Capital is problem for black firms

Because of the lack of bank and venture capital financing, personal wealth plays a crucial role for black businesses. A recent poll showed that 83 percent of black businesses relied entirely on personal savings to start up vs. 70 percent for other small businesses. Banks contributed just 6 percent to black businesses' initial financing -- the same proportion as family and friends.

Another often cited factor is the type of businesses favored by blacks. Banks and venture capital funds tend to favor biotech or hi-tech firms, but black businesses tend to be slower-growth community service businesses, such as restaurants, stores or small shops.

"It's not just one factor, it's many. And they all help to hold back black business," said Levi Truehart Lipscomb Jr., acting director of Howard University's Small Business Development Center.

Even if many black businesses are in slower-growth fields, many viable businesses are being founded. In the Brooklyn Homes housing project, for example, Rosalie Pack has established a small grocery store that defied the experts' predictions.

Ms. Pack had run a co-op between 1985 and 1990 but it failed because she says she ran it on little more than "common sense" and a conviction that people in the community shouldn't have to walk 10 blocks for a jug of milk. After her first store failed in 1990, she took a course on business management, wrote a business plan and then secured a $10,000 loan from the Council for Economic and Business Opportunity.

The financing wasn't her only hurdle. Her milk supplier initially balked at supplying the small store in the middle of a housing project, claiming the store would not order enough milk to make commercial milk deliveries worthwhile. To Ms. Pack, however, it was obvious that the store would sell gallons and gallons of milk -- most of the 500 families in Brooklyn Homes have children and few have cars. On top of that, she only marks up milk and other food basics marginally, so her goods are significantly cheaper than the closest grocery stores on Patapsco Avenue.

Just a few months after opening at the end of 1993, "Rosalie's" is ordering nine times the milk that the supplier projected and is on course to start loan repayments two months early.

"It's been an uphill struggle and it took a lot of convincing, but it's working," Ms. Pack said.

The Council for Economic and Business Opportunity's role in Ms. Pack's success is no coincidence. The program is part of a network of public, quasi-public and private organizations in Maryland that have helped make the state one of the most friendly for black businesses.

According to the Bureau of the Census, 8.9 percent of Maryland's businesses are black-owned -- the highest density in the country. And with 21,678 firms, Maryland ranks fifth in total number of firms. These figures stem from a 1987 survey released in 1991; the 1992 survey won't be released until next year.

One of Maryland's greatest assets is that it borders the District of Columbia. In Mr. Hoff's case, that means he's near "the largest number of laser printers in the world." Many other black businesses find the government more open in buying their products and that they can take advantage of minority set-aside programs.

For all of Maryland's success, the numbers could be higher, state officials say. Blacks make up 24 percent of the state's population, so they are still underrepresented among businesses. And even the state's goal of awarding 20 percent of state contracts to minorities has not been met.

To help improve the local situation, the legislature recently passed legislation that would allow the Maryland Small Business Development Financing Authority to be the first state organization in the country to invest in a private venture capital firm. The authority is to set up a "Specialized Small Business Investment Company," a private organization that would have more latitude in making investments than the authority. In addition, the legislation allowed for the privatization of the authority's management, which is supposed to become more efficient.

Even before the new legislation, the financing authority had been a model for other states' minority financing programs. While other states have typically invested in any needy company, Maryland has tried to pick promising companies for funding -- and just as important -- follow-up technical and managerial advice.

Although governments can help, their programs don't always work as intended, said Tyrone D. Taborn, chief executive of Career Communications Group Inc. As governments broaden the definition of minority businesses to included all "disadvantaged" businesses -- which include women and the physically challenged -- the usefulness of set-aside and investment programs to blacks is diminished, he said.