For Minorities, It Takes More Doing : They Face More Obstacles, Experience Slower Growth

Minority business owners in Southern California are under greater pressure and confront more obstacles to growth than their white counterparts but share the same concerns about taxes and regulation, according to a Los Angeles Times/USC Marshall School of Business survey.

Minorities surveyed reported slower sales growth and less access to capital than other business owners, felt greater pressure from competition and were more troubled by crime.

Some concerns varied sharply by ethnic group. Asians said they were more hampered by competition and crime, and Latinos and African Americans ranked access to capital as their most pressing worry. But on some basic issues, small businesses closed ranks: Minorities as a whole were as concerned about taxes, regulation and the availability of skilled labor as their white counterparts, troubles that analysts see as healthy growing pains.

In short, the survey paints a picture of a dynamic and diverse community of businesses central to the region’s health.

“You can make a very, very good case that this is the beginning of the new L.A. economy,” said Joel Kotkin, senior fellow at the Pepperdine Institute for Public Policy. “Particular immigrant groups recognize that the path to upward mobility in America is the entrepreneurial path.”

The Southern California Business Climate Survey, taken this summer, drew on a Dun & Bradstreet database weighted toward veteran companies with higher-than-average sales and does not mirror the universe of minority businesses, many of which operate below that radar. However, it does reflect the strengths and concerns of the region’s more established minority entrepreneurs.

Their responses offer a road map to a community growing at a dramatically faster rate than small businesses as a whole. How minority entrepreneurs fare, and the issues that constrain them, will have an increasingly powerful bearing on the Southern California economy. Already, more than a quarter of the Southland’s small businesses are minority-owned--the vast majority by Latinos or Asians. In Los Angeles County, more than one-third of small businesses are owned by nonwhites, according to the U.S. Census Bureau.

Minority businesses surveyed did not differ from white firms in their range of sizes and types. But they were generally younger, having been in business an average of 14 years, compared with 19 years for white-owned companies.

Troubles in Asia Reflected in Data

Overall, minority businesses reported slower growth in sales in the last year than did white-owned enterprises. Twenty-two percent said their sales shrank by 10% or more, compared with 15% of whites. And although 19% said they were seeing double-digit growth, that figure was overshadowed by their nonminority counterparts, 25% of whom reported such increases.

The difficulties in part reflected the financial turmoil in Asia. Tapping their international roots, minority businesses exported at a slightly greater rate than whites, a statistic that correlates with the high number of Asian entrepreneurs with ties abroad. But that global reach has also translated into declining profits and greater worries as Asia’s financial crisis deepens: Asian business owners were more concerned about both foreign and local competition than any other group, and predicted the slowest growth rates for the coming year.

“We wish that the U.S. government could do something about the Asian economy,” said Adam Shyu, whose 6-year-old company, Aries Marketing, distributes computer hardware manufactured in Taiwan and exports software games there. Shyu, who was born in Taiwan, said sales have dropped 50% over the last year. Business began dipping before then, however, forcing him to move operations into his Walnut home at the end of 1996.

“The big enterprises still make money,” he said. “Small businesses--nobody feels good.”

Stagnant sales were also linked in part to geography. A higher percentage of minority-owned businesses are situated in the inner city, and therefore rely more on a low-income clientele largely unaffected by the general economic upturn.

“In this area, there’s not that many people with jobs,” said Elias Acevedo, who manages Best Buy Auto Sales on South Figueroa Street in Los Angeles. He estimated that 50% to 70% of customers default on their car loans.

Francesca Anuluoha told of similar troubles. In her 28 years selling African clothing through her Crenshaw business, Africana Imports, she has managed to put four kids through Catholic school, three of whom are now in college. But making ends meet is a “big struggle.”

“General economics have hurt us,” said Anuluoha, originally from Zambia. “Right now people are saying the economy is booming, but we don’t feel it in the black area. [We’re] really pinching pennies.”

But sales were not down for everyone. Although more minorities as a whole reported decreases over the last year than whites, Latino businesses showed greater stability than any other group. Nearly half reported flat sales last year, but only 17% reported decreases, less than the 24% of whites reporting that sales dipped. Furthermore, Latinos were as likely as whites to predict growth in the coming year, and only 7% of Latinos expected sales to drop, whereas 13% of whites and fully one-fourth of Asians expect lower sales.

Strength in Latino Consumer Market

The cheerful outlook among Latinos is powered for some by the booming Latino consumer market, while others yet have carved out competitive niches in the mainstream, said Hector Barreto, board chairman of the Latin Business Assn. in Los Angeles and a financial services consultant.

“We’ve been in a robust economy,” Barreto said. “I see a lot of Latino businesses that were struggling a couple of years ago that are doing exceedingly well right now. They’ve got multimillion-dollar procurement contracts; they’re implementing employee benefit plans. A big complaint I’m hearing is, ‘We need to find strategies to minimize our taxes.’ That was not a question we heard in great quantity several years ago. . . . They’re making more money.”

Take Frank Munoz, president of Pacific Lighting Inc., a Lynwood manufacturer of commercial and industrial lighting. Munoz’s company, launched in 1982, is among those thriving in the mainstream. Sales have “at least doubled” in the last four years, and the company is “constantly hiring,” said Munoz, who has not used his minority status to try to win jobs because “we never needed it.”

“We’re in a business that depends on new construction and remodeling, and it’s constantly expanding,” he said. “We can grow as much as we want.”

Munoz’s chief complaints are shared industrywide: high taxes and environmental regulations that have driven up the cost of metal finishing, giving competitors in neighboring states an advantage.

Those kinds of gripes crossed ethnic lines. In fact, members of all minority groups were as troubled by taxes, regulation and the dearth of skilled labor as whites. Those concerns, often most pressing in times of growth, indicate that minority businesses have a strong foothold in the region’s economy, analysts said.

“It tells me that many of those businesses have entered mainstream markets,” said Linda Griego, formerly the head of RLA, created after the 1992 riots to help guide the Los Angeles economy out of crisis.

The common complaints should also send a strong signal to public officials, said William B. Gartner, who teaches entrepreneurship at USC’s Marshall School of Business and who conducted the survey for The Times.

“This is an issue where not only the county but the city governments can have an impact on the growth and development of minority firms, and it’s the same issue for white firms,” he said.

Differences in Worries About Crime

Still, minority business owners overall reported acute concerns with issues that white entrepreneurs ranked low on their list.

For example, 12% said graffiti, vandalism and other damage to property was a “critical problem” in the previous year, compared with 5% of white business owners. They also called burglary and robbery a critical issue at more than three times the rate of white entrepreneurs, and said the same of drugs and loitering at four times the rate of whites.

The numbers are a reflection in large part of the views of Asian business owners, who were far more likely to call crime a critical problem than any other group. Asians were also more likely to link crime to business stagnation. Nineteen percent said it “very often” prevents them from doing things they want with their businesses, compared with only 3% of whites.

Petty crime tends to affect retail businesses more than enterprises in other sectors, and U.S. Census figures show more Asians are involved in retail than any other group. In addition, memories of the riots linger despite strides toward mutual understanding in Southern California’s Korean and black communities.

Concern About ‘Asian Bashing’

William Yang, a board member and past president of the Los Angeles-based Asian Business Assn., said reports of new incidents of crime victimizing Asians has caused concern overall about “Asian bashing syndrome.” He added that many foreign-born Asians were accustomed to the protection of their own security forces in their home countries and strongly support law enforcement.

Dissatisfaction with location among minorities was reflected in the survey in other ways: More than 12% of minority entrepreneurs said they are considering moving their business to another part of Southern California, compared with only 7% of whites.

Minorities also differed from white respondents significantly on the issue of financing.

African Americans and Latinos reported using commercial bank loans less over the last year than did other groups. Meanwhile, greater numbers of minorities than whites turned to personal bank loans to bolster their businesses, and were much more likely to use loans from family and friends. Minority businesses also had less access to credit from suppliers: Whereas 27% of whites reported using it in the last year, only 20% of minorities did.

Nowhere were those disparities more pronounced than among African American entrepreneurs, who make up 3.5% of small-business owners in the Southland and 5% in Los Angeles County. By far the smallest group of minority business owners in the region, black entrepreneurs were much more likely than anyone else to rank the issue of access to capital as critical, and nearly three times as likely as whites to have used loans from family or friends over the last year. Recent national studies indicate those trends hold true for the nation as a whole.

Some black-owned businesses are younger and smaller than other minority-owned enterprises and so are in some cases less likely to be considered “bankable,” said Forescee Hogan-Rowles, executive director of the Community Financial Resource Center in Los Angeles, a nonprofit economic development organization that offers small-business loans and technical assistance to local entrepreneurs.

However, even those with credentials equal to those of whites and other minorities tend to experience greater difficulty, she said, a sign that discrimination still plays a part.

“Sadly, my gut says that’s probably a lot of it,” said Hogan-Rowles, who herself was rejected by 18 banks before her family lent her money to launch a garment manufacturing business in 1981. “We’ve moved ahead a little bit, but it’s not where we’d like it to be.”

After continual rejections, Raymond Peters “just gave up” on commercial banks and turned to family and friends. His 12-year-old business, Ansonia Station in the San Diego County community of La Mesa, resells and distributes office automation products and recycled laser jet cartridges. Two of Peters’ first cousins, two friends and his ex-wife are among his investors.

“Any time I had a project, I would ask for the funds,” he said. “I know which members of the family are, like myself, professionals. They’ve paid the same kind of dues. They know that if they need something from me,” they can get it.

Peters said the strategy served him well until last year, the company’s first in the red. He has since downsized dramatically.

Other black-owned businesses finally secured loans but said the demands for collateral were excessive.

After trying and failing with commercial banks, Ernie Tousant secured a $100,000 loan through a nonprofit intermediary set up to assist minority businesses after the riots. Tousant, whose Los Angeles business--Ernie’s Wheelchairs--services and repairs wheelchairs, now faces the prospect of losing his home if he defaults. He said he was initially told the loan would be guaranteed by his stock and accounts receivable, but that at the last minute he was asked to put up his home as extra security.

“[The bank doesn’t] want to sell wheelchairs, but they will take my house,” said Tousant, who is facing mounting problems with Medi-Cal reimbursements. “The money is not coming in. I feel like they just put me in this position to put me out of my home and my business.”

More information on the survey is available online at http://arstechnica.netblogpro.com. The poll results will be discussed at The Times’ Small Business Strategies Conference meeting Oct. 17-18 at the Los Angeles Convention Center. For more information, call (800) 350-3211 or visit http://arstechnica.netblogpro.com/sbsc.

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How the Poll Was Conducted

The Times and USC’s Marshall School of Business mailed a seven-page questionnaire June 19 to a random sample of 30,000 businesses in Los Angeles, Orange, San Diego, San Bernardino, Riverside and Ventura counties. The firms were drawn from Dun & Bradstreet’s database of all businesses in the six counties, from which companies with fewer than 500 employees were selected, in accordance with the Small Business Administration’s definition of small businesses. About 3,000 questionnaires were returned undeliverable. From the remaining 27,000, 1,670 valid responses were received by the cutoff date of Aug. 8, representing a return rate of 6%, considered good for an unsolicited direct-mail survey. The responses were tabulated under the direction of William Gartner, professor of entrepreneurship at USC’s Lloyd Greif Center for Entrepreneurial Studies. The results were benchmarked against national figures and regional industry data kept by the Los Angeles Economic Development Corp. The survey results show that 55% of the responses came from Los Angeles County, 16% each from Orange and San Diego counties, 6% each from Riverside and San Bernardino counties and 1% from Ventura County. The sample also is fairly representative of the industry mix in the region, although, proportionately, there are significantly more manufacturers and somewhat fewer construction firms and food retailers among respondents than in the actual six-county population. The sample tends to favor older, mature firms, reflecting D&B;’s database, which generally is made up of more established businesses with a credit report. While Gartner determined that the survey is representative of the Southern California small-business population as a whole, minority businesses were underrepresented. Of the respondents, 9% were Asian, 6% were Latino and 2% were African American. According to the Census Bureau’s 1992 Economic Census--the most recent figures available--ownership of 11% of small businesses in Southern California was Asian, 13.5% was Latino and 3.5% was African American.

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Tougher Going for Minority Firms

SALES PERFORMANCE

More minority-owned firms reported flat or declining sales over the last year than did white-owned businesses.

MINORITIES

Increase: 40.6%

Decrease: 30%

Flat: 29.4%

WHITES

Increase: 50%

Decrease: 24.3%

Flat: 25.7%

SALES OUTLOOK

Minority business owners overall were less optimistic about sales in the coming year than were white entrepreneurs.

MINORITIES

Increase: 50.6%

Decrease: 17.1%

Flat: 32.3%

WHITES

Increase: 59%

Decrease: 12.6%

Flat: 28.1%

Source: Southern California Business Climate Survey

Business Climate Survey Details Concerns, Strengths

The Times is running a weekly series of stories on the state of small business in Southern California, based on a first-of-its-kind poll of businesses from San Diego to Ventura that was conducted by The Times and the USC Marshall School of Business.

Oct. 7: The Southland’s women-owned businesses are nimble and tech-savvy, but a lack of financing keeps some from expanding.

Oct. 14: Violent crime may be down, but small businesses continue to be plagued by the petty variety. From graffiti to vandalized pay phones, loitering to the use of sidewalks as public toilets, small-time crime--which often goes unnoticed by officials--hits entrepreneurs in the pocketbook and takes its toll in frustration.