Small Minority-Owned Businesses Hit By Recession
MICHEL MARTIN, host:
I'm Michel Martin, and this is Tell Me More from NPR News. Coming up, our money coach talks about bankruptcy in these tough times.
But first, hardly a day goes by without news of more layoffs at big corporations. But layoffs at small businesses generate less noise, but hurt all the same. David Ferreira of the U.S. Hispanic Chamber of Commerce is with us to talk about some of the challenges facing small businesses in general and minority-owned small businesses in particular right now. He's here with me in the studio. Thanks so much for coming in.
Mr. DAVID FERREIRA (Vice President, Government Affairs, U.S. Hispanic Chamber of Commerce): Thank you for the invitation.
MARTIN: Now, I think a lot of people know that small businesses generate about half of the new jobs, at least they have over the last decade. But what a lot of people, I think, may not know is that the growth rate of minority-owned firms far outpaced the national rate over the last decade. They increased by about 30 percent compared to 10 percent for all classified firms according to the department of commerce. That was in the period of 1997 to 2002. But David, what I wanted to ask you is, now that there's a downturn, are these businesses falling faster and harder?
Mr. FERREIRA: Absolutely. Well, the growth rate is actually 60 to 80 percent of new jobs in this country are generated by small businesses, small enterprises, sole proprietorships in some cases. And minority firms far outpaced the growth, especially Hispanic firms, and among Hispanic firms, actually, Latino firms are the ones that led the growth. But the same way that they were some of the best, the fastest to rise, they've also been some of the ones that have been most to lose during the current downturn.
MARTIN: And why is that? No cushion, no reserves?
Mr. FERREIRA: Very little cushion, very little cash flow management, usually competition in markets, supplier diversity doesn't become that important, both in the corporate, and also procurement becomes - when the federal government becomes dollar conscious, they start bundling more and shutting out the small businesses. So, there's a multitude of factors.
MARTIN: Now, there's been a lot of attention being paid to the debate on Capitol Hill over the President Obama stimulus package. But is there anything in the stimulus package that specifically speaks to small business owners like the kind of people we're talking about?
Mr. FERREIRA: Well, there are some components. The House bill, for instance, included a direct lending program that we were very happy to see, and we have been trying to educate in favor of, which is SBA used to provide direct lending that got cut off over the last four years. Now, we would like to see that again, much in the same way that the SBA provides disaster assistance loans after, say, a Katrina. And the economic situation that we are in right now isn't much different for a lot of small businesses.
MARTIN: So, one of the provisions might be for the SBA to be in a position to be a banker of last resort, as it were, to small businesses?
Mr. FERREIRA: Absolutely. Because rising credit restraint has actually now been turned into irrational risk aversion by many in the lendings field. We're seeing that the 350 billion than in the TARP - nobody really knows what the TARP stands for any more, since troubled assets never got really purchased - but when it comes to the liquidity in the markets, big banks got their balance sheet harmonized.
Small businesses, consumers, never really have seen much of the injection. There's a great story in today's Washington Post about the 200 billion that went into asset-backed security purchases to try to motivate consumer lending and to motivate, especially, small business lending. None of it has really resonated at the ground level.
MARTIN: Your group, the U.S. Hispanic Chamber of Commerce, is in favor of this idea of direct lending from the SBA, but the National Federation of Independent Businesses, as I understand it, which is kind of an umbrella organization for all small businesses, is not. They say what they think is most important is tax consistency, tax breaks. Is there a difference of opinion there between the people who primarily represent majority-owned businesses and the folks who represent minority-owned businesses?
Mr. FERREIRA: Well, we have a good relationship with NFIB, but NFIB doesn't necessarily represent the views of a lot of different interests and a lot of different employer communities. For instance, they oppose comprehensive immigration reform because they take a lot of their policy positions by serving their members. We take our policy positions not only by surveying our members, but also by determining what is in the public interest, and what's the best public policy to help our community.
MARTIN: And talk to me, if you would, about the whole question of set-asides. There's a provision in the House bill that's controversial about a Buy America provision that would require that people who get bailout funds use American-made firms or American, sort of, steel. First of all, do you favor a Buy America provision? And what about minority set-asides as kind of a component of that?
Mr. FERREIRA: Well, the Buy America provisions are primarily for steel. And we don't know of any Hispanic or minority-owned firms that produce steel, so that doesn't generally affect us.
Now, when it comes to the issues of price of steel and price of construction, obviously we care because we have a lot of construction firms we - there are a lot of minority-owned construction firms, a lot of firms that will be involved in the reconstruction and the recovery efforts. And they're going to have to - and that's going to play a component.
The cost of the product is obviously going to be a consideration. Whether it's good or bad, ultimately - it doesn't send a very good message that we're moving into a Doha Round and a lot of international trade negotiations, and then on the same side, doing protectionism at home. It sends a (unintelligible) message.
MARTIN: What about the question of set-asides?
Mr. FERREIRA: Set-asides? Well, set-asides aren't necessarily set-asides, it's mostly procurement preferences. And Rothe Development Corporation versus Department of Defense case came down and struck down as unconstitutional in a lower court a lot of the set-asides for minority-owned firms in federal procurement.
We're obviously very concerned with that. The Obama administration is very concerned about that in our conversations with them. We're working to try to find ways how to get around that and try to correct and harmonize a law to bring back those procurement preferences.
MARTIN: Well, if you could just talk about why you think that's worth doing and why that's worthwhile? Obviously, there are some who would consider it inherently unfair.
Mr. FERREIRA: Because there has been a long historical trend of contract bundling, of the Lockheed Martins and the Halliburtons getting the contracts from the federal government.
There's also a long tradition of what we like to call subcontractor bait and switch. A lot of minority firms are approached for the initial bid to the federal government, but ultimately, once they get it they say, well, we're going to recompete this. Now, you're going to have to tell us why we should keep you. And ultimately they end up dropping them for the creation of a subsidiary of their own firm to create - do that same work.
MARTIN: So David, finally - we only have about a minute left. What would you say is the most important issue for your members, which are very diverse? I mean, they do all kinds of business, as you mentioned. A lot of people work in health care, a lot of people work in construction, they work in all kinds of areas. But is there a single through line in what you think would be most beneficial to your members, of the minority-owned businesses in particular, small businesses in general, as the country continues to talk about ways to revive the economy?
Mr. FERREIRA: It's a complicated issue and with that, doesn't come one single bullet, magic bullet. With it comes access to capital, that availability to capital right now. Foreclosure assistance, that's how a lot of minority companies start their business by tapping into their net equity. Workforce training, insuring that there is strong integrated job training. E-verify, making sure that we do not drop employment in this country by using a new, untested system that they want to roll out in the economic stimulus bill, diversity of contract.
MARTIN: That would be - E-verify would be to assure one's eligibility to work. And you're saying that the system is just too flawed to...
Mr. FERREIRA: Absolutely.
MARTIN: Impose on businesses. OK.
Mr. FERREIRA: It uses bad data. And because of that we expect that one percent of all eligible workers are going to lose their jobs. I thought this was a job creation program, not a job reduction program, and diversity in contracting. And last, health care, because small businesses are the first ones right now dropping health care coverage in order to keep their doors open. They need help.
MARTIN: David Ferreira is the vice-president of the U.S. Hispanic Chamber of Commerce. He was kind enough to join us here in our studios in Washington. I hope you'll comeback from time to time and keep us up-to-date.
Mr. FERREIRA: Absolutely. Thank you.
MARTIN: And of course, with Tell Me More, the conversation never ends. We'd like to ask if you own or work for a small and/or minority-owned business, we'd like to ask how the nation's economic downturn is affecting you or your bottom line. We'd also like to ask what's your take on this whole question of set-asides versus direct stimulus versus tax benefits?
To tell us more about what you think, you can call our comment line at 202-842-3522. That's 202-842-3522. Please remember to tell us your name. Or you can always go to our Web site at the Tell Me More page at npr.org and blog it out. Transcript provided by NPR, Copyright NPR.