L. A. SECTION ENTERPRISE CHAPTER

Develyn Rhodes-Johnson, Manager/Economic Development Specialist at the SBA Business Information Center (BIC) at 3600 Wilshire Blvd. Los Angeles spoke to a group assembled at the AIAA L. A. Section Offices on February 15, 2005. Her objective was to familiarize us with the programs and services offered by the SBA and with the business practices and eligibility requirements in the various programs.

SBA activities fall into four main categories: 1) entrepreneurial development, 2) assistance in obtaining loans, 3) government contracting, and 4) minority business development.

In the area of entrepreneurial development, SBA offers an E-Business Institute, a Service Corp. of Retired Executives (SCORE), and a Small Business Development Center (SBDC). The Institute provides on-site and on-line courses and research materials, SCORE provides one-on-one and on-line consultation plus workshops and seminars, and SBDC offers free managerial and technical help including the preparation of business plans, assists with loan packaging, and provides workshops and free business consultation. BIC ties all these activities together in a one-stop shop environment complete with computers, and a reference library of over 200 manuals, and audio/video material covering a spectrum of industries (e.g. entertainment, restaurant, import/export). Contacts on various specialties are available on SBA’s web site.

SBA does not make any grants. Neither does it grant loans, but it does make it much easier for entrepreneurs to obtain loans. Non-profit organizations are not eligible. Valid purposes for loans include buying or expanding and renovating commercial facilities, purchasing machinery and equipment, buying land for the business, and specific industry needs, including international trade. The 7(a) Loan Guaranty Program is the main instrument used by SBA, which guarantees a certain percentage of the loan to reduce the lender’s risk. In return for this risk reduction, the lender pays SBA a nominal fee. Most of the 7(a) loans range between $35,000 and $2 million. To be eligible, the business must meet certain profitability and size standards. Other specialized loans under 7(a) include SBA Community Express loans ranging between $5,000 and $15,000, Micro Loans up to $35,000, Pre-Qualification Loans from $35,000 - $250,000, SBA Express Loans up to $250,000, and 504 Loans tailored specifically to real estate. The Express and the Pre-Qualification programs are to help minority, veteran, or woman owned and operated businesses.

SBA works with a list of preferred lenders in executing the loan programs. Typically loans on working capital have a life of five to 10 years, while real estate loans can go up to 25 years. Most banks are not interested in loans below $50,000. Interest rates are pegged at no more than 2.75% above prime for most loans, but could go as high as 4.99% above prime for small loans, so SBA works through intermediaries other than typical banks to obtain better rates for smaller loans. To qualify for the loans, SBA stresses the "5 C’s of Credit": character, cash flow, collateral, capitalization, and conditions. The credit history and community standing of the principals, the operating history of the business, and the amount of collateral are examined. The borrower is expected to contribute a certain percentage of equity; an amount which varies among the programs. Certain occupancy requirements are also imposed in the 504 Loan Program. For more details, see the AIAA Los Angeles Section Enterprise Network web site, www.aiaaenterprise.org, click on Archive of Speaker Presentations at Chapter Meetings, and download the slides from the SBA presentation.

In the area of government contracting, SBA representatives work to remove bidding obstacles and to expand the number of set-aside contracts for small businesses. Surety bonds come with SBA guarantees to lower buyer risks, thereby helping small businesses in bidding for larger jobs. To assist both prime and subcontractors to participate in federal programs, SBA provides a Certificate of Competency (COC) program to help contractors demonstrate their ability to bid on contracts. SBA encourages (as do prime contractors as noted in the Enterprise Chapter meeting on 9/21/04) the use of the Central Contractor Registration (CCR), a standard government system for obtaining contractor information at www.ccr.gov. To encourage economic development in historically underutilized business zones (HUBZones), the government has established preferences in awarding contracts to businesses that are located in such zones and also meet certain eligibility requirements as to the percentage ownership by residents of the zone and the percentage of employees residing in the zone.

The major feature of Minority Business Development 8(a) Program is a mentoring program including one-on-one counseling and training workshops to help socially and economically disadvantaged businesses get government contracts. Non-minority women and veteran owned businesses are excluded, as are minorities above a certain net worth. Small Disadvantaged Business Certification also helps in federal procurements, has eligibility requirements similar to 8(a), but requires a larger net worth.

The slides presented by Develyn Rhodes-Johnson may be viewed on the AIAA Los Angeles Section Enterprise Network web site, www.aiaaenterprise.org, by clicking on Archive of Speaker Presentations at Chapter Meetings and then clicking on the Download Slides package next to her name.

Richard Denison

Guido Frassinelli