UNDERSTANDING THE RIOTS--SIX MONTHS LATER : Money and Power/Making It in the Inner City

When Nathan Holt got wiped out, he now acknowledges, he was partly to blame.

His storefront photography studio on Martin Luther King Boulevard, in the heart of the Crenshaw district, had been open less than four months. To Holt, it was enough to be clearing $400 a week; buying insurance was still on his things-to-do list.

Then came the riots.

“My place got looted on TV,” said Holt, 44, a burly former security guard.

After the looting came the burning. And Nathan Holt found himself confronting the parched economic landscape of inner-city Los Angeles with an empty canteen.

His struggle to survive makes a difference because Holt--multiplied by thousands of African-American, Asian-American, Latino and Anglo business people--plays an essential role in any dream of reviving the urban core.

Entrepreneurship is the city’s new rallying cry. Hopeful announcements of entrepreneurial training programs and inner-city investment funds have come almost weekly since the riots. Republican and Democratic politicians alike are preaching that business ownership--not government handouts--is the key economic lever not only for Los Angeles, but for urban ethnic enclaves nationwide.

But the obstacles faced by entrepreneurs--especially minority entrepreneurs--in the inner city are daunting. And they have not changed much since last spring’s upheaval.

Start-up capital. Bank loans. Insurance. Commercial leases. All are indispensable to business success--and all are harder to come by on Holt’s side of the street. Suppliers cut skinnier deals there. The competition is more raw.

And most important, the customers are very, very poor.

OWNERSHIP: STRUGGLING TO MAKE IT

‘People look at you differently.’

“Bank of America, Security Pacific, Wells Fargo,” Holt says, ticking them off on his fingers. “They all said: ‘Hi! How you doing? Goodby!’ ”

In truth, when Holt started traversing the city in search of financing, he didn’t “pencil out” too well with the banks: no job, no income, no credit history and only four months’ operating experience. Because he rents, in Leimert Park, Holt could not borrow against a house.

On the asset side, Holt had the infectious gab of a born salesman and a solid business plan. He had proved that he could run an enterprise profitably by underpricing rivals and hustling for jobs.

But you cannot easily borrow on bravado, Holt found out. He did not qualify any better at Founders National Bank, Los Angeles’ only black-owned commercial bank.

“We get a lot of people who’ve been turned down by B of A and come to us and say: ‘Well, you’re an African-American bank. You can help me,’ ” said Ellis Gordon Jr., senior vice president at Founders National Bank. Although Founders caters to minority business in the core city, its lending standards are just as stiff as those of Establishment banks, Gordon said.

Sometimes, Founders can find a way to make a deal with a borrower whom a larger bank has passed over, Gordon said. But that is less a function of differing credit philosophies than it is of having lending officers who know the community and can make accurate “gut” judgments about risk.

One of Founders’ apparent success stories is K & D Cosmetics, a small manufacturer just south of Compton that sells its line of hair-care products, soaps and scented lotions (“similar to Giorgio,” reads one label) exclusively to prisons. K & D would have been difficult to finance conventionally, but Founders helped put together a federally insured loan package that allowed it to expand.

“People look at you differently when you come up in South-Central,” said one of the firm’s founders, Khalil Kareem, 55, who served several jail terms in his younger years in South-Central and is recovering from drug and alcohol addiction. Kareem sometimes has found it a necessity to use a Beverly Hills mail drop as his business address.

Other small-business people who Gordon sees are more in need of capital to get started than bank loans, which require collateral. Surprisingly often, he said, would-be entrepreneurs do not know the difference; that suggests a need for basic training in finance.

In speaking to African-American community groups, Gordon also preaches the gospel of thrift. “You empower yourself by saving money,” he says. “It gives you a stake.”

Other ethnic groups in Los Angeles have learned that lesson. Among Korean-Americans, family savings--often sent from Korea--are a prime source of business capital, said Benjamin Hong, president of Hanmi Bank, the oldest of the city’s Korean-American-owned banks.

Silent partners who invest in a business and share in its profits--but do not get involved in operations--are another source of start-up funds, Hong said. So is the kye, a group of friends or acquaintances who pool their money to invest.

Because Koreans tend to save money, Hong said, their businesses typically are well-capitalized. In the case of an average grocery, the merchant will provide a down payment of 20% to 30% of the financing, the bank will loan 50%, and the person selling the store will take a second deed of trust for the balance.

Such strategies have helped Koreans and Korean-Americans become leaders in inner-city Los Angeles’ merchant class.

However, the Koreans face other obstacles; notably, they do most of their business in predominantly African-American or Latino neighborhoods. The riots--and the mounting tension preceding them--made evident the business risks in that strategy.

Latinos have traditionally relied on family members for seed capital, said Joe Sanchez, founder of the Mexican American Grocers Assn. and head of a family business that makes El Rey sausage, runs grocery stores and distributes beer.

“Every Mexican family has three or four or five thousand dollars in the bank for hard times,” Sanchez said. “But even when hard times come, they don’t use it.”

Instead, that money can be tapped by relatives starting new businesses. “You might go to 10 or 12 people in the family and borrow $1,000 from each, and that’s the money for your store or little restaurant or print shop,” he said.

Those without access to a deep pocket, including more recent Latino immigrants, are well known for starting “micro businesses”--fruit or flower vending, for example--and bootstrapping them into bigger things.

Sanchez has no expectation that money will get easier to find for Latinos in the wake of the riots.

“Oh, they’ll throw a few bucks around,” he said of the government. “But the street food vendor has proven that he’s the one who’s going to take over our businesses. The other guy out there hoping that the federal government’s going to give him a loan--he’ll be dead before that happens.”

On Nov. 4, President Bush vetoed the year’s major urban aid bill, saying Congress had festooned it with costly, unrelated tax measures.

After the riots, Holt was frantic to recover quickly. Coming up at the end of May was the biggest contract of his career--formal portraits for the senior prom at Crenshaw High School, a job that could net him thousands of dollars.

At a disaster center in the Crenshaw district, he applied for a federally guaranteed Small Business Administration emergency loan. But to meet SBA guidelines, Holt had to prove his losses and show how much business he had been doing--no mean task, with most of his records in ashes.

So Holt fueled up his van and began a weeklong scavenger hunt through the smoldering streets, delving for information from his landlord, suppliers and customers. “Half the places I had to go to were burned out,” he said.

Once the application was filed, Holt waited. And waited. It seemed that every time he returned to the center, he was told to come back in two weeks. He made a tour of city and state politicians’ offices, trying to speed up the process. He ran up a $310 phone bill.

When he realized that the money would not come before the Crenshaw prom, Holt tried to borrow equipment from friends. But instead of helping him, they asked where the job was so they could shoot it themselves.

At last, Holt had to tell the high school to get another photographer. His big payday vanished. “I was devastated,” he said. “I went to people I thought were my friends and come to find out they were out to cut my throat.”

One July day, standing outside City Councilwoman Ruth Galanter’s office on Crenshaw Boulevard, Holt threw a fit. He laughs describing it now, but the screaming outburst--from a man who wears size 54 suits--was fearsome enough to attract a small crowd, including a television reporter who happened to be nearby.

It was the reporter’s intervention that finally got things moving, Holt said. The SBA suddenly grew solicitous. “They called me so much!” he said. “They called Sunday. They called Saturday nights.”

Holt’s loan was approved in August--not for the $50,000 he wanted, but for $24,700, enough to buy equipment and bare-bones furnishings for a new studio in South-Central Los Angeles. The SBA, which by mid-October had approved $240 million in riot loans, would not comment on Holt’s case.

Other hang-ups in the rebuilding process have been caused by a mismatch between available programs and business people’s needs.

The Federal Home Loan Bank Board set aside $600 million in low-interest funds for institutions that would lend in riot-torn neighborhoods. The sum was half of the touted $1.2 billion in federal aid directed to Los Angeles by the Bush Administration.

Yet only $20 million had been drawn down as of mid-October--none of it for commercial loans. The program, it turns out, is not the right tool for the job.

Under the plan, the bank board makes money available to member banks and savings and loans at low interest rates. But in the current environment, with market interest rates so low, the bank board’s cash is not any cheaper. Moreover, the money--unlike SBA loans--does not come with a federal guarantee in case of default.

Determined not to make the same mistake twice, Holt set out to find insurance for his new studio and equipment. His agent, Herb Jones, gave him the bad news: Holt could get about half the coverage he needed for about twice what he could afford.

Access to insurance has become a major issue in Los Angeles; surveys by state Insurance Commissioner John Garamendi and others have indicated that as many as half the victims of the riots were uninsured or underinsured.

However, insurance industry officials point to their estimated losses of $775 million as proof that they have not redlined the riot-struck areas.

Jones said that in his 14 years as an independent agent, he has not been able to land an appointment to sell policies from a major insurance company. He said the big insurers tell him that his agency is too small or that they have agents covering his territory--although those agents’ offices may be far from the inner city.

It’s nothing personal, they tell him. It’s just a matter of operating efficiency.

“If you believe that,” Jones said, “you believe in fried ice cream. They wouldn’t appoint Herb Jones because of two things: complexion and location.” In Jones’ case, the complexion is black and the location is South Crenshaw Boulevard.

A Rebuild L.A. task force on insurance has found that availability and pricing problems hit small firms hardest. Some of the entrepreneurs that the task force interviewed “encountered rates that were unbelievable,” Rebuild L.A. staff member Al Osterloh said. In one case, a businessman was quoted a rate of $15,000 for coverage that should have cost about $1,500.

Especially outlandish were the prices quoted by unlicensed insurers. Such firms, many of which are based offshore, have been blamed for some of the worst economic chaos after the riots. State insurance investigators believe that up to $43 million in riot-related claims filed with unlicensed companies will never be paid.

Foot traffic on Holt’s block of Western Avenue is so slow that many days he does not open his studio until 11 a.m., if at all. At noontime one weekday, four of the nine storefronts were closed, their metal gratings locked. Two others were vacant. The little soul-food restaurant was open, but customers are so scarce, said Holt’s wife, Deborah, that the owners are “mostly eating the food themselves.”

Holt’s studio is a stark, 25-by-50-foot room with two display cases, a battered wooden desk, a few chairs and two posing areas with backdrops of airbrushed cloth. It is a no frills setup in a no frills part of town.

Culturally, South-Central is diverse and vibrant. But economically, it is feeble.

* The level of economic activity--jobs, payroll and the number of businesses--is only about one-third the level for Los Angeles County as a whole, said UCLA urban economist Paul Ong, who is part of a team studying the area in response to the riots.

* South-Central is not as enterprising as its neighbors. This is a tricky thing to quantify, but Ong’s group found that only 8,646 South-Central residents--4.2% of the total working population--identified themselves as self-employed in the 1990 U.S. Census. Countywide, the self-employment rate was 7.9%.

The discrepancy is even greater in the income of self-employed people: about $17,000 in South-Central compared to $37,300 countywide.

(Ong’s group defines South-Central as stretching 10 miles from Washington Boulevard south to the Gardena and Compton borders; it is about four miles wide, with the Harbor Freeway running down the center.)

* South-Central residents spend less of their cash within their community than other county residents--about 36 cents of each dollar of disposable income, compared to a county average of 48 cents.

“Leakage” of spending money out of the urban core has been a big concern of community leaders. They long have lobbied--more successfully since the riots--for supermarkets and other retailers to locate within the inner city.

But given the overall poverty in the area, such efforts may have little effect. Even if that 12-cents-per-dollar gap was eliminated, Ong said, South-Central would have retail sales of only $2,400 per person, as compared to the county average of $6,100.

Allen J. Scott, director of UCLA’s Lewis Center for Regional Policy Studies, said the only answer for inner-city Los Angeles is action at the federal level to create an industrial policy for Southern California as a whole so that entire industries are attracted to the area instead of just a few jobs here and there.

While that debate goes on, Holt will keep passing out flyers throughout South-Central Los Angeles, touting his skill at portraiture. From the day of his first big job, when he cleared $1,000 photographing a deep-sea fishing trip, Holt has had faith in his ability to make a good living with the camera.

That is why he was galled when a worker at the Crenshaw disaster center suggested he go on welfare while awaiting his SBA loan.

“Go on welfare!” Holt cries, his voice climbing a register. “What kind of advice is that to give a man who can work?”

Times staff writer Susan Moffat contributed to this story.

Indexing Economic Ills

South Central L.A. trails the rest of the county in several key economic measures. Some comparisons: * South-Central Los Angeles’ share of Los Angeles County population: 6.9% * South-Central Los Angeles’ share of Los Angeles County jobs: 3.1% * South-Central Los Angeles’ share of Los Angeles County payroll: 2.3% * South-Central Los Angeles’ share of Los Angeles County businesses: 2.2% * Per capita retail sales in Los Angeles County: $6,100 * Per capita retail sales in South-Central Los Angeles: $1,800 * Self-employment rate, Los Angeles County: 7.9% * Self-employment rate, South-Central Los Angeles: 4.2% Source: A study of South-Central Los Angeles being conducted under a grant from the Poverty and Race Research Action Council, Washington, D.C.