during which participants make their payments, receive loans, discuss business strategies, take classes, and offer one another advice and support.
In Los Angeles, the Coalition for Women’s Economic Development has used the peer concept since 1990 to lend nearly $154,000 to 80 low-income women, almost all of them minorities. The default rate has been about 2%, said Paula Sirola, the program manager. SBA officials said the default rate for small-business loans administered by their agency during the past 10 years has been 2.4%.
Meeting with the four other women in her circle, Holton of Black L.A. Tours talked about her $1,500 loan and first major business endeavor: a planned “Road to Freedom” trip next year that will follow the route to Canada used by escaped slaves.
“It’s been a lot of work, but I’m going to do it,” Holton said. “I’m very proud of that.”
Small Is Big This summer, the government and private sector have provided more than $2 million for loans to microbusinesses. they hold one of the keys to creating jobs in riot-stricken areas, experts say. Koreatown * 1,439 businesses. Type Service 41% Retail 28% Fin. 8% Mfg. 6% Whsl. 6% Other 11% No. of Employees 1-4 62% 5-9 16% 10-19 9% 20-49 9% 50-99 3% 100+ 1% South Central * 8,372 businesses. Type Service 27% Retail 24% Mfg. 19% Whsl. 14% Construction 4% Other 12% No. of Employees 1-4 46% 5-9 18% 10-19 14% 20-49 13% 50-99 5% 100+ 4% Source: 1990 U.S. Census. Figures are currenty available only for the areas in green.
