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SMALL BUSINESS

Finding capital can be tall order for black-owned firms

Such companies have had few places to turn to, but that's changing.

May 16, 2007|Evelyn Iritani | Times Staff Writer

Shortly after Vincent Williams borrowed $50,000 from his parents to open a Golden Bird fried chicken franchise in Compton in 1983, one of his mother's cousins pulled him aside.

Enthusiasm and hard work won't be enough to succeed, warned Ruby Stovall, a businesswoman who honed her frugal ways, including saving plastic bags and collecting fallen fruit off her neighbor's lawns, during the Depression. When you run out of money, she said, come to me.

The young African American entrepreneur made the pilgrimage to Aunt Ruby's home in South-Central Los Angeles more than once to keep his business afloat. Although his sales were strong, his costs kept increasing. With McDonald's and Taco Bell nearby, he couldn't raise prices.

But Stovall, who invested in real estate, always came through with a loan -- a few thousand here, tens of thousands there.

"I call her my capital guardian angel," said Williams, a 51-year-old Pasadena native who parted ways with Golden Bird in 1999 and opened his own restaurant, Honey's Kettle Fried Chicken.

Williams was lucky. Access to capital is a problem for most small businesses and particularly hard for African American-owned companies, bankers and small-business experts say. Unlike many immigrant or minority groups with large extended families and a tradition of pooling savings, African Americans don't always have an Aunt Ruby they can rely on for start-up capital.

In the past, mainstream banks steered clear of lending in inner-city communities and black neighborhoods, where people were considered higher risks for default. Protests and lawsuits forced an end to this "redlining" and other discriminatory lending practices, but many of those areas are still underserved. Although there has been an explosion of banks catering to the Asian and Latino communities, there are just two African American-owned banks in Los Angeles, OneUnited Bank and Broadway Federal Bank.

But mainstream banks such as San Francisco-based Wells Fargo & Co. are starting to see the green in black businesses.

African American-owned businesses represent the fastest-growing segment of minority-owned businesses in the U.S., according to the latest census data. African American-owned firms grew 45% from 1999 to 2002, about six times the national average. Of the 1.3 million African American-owned businesses in the U.S., 53,000 were in Los Angeles County, the data showed.

Brenda Ross-Dulan, a senior vice president who oversees Wells Fargo's African American Business Services program, attributes the boomlet in African American entrepreneurs to increased affluence and educational achievement as well as frustration over the glass ceiling that still exists in many industries.

"It's just the idea of wanting to launch out on your own," she said. "Having higher educational levels means people feel more empowered and feel much more capable to go out and start their own business."

After the Golden Bird chain changed hands in 1999, Williams gave up his franchise. But he immediately began thinking about how to get back in business and reopened as Honey's Kettle Fried Chicken the following year.

Williams was convinced that consumers would pay for a "new version of the old-fashioned company." He spruced up the interior and developed a new menu, featuring a lighter version of his batter-fried chicken; hand-rolled buttermilk biscuits; fresh-squeezed lemonade; and pies. Sales were slow at first, but customers started trickling back.

Williams began looking for a spot to expand. He jumped at a space in Culver City's downtown, next door to Ford's Filling Station, the popular eatery owned by actor Harrison Ford's son, Ben. But turning a former martial arts studio into an upscale retro eatery took 18 months and cost $700,000 -- nearly three times his original estimate.

Williams had tapped friends and family dry. Through his wife, Arlene, he contacted Mark Robertson, president of Pacific Coast Regional Small Business Development Corp., which helps small businesses get financing from the U.S. Small Business Administration and the state of California.

Pacific Coast, which works with 16 banks in the city, got Williams a loan with Alliance Bank for $250,000. To satisfy the bank's loan officer, Williams had to clean up his finances, including paying off some back taxes. Pacific Coast provided an additional $30,000 loan and an 85% loan guarantee.

"Most of our clients have been in business for a year, maybe two, and they've gotten their feet under them," Robertson said. "We come in to help them expand."

Williams' second location opened in 2005 to rave reviews. But the celebration was short-lived. Just a few months later, a kettle malfunction set the kitchen on fire and it took four months to repair the damage. Although insurance covered most of the reconstruction, he hasn't completely paid off the bills that piled up. He hopes to be in the black by the end of this year.

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