BBA Offers Some Key Tips to Unlocking Opportunity
For 30 years, the Crenshaw District-based Black Business Assn. has been helping African American-owned enterprises find loans and contract opportunities in the public and private sectors. The group also serves as an advocate for black business owners. General Manager Skip Cooper answers the most commonly asked questions the group receives.
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Q How can I get public or private contracts?
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A For most public contracts, minority small-business owners usually have to go through a certification process confirming they are minority-owned. That’s true for the Los Angeles Department of Airports, Department of Water and Power or what have you.
What it does is put you in that agency’s database. Let’s say you provide computer equipment. These agencies can have as many as 1,000 firms that supply computers in their database. When they need to buy more computers, they might reach out to 50 people in that database for bids, if that many.
What you have to do, and this works for the private sector too, is meet the buyer and keep reminding him of who you are if you want to get the contract. You need to understand the procurement system of that agency or corporation, so you might have to go beyond just meeting the purchasing agent and identify the end user of your commodity so you know exactly what it is they need.
One thing that’s very important is that you maintain a line of communication with the purchasing agent and the end user. You need to call on a regular basis, and you need to go meet with them a minimum of once a year. And you need to find out when they might be needing more of what you provide.
You need to keep an eye on their current contracts; and if it’s a public agency, it’s got to be in the public record. You can go see exactly how much the contract was for and when it expires. And you need to knock on their door a year ahead of time, and let them know you’re around.
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Q How can I get a loan for my business?
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A First we have to assess where you are in the process. How much of a loan do you want, and exactly what do you want to use it for? And then we would want to make sure you have met all the requirements for a loan. You need to have at least three years of tax returns, current and past financial statements, and a well-thought-out business plan.
And you need to be able to show exactly what you are going to do with the money and how you plan to pay it back. You can’t just go in there and say, “I think I need $50,000.” They’re going to say, “Now wait a minute, what is this based on?” Very seldom do people have everything in order the first time they apply for a loan.
The standard way of getting a loan is to go through a financial institution. For minorities and small-business owners, a large percentage of the time banks will direct you to a U.S. Small Business Administration guaranteed loan program. Even if you go for an SBA loan, you still have to go through a financial institution because it provides the loan, and SBA merely provides the guarantee for the loan. The misconception is that SBA is providing the loan.
Often it is difficult for African Americans to qualify for bank loans because they lack an equity base to contribute toward the loan. You have to put up anywhere from 25% to 35% in equity to get a loan. People think they submit a loan application for $100,000 and they get a loan for $100,000. What they don’t understand is that in essence they are only going to receive a loan for $65,000 or $75,000, and they’re going to have to be able to come up with the rest to help guarantee the loan. In essence, they are guaranteeing the loan and SBA is supporting the guarantee.
Getting a loan is not as easy as people think it is. Often minorities have problems with their credit history. To start your business, you have to put a lot of cash out. Small-business owners often start their business out-of-pocket with money they have saved up. After they start and operate their business for a while, they can find themselves in financial difficulty because they’ve spent all their money and they might even be in debt. You can’t get a loan with a bad credit history.
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Q What does it take to start a successful business?
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A It takes commitment, hard work and you have to have a good understanding of the business you want to operate. You can’t just open a restaurant without understanding what it takes to succeed in the restaurant business.
A key component of any successful business is management skills. You have to know how to manage your business. You also have some basic things upfront. You need to have legal counsel to prepare the structure of your business whether it’s a sole-proprietorship, a partnership or a corporation. Then you need an accountant to help set up the bookkeeping system. You also need to have an insurance person to help you understand what you need for liability coverage, workers compensation and for an employee benefits package.
Another aspect people often leave out is that they don’t have the proper licenses to operate the business. That’s where the legal counsel can help again. You also have to research the industry you’re going into, whether it’s a limousine service, a restaurant or a clothing store.
You need to talk to people in the industry and get a feel for some of the upsides and downsides. You need to find publications that cover your industry. Probably any business that you have an interest in would have an industrial publication that talks about the aspects of the business. Then you need to pick out where you’re going to locate your business and how you plan to offer your goods and services to that neighborhood.
Before you do anything, though, you should go to the SBA’s Business Information Center in Los Angeles. It’s located at 3600 Wilshire Blvd. It’s a good place to start to do your research. And you need to do your own research. A consultant can put together your business plan, but you need to do as much research as you can so you can better know the business.
There’s no substitute for knowledge. The more you know about your business during a loan interview, the better your chances of getting the loan.
The bottom line is there is no easy business; it’s all hard work. Sometimes it’s luck, but hard work breeds good luck.
For more information, call the Black Business Assn. at (323) 291-9334.
