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2003, ISSUE 1 THE SBA 50 YEARS OF SMALL BUSINESS FINANCING THE Small Businesses but Big Numbers SBA AT 50 Q&A with Hector V. Barreto Policymakers and corporate captains have long echoed Calvin Coolidge’s line that the chief business of the American people is business. Saying our chief business is small business might be more accurate, given the numbers. More than 99 percent of the country’s 22.9 million workers are employed by businesses with fewer than 500 on the payroll, the official definition of “small.” The Small Business Administration has been serving America’s entrepreneurs since its creation in 1953 as an independent federal agency. The SBA supports small A growing number of people are leaving their mainstream careers, opt- businesses in four primary areas: advocacy, ing instead to be their own boss. Whether driven by necessity or ambition, management, procurement and financial making the decision is tough. Financing a small business can be even assistance. The agency is best known for its tougher. financial assistance, delivered through For the past 50 years, the Small Business Administration has been fulfilling its congressional mandate to “aid, counsel, assist and protect…the interests of small business concerns.” A big part of fulfilling that mandate has been expanding access to credit for small, independent enterprises. business and disaster loan programs, investment programs and bonding for contractors. The SBA does not make direct loans. Instead, it backs loans with a guarantee The SBA helped almost 435,000 small businesses get more than $94 that eliminates some of the risk to its lend- billion in financing over fiscal years 1991– 2000. Last year alone, the ing partners, which include community agency backed more than $12.3 billion in loans. Its current portfolio con- development organizations and financial sists of about 219,000 loans worth more than $45 billion, making it the and microlending institutions. single largest backer of U.S. businesses in the country. This issue of Perspectives marks the SBA’s 50th anniversary with an Perspectives asked SBA Administrator Hector V. Barreto about the importance interview with agency administrator Hector V. Barreto and a story on a of small businesses to the U.S. economy Houstonian who has grown his business with financing that includes an and the SBA’s role in helping them succeed. SBA loan. While commercial banks and the SBA are among the major financing resources for small businesses, lesser-known resources are also available. You can learn more about some of them in this issue. Why are small businesses important to the U.S. economy? Small businesses in America continue to flourish and play a significant role in the Small business development is an important component of community overall economy. American small busi- development everywhere. And financing a small business can be challeng- nesses represent more than 99.7 percent ing. For more information on this and related issues, go to the SBA’s web of all employers and employ more than site, www.sba.gov. half of all private-sector workers. They pay 44.5 percent of the total U.S. payroll and generate 60 to 80 percent of net new jobs annually. Gloria Vasquez Brown In addition, small businesses: Vice President • Create more than 50 percent of non- Public Affairs Department Federal Reserve Bank of Dallas farm private gross domestic product. • Produce 13 to 14 times more patents per employee than large firms. These 2 PERSPECTIVES | Federal Reserve Bank of Dallas Hector Barreto, Administrator, U.S. Small Business Administration lender conferences, roundtables and other launched a series of Business Matchmak- forums, and I am heartened by the dedica- ing events throughout the country that pair tion of our lenders. In the end, we’re all small businesses with federal, state and interested in the same thing: reaching local government agencies and private more small business men and women and companies that purchase products and making their dreams come true. services. These events are not simply an Since its founding in 1953, the SBA has opportunity to trade business cards, as backed approximately $170 billion in with traditional trade shows. Instead, they loans. We’ve also provided technical assis- offer a real chance for small businesses to tance to millions of small businesses. Just meet with public and private organizations last year we assisted over 1.5 million small to identify procurement opportunities. businesses. We helped launch such com- The federal government alone spends panies as America Online, Apple Com- more than $200 billion annually for prod- puter, Callaway Golf Co., Compaq Com- ucts and services. Of this amount, 23 per- puter Corp., Federal Express Corp., Intel cent must go to small businesses. That’s Corp. and Outback Steakhouse. $46 billion up for grabs. Business Match- One of my proudest accomplishments making events make contracting between thus far has been the successful expansion the federal government, prime contractors patents are twice as likely as large-firm and enhancement of our SBAExpress and small businesses easier and more effi- patents to be among the 1 percent most cited. program. SBAExpress streamlines the cient. • Employ 39 percent of high-tech approval process to allow us—along with workers, such as scientists, engineers and our lending partners—to offer a quicker computer operators. turnaround on loan applications while What other programs does the SBA offer to assist small business creation or growth? • Supplied 22.8 percent of the total reaching more businesses. Without the value of federal prime contracts (about $50 hard work and commitment of our re- Lending programs may be our most billion) in fiscal year 2001. source partners, SBAExpress could never familiar resource for small businesses, but • Made up 97 percent of all identified have achieved the success we have seen. the SBA offers a number of services to exporters and produced 29 percent of the We are grateful for this success and expect assist entrepreneurs looking to start or known export value in fiscal year 2001. it to continue. grow a small business. Through our district offices; our help line, 1-800-U-ASK-SBA; Small businesses also face many of the same obstacles all businesses do: excessive taxes, onerous regulation, rising health care costs and economic uncertainty. But entrepreneurs are resilient and dedicated. That is why America’s entrepreneurial spirit is alive and well. Describe the relationship between the SBA and financial institutions. How vital is this partnership? Since being confirmed as SBA administrator in July 2001, what steps or initiatives have you taken to promote small business growth? I continue to look to improve SBA’s and our web site, www.sba.gov, we offer a range of technical assistance programs. We provide business counseling, help formulate business plans and identify other opportunities to help businesses succeed. image by stepping up our outreach efforts. Our partners in the SCORE Associa- Profiling SBA in publications such as Per- tion (Service Corps of Retired Executives) spectives will help get SBA’s message out to and Small Business Development Centers entrepreneurs. I have traveled the country (SBDCs) provide a valuable source of infor- from coast to coast over the past year and a mation and counseling for entrepreneurs. We work closely with our resource half to do just that. Also, we are undertak- SCORE volunteers provide free counseling partners—the banks and credit unions ing an aggressive marketing and outreach and business expertise in support of small that make up our nationwide network of effort, including dramatic improvements businesses. In 2002, SCORE assisted SBA lenders—to meet the needs of Amer- to our web site. 384,423 entrepreneurs nationwide. Coun- ica’s entrepreneurs. Ours is a mutually Along with Hewlett-Packard Co. and beneficial relationship. I often speak at the U.S. Chamber of Commerce, we have seling and workshops are offered at 389 chapter offices across the country. Federal Reserve Bank of Dallas | PERSPECTIVES 3 Current and prospective small business owners can also receive assistance through community-based SBDCs. The SBDC program enhances economic development through a collaborative effort of the private sector, government entities, and colleges and universities. There are currently 58 SBDCs operating in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam and Hector V. Barreto SBA administrator since July 2001, Barreto directs the delivery of financial and business development programs to America’s entrepreneurs and oversees a loan portfolio worth more than $45 billion. A former California insurance and securities executive and business owner, Samoa. Through our Office of the National Ombudsman (ONO), we hold regulatory hearings to identify the challenges some businesses encounter when it comes to government regulations. The ONO’s mission is to foster a business-friendly federal regulatory enforcement environment. The ONO receives complaints from small businesses, investigates those complaints and then helps to achieve equitable settle- Barreto also chaired the Latin Business Association in Los Angeles and founded a small business institute/incubator. Before being appointed SBA administrator, Barreto served as vice chairman of the U.S. Hispanic Chamber of Commerce. Hispanic Business magazine has recognized Barreto as one of America’s “100 Most Influential ments. The SBA also offers assistance for SBA Serves Up Backing for Restaurant Owner Hispanics.” Cesar Rodriguez opened his first Doneraki restaurant in Houston 30 years ago with $600, a combination of an IRS tax refund and money from his mother and brother. Money was so tight that Rodriguez, who had immigrated from Mexico in 1971, handmade the chairs for qualifying businesses that are faced with a the restaurant during breaks from one of disaster. From catastrophes such as floods, his three jobs. hurricanes and tornados to the horrific attacks of September 11 or even businesses coping with the temporary loss of an employee due to a military reserve or National Guard activation, the SBA can help. Our disaster loans have attractive Once you have identified your goals, follow these critical steps: • Develop a comprehensive business plan. • Secure financing and measure any associated risks. Doneraki has become a Houston institution since that first restaurant opened at 76th Street and Avenue E. But Rodriguez almost closed its doors a few weeks after the opening, when he learned that the city health department required him to have a provisions, including a 30-year term and a • Contact your local SBA office, visit $2,000 grease trap. Lacking the money for 4 percent interest rate, and are available for our web site or call 1-800-U-ASK-SBA for the equipment, he went to the building up to $1.5 million. one-on-one business counseling. owner to turn in his keys. She, however, What advice would you give someone who is interested in starting a small business? Also, consider some common mis- insisted on lending him the money so he takes and pitfalls to starting a business. For could keep his doors open. Rodriguez had instance, some people don’t realize just faced—and overcome—his first financing how much effort goes into running a busi- obstacle since going into business. First, consider the reasons you are ness. They may think it would be great to Research shows that like Rodriguez, thinking of starting your own business. be their own boss, but the commitment is a many small business owners start their Evaluate your business idea and examine serious one. It will take a lot of dedication enterprises with personal savings, credit your personal goals. Take time to deter- and investment of time, money and sweat cards, and loans from family and friends. mine what business is right for you. to pay off. Entrepreneurs often can’t obtain financing But remember, when an entrepreneur from traditional commercial lenders for succeeds, he or she can realize the Ameri- many reasons, including poor or insuffi- can dream. n 4 PERSPECTIVES | Federal Reserve Bank of Dallas cient credit. involvement also enabled the bank to extend the loan term to 25 years, rather than 10 to 15. And although restaurant failure rates are high, Banco Popular looked at the deal as an expansion of an existing business, not financing a new business. Rodriguez represents the face of small business entrepreneurs. Through creativity and hard work, he has turned his dreams into a thriving restaurant business. The SBA has helped many businesses and business owners like Rodriguez for half a century. And as Doneraki restaurant and the SBA celebrate milestone anniversaries, both are proof of how dedication and determination can equal success. n This is where the Small Business done hacienda style, with a bright red tile Administration comes in. Among its pro- roof and wrought iron accents. Inside are grams is the Certified Development Com- a fountain that replicates one in Tlaque- pany (CDC) Program—commonly called paque, near Guadalajara, and a colorful the 504 loan program — which enables rendering of a Diego Rivera mural. growing businesses to secure long-term, Financing for the $2.1 million project fixed-rate financing for major assets such came from several sources in addition to as land and buildings. Down payments are Capital CDC, including loans from Banco low, and interest rates are below market. Popular and Houston Small Business One job must be created or retained for Development Corp., a tenant improve- every $35,000 of 504 funding or the busi- ment allowance from landlord Houston ness must meet at least one of seven pub- Gulfgate Partners LP and owner equity. lic policy goals, which include rural de- Rodriguez established a relationship with velopment, export expansion, minority Banco Popular, a subsidiary of Puerto development and business-district revital- Rico-based Popular Inc., several years ago ization. when he took out his first bank loan after Rodriguez recently opened his fourth 20 years in business. The bank has the first Doneraki restaurant with the help of a 504 lien on the restaurant and the CDC has the loan for $546,000 from Capital Certified second. Development Corp., a statewide nonprofit “It is not easy to find credit for Hispan- organization licensed by the SBA to make ics, and Banco Popular has been looking 504 loans. Capital CDC is headquartered for this market’s business,” Rodriguez says. in Austin and has representatives in El Banco Popular Senior Vice President Paso and Houston. Mike Carr says that while helping a cus- The 10,500-square-foot restaurant ful- tomer was the main reason for making the fills the job-creation goal of the 504 pro- loan, the bank also wanted a role in revi- gram, creating 60 full-time and 12 part- talizing Houston’s East End. Capital CDC’s time positions. And it’s a colorful addition participation was key since the SBA part- to the recently renovated Gulfgate Center ner provided a loan to cover a significant in Houston’s East End. The restaurant is part of the total project cost. The CDC’s —Jackie Hoyer FAST FACTS Cesar Rodriguez has operated Doneraki in Houston for 30 years. He recently opened his fourth location in Gulfgate Center in Houston’s East End. The 10,500-square-foot stand-alone building is the first of his restaurants to be built from the ground up. It took two years and $2.1 million to complete the project. Financing Details Banco Popular $644,778 Capital CDC – SBA 504 546,000 Houston Small Business Development Corp. 250,000 Houston Gulfgate Partners LP 360,000 Doneraki Restaurants Inc. 330,000 Total $2,130,778 Building, improvements $1,788,037 Fixtures, furniture, equipment 250,000 Soft costs 25,000 Professional fees 17,741 Interest on interim loan 50,000 Total $2,130,778 Federal Reserve Bank of Dallas | PERSPECTIVES 5 Eleventh District Small Commercial banks and the SBA are the most well-known resources for small businesses seeking financing. This guide, which is not all-inclusive, offers additional resources for qualifying entrepreneurs. TEXAS CEN-TEX Certified Development Corp. ETCOG Chapman Revolving Loan Fund ACCION Texas www.grandcentraltx.org Provides loans for business and industrial acquisition, construction, conversion, expansion, repair, modernization, land, machinery, equipment and furniture. Loans of $750,000–$20 million. Terms up to 30 years on land, building and permanent fixtures; up to 15 years on machinery and equipment. Serves Central Texas. Contact: 888-718-0180 www.etcog.org Lends to corporations, partnerships, sole proprietorships and nonprofits. Loans of $35,000–$250,000. Serves Camp, Gregg, Harrison, Marion, Panola, Rusk, Upshur, Wood counties. Contact: 903-984-8641 luke.kimbrough@etcog.org www.acciontexas.org Provides group and individual loans to microentrepreneurs who lack access to capital from commercial sources. Loans of $500–$25,000; collateral required. Serves Texas. Contact: Mario Riojas, 888-215-2373, ext. 1130 Austin Community Development Corp. www.austincdc.org Offers financing and technical assistance to small businesses. Basic growth loans of $20,000–$200,000; TMF loans of $50,000–$300,000. Terms up to 15 years. Serves Greater Austin. Contact: Pamela Cunningham, 512-472-8087 auscdc@austincdc.org BiGAUSTIN www.bigaustin.org Lends to start-ups and existing businesses. Up to $35,000 for existing businesses and up to $15,000 for start-ups. Loan terms up to five years. Interest rates 11%–13%. Serves Bastrop, Bell, Blanco, Burnet, Gillespie, Hays, Lampasas, Lee, Llano, Mason, McCullough, San Saba, Travis, Williamson counties. Contact: Ligia Tervino, 512-928-8010 infor@bigaustin.org Capital Certified Development Corp. www.capitalcdc.com Provides SBA 504 loans. Maximum loan of $1 million; terms and interest rates vary. Serves Texas. Contact: Austin, 512-327-9229 Admin@capitalcdc.com El Paso, 915-857-3139 cruzmontoya@capitalcdc.com Houston, 936-931-2022 harryleach@capitalcdc.com 6 PERSPECTIVES | Federal Reserve Bank of Dallas junegriffy@austintx.net Community Development Loan Fund www.cdlf.net Provides tandem loans to assist the development of small, minority- and women-owned businesses. Loans may be used for working capital, inventory, equipment and owner-occupied commercial real estate. Loans of $25,000– $200,000. Terms of six months to five years. Rates are Wall Street Journal prime plus 4%–6%. Serves Bexar, Bandera, Kendall, Comal, Guadalupe, Wilson, Atascosa, Medina counties. Contact: Sue Schaefer, 210-738-0312 Houston Small Business Development Corp. www.hsbdc.org Provides microenterprise loans to businesses in early stages of development and to stabilize and expand existing businesses. Microenterprise loans of $5,000–$45,000; terms up to five years; fixed interest of 10%–14%. Small business loans for $45,000– $2 million; terms of five to 15 years; below-market interest rates on a caseby-case basis. Serves Houston. Contact: 713-845-2400 Permian Basin Business Development Center www.cedhc.com Offers the Small Business Development www.communitycapital.org Provides loans to start-up and existing small businesses through the Mexican American Network of Odessa Small Business Loan Program. Loans up to $25,000. Serves Odessa and Permian Loan Fund, microloans and the SBA 504 loan program. Rates, terms and loan amounts vary. Serves Brazoria, Basin area. Contact: Iris Correa, 915-335-0250 Corporation for Economic Development Fort Bend, Galveston, Harris, Liberty, Montgomery, Waller counties. Contact: 713-840-8804 or 281-590-5600 info@cedhc.com Rural Development and Finance Corp. www.rdfc.org Provides business and industry loans, intermediary relending loans and microloans. Loans can be used for working capital, inventory, supplies and equipment. Microloans up to $35,000. Business Financing Guide Terms up to six years for loans over $7,500; up to three years for loans under $7,500. Business and industry loan amounts, rates and terms negotiable. Intermediary relending loans of $10,000–$250,000. Serves Cameron, Starr, Hidalgo, Willacy, Maverick, Dimmit, Webb, Zapata, Zavala counties. Contact: Sylvia Santos, 210-212-4552 San Antonio Local Development Co. www.saldc.com Offers SBA 504 loans, SBA microloans, EDA Revolving Loan Fund and HUD Enterprise Community Loan Programs. Rates, terms and loan amounts vary, based on type and program. Serves Atascosa, Bandera, Bexar, Comal, Frio, Gillespie, Guadalupe, Karnes, Kendall, Kerr, Medina, Wilson counties. Contact: Ed Sommers, 210-206-5626 Southeast Texas Economic Development Foundation Inc. www.setedf.org Markets, services, processes and closes SBA 504 loans. Fixed rates; 10-year term for equipment and 20-year term for land and buildings. Serves Jefferson and Orange counties. Contact: Mary Jean Johnston, 409-838-6581 Southern Dallas Development Corp. www.sddc.org Provides five financial assistance programs for new and expanding businesses, including the Texas Mezzanine Fund. Rates, terms and loan amounts vary. Serves parts of Dallas. Contact: Theresa Lee, 214-948-7800 Texas Certified Development Company Inc. LOUISIANA NEW MEXICO www.txcdc.com Specializes in fixed-rate commercial real estate and equipment loans. Also originates, closes and services SBA 504 loans. Loans of $250,000–$5 million. Serves Austin, Corpus Christi, Dallas, Houston, Laredo, San Antonio. Contact: Ernest Perales, 512-433-1175 loans@txcdc.com BizCapital ACCION New Mexico www.biz-capital.com www.accionnewmexico.org Offers loans to self-employed individuals with limited or no access to traditional business credit. Loans of $200–$50,000. Serves New Mexico. Contact: Marisa Barrera, 505-243-8844, 800-508-7624 Texas Mezzanine Fund www.tmfund.com Provides loans to small minority- and women-owned businesses in tandem with traditional lenders, community development corporations and certified development financial institutions. Loans of $50,000–$500,000; terms vary based on loan use; fixed interest rates of 8%–13%. Serves Texas. Contact: 214-943-5900 kcross@tmfund.com Tyler Economic Development Council www.tedc.org Provides working capital and loans for equipment and machinery and purchase and development of land and buildings. Loans of $50,000–$200,000 for up to 25 years. Serves Smith County. Contact: Phyllis Schneider, 903-593-2004 William Mann, Jr. Community Development Corp. Provides loans for working capital, equity, real estate and business acquisition. Loans up to $100,000. Serves Tarrant County. Contact: Alicia Fannon, 817-871-6267 Lends capital to small to medium-sized companies. Specializes in asset acquisitions, start-ups, working capital and business expansion. Also makes SBA and USDA (business and industrial) loans. SBA loans, $100,000–$1.3 million; USDA (B&I) loans, $1 million– $6 million; well-secured real estate loans, $500,000–$3.5 million; mezzanine loans, $100,000–$1 million. Rates are Wall Street Journal prime plus 1%–2.75%; mezzanine loans may be higher. Serves Louisiana. Contact: John Brocato, 504-832-1993 brocato@biz-capital.com Gulf Coast Business and Industrial Development Corp. www.louisianapartnership.com Provides mezzanine or growth capital to existing small businesses. Minimum investment of $50,000–$250,000. Serves Louisiana. Contact: Cornelius Lewis, 225-922-7717 Louisiana Community Development Capital Fund BIDCO Inc. www.communitycapital.org Provides start-up capital, working capital and gap financing for contracts or other short-term receivables, capital for asset acquisition, and loans or guarantees to obtain bank financing. Loans of $5,000–$150,000 for up to 15 years. Women’s Economic Self-Sufficiency Team (WESST Corp.) www.wesst.org Operates a revolving loan fund that provides small business loans up to $5,000. Serves New Mexico. Contact: 505-241-4759 New Mexico Community Development Loan Fund www.nmcdlf.org Provides loans for new and existing small businesses. Proceeds can be used for equipment, inventory, building renovations and operating capital. Amounts vary; terms up to seven years. Interest rates generally 8%–10%. Serves New Mexico. Contact: 505-243-3196 nmcdlfgen@aol.com Serves Louisiana. Contact: Gloria London, 225-924-4116 glo3783601@aol.com Red River Valley BIDCO Inc. www.cdconline.org Provides loan funds for business, industry and job creation. Maximum loans of $1 million. Serves northern Louisiana. Contact: M. D. LeComte, 318-632-2022 Federal Reserve Bank of Dallas | PERSPECTIVES 7 SBA Offices Serving the Eleventh Federal Reserve District Texas Dallas Regional and District Office 4300 Amon Carter Blvd. Suite 114 Fort Worth, TX 76155 817-684-5500 Houston District Office 8701 S. Gessner Dr. Suite 1200 Houston, TX 77074 713-773-6500 El Paso District Office 10737 Gateway West El Paso, TX 79935 915-633-7001 perspectives Harlingen District Office 222 E. Van Buren St. Suite 500 Harlingen, TX 78550 956-427-8533 New Orleans District Office 365 Canal St. Suite 2820 New Orleans, LA 70130 504-589-6685 San Antonio District Office 17319 San Pedro Suite 200 San Antonio, TX 78232 210-403-5900 Corpus Christi Branch Office 3649 Leopard St. Suite 411 Corpus Christi, TX 78408 361-879-0017 New Mexico Albuquerque District Office 625 Silver S.W. Suite 320 Albuquerque, NM 87102 505-346-7909 www.dallasfed.org 2003, Issue 1 Federal Reserve Bank of Dallas Gloria Vasquez Brown Community Affairs Office Vice President, Public Affairs P.O. Box 655906 gloria.v.brown@dal.frb.org Dallas, TX 75265-5906 Louisiana Lubbock District Office 1205 Texas Ave. Room 408 Lubbock, TX 79401 806-472-4622 Diana Mendoza Community Affairs Specialist diana.mendoza@dal.frb.org Jason Sweat Community Affairs Specialist jason.sweat@dal.frb.org Karen Riley Community Affairs Specialist karen.riley@dal.frb.org Jackie Hoyer Houston Branch, Sr. Community Affairs Advisor jackie.hoyer@dal.frb.org Editor: Monica Reeves Designer: Gene Autry Issue Editor: Karen Riley September 2003 The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted if the source is credited and a copy is provided to the Community Affairs Office. ....................................................... Federal Reserve Bank of Dallas P.O. Box 655906 Dallas, TX 75265-5906 ADDRESS SERVICE REQUESTED PRSRT STD U.S. POSTAGE PA I D DALLAS, TEXAS PERMIT NO. 151
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