Kiesha Haughton Smoots has taught dozens of low-income women in Baltimore how to write a business plan and get their ventures off the ground. She has bid on federal contracts for a woman-owned information technology company and run her own small-business consulting firm. In Prince George's County, she helped entrepreneurs get loans, land government contracts, increase sales and create jobs.
But these days, banks are less willing to lend, consumers are cutting back and many small businesses are struggling from week to week to stay afloat.
Smoots, now a regional director of the Maryland Small Business Development Center, says it's more important than ever for small-business owners to think outside the box. She urges people thinking of starting their own business to critically assess whether they have the entrepreneurial drive, discipline and personality before forging ahead. And maybe most of all, she advises business owners who encounter tough times to seek help before problems get out of hand.
Late last year, Smoots became director of the MSBDC's central region, which includes Baltimore City and Baltimore, Anne Arundel and Howard counties. MSBDC, which operates out of host universities with state and federal funding, is part of a national network that helps businesses grow and find capital. Smoots discussed her work and the climate for small businesses in an interview last week with The Baltimore Sun.
Question: In your experience, how has the recession affected small businesses?
Answer: When I was still in Prince George's [County], I saw a tremendous impact on the businesses that would come in. Entrepreneurs would wait until the last minute to come in and get assistance, and by then it was a difficult situation. Banks were really clamping down on the amount of loans they were giving out. The lines of credit were being drastically cut back, and people's credit was diminishing. Consumers weren't going out and buying as much and those in the retail business, and those in the restaurant business were drastically seeing a cut in their business.
Q: Are small-business operators beginning to experience an economic recovery?
A: There are some industries doing fairly well, the health field, as well as the educational services, as well as professional and business services. But construction, retail, restaurants and some of the other trades, those are not doing well.
Q: What are the biggest challenges facing small businesses during the recession?
A: Well, getting financing is a serious challenge that a lot of businesses are facing now. But what also may be challenging for entrepreneurs is thinking outside the box, by contracting outside expenses, going more mobile. At this point, when you look at consumer spending declining, that impacts these businesses that have locations to be able to cover their rent. Businesses really need to look at how they can minimize their costs, by going virtual or doing more e-commerce as opposed to having space and having to cover overhead expense.
Q: Recent reports show that most small-business owners say they have not seen much of an impact from the $786 million economic stimulus bill. Is that the case for businesses in the Baltimore area?
A: I would think so. It's going back to banks getting recovery money so they can give out loans. There are a few banks giving out loans, but a lot have retracted. One of the things the Small Business Administration is doing now is trying to increase their guarantees, from 80 percent to 90 percent. Banks have the decision at the end of the day, and even though they may get that guarantee, they're not giving out as much as they should be in light of what's going on with the economy.
Q: How available is venture capital for small-business start-ups?
A: There is venture capital out there. That is also retracting. The typical industries they would prefer would be biotechnology, technology, defense, things along those lines that are going to be a higher return. A retail or restaurant business might be more difficult to find venture capital. Businesses also have to recognize, they [venture capitalists] will want a certain percentage of their business. They have to be willing and comfortable with letting go and giving up some control.
Q: Do you believe banks will continue to be the biggest source of small-business funding for short-term loans?
A: That's a tough one. I could see potentially with the backing of the SBA, I could see ... micro loans potentially be the avenue for a lot of businesses, and you might start to see more of those cropping up. Another thing we might start to see is factoring companies coming about. They would purchase the accounts receivable, so if you have a contract but you don't have the financing to hire people or purchase equipment, you go to a factoring company, and they front you the money and take a fee. I think you'll also see people are going to be relying more on lines of credit or maxing out their business credit cards.