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State cuts force Small Business Development Centers to scramble for funding

The community-college-based centers, which offer loans, counseling and other resources to entrepreneurs, have been busier than ever but have had matching funds cut. Some centers have had to close.

August 25, 2009|Cyndia Zwahlen

Last-minute cuts in the California budget are threatening programs that have been instrumental in helping entrepreneurs beat back the recession's perils.

Small Business Development Centers, which offer loans, counseling and other resources using a mixture of state, federal and corporate funding, have been busier than ever this year. But the state's budget squeeze brought a 32% reduction in the funding that community colleges can use to operate some of the 35 centers in California.

In addition, the trust fund that backs the state's small-business loan operation took a $10-million whack. The loan program used the $35-million trust to help cover its 90% guarantee on loans made by approved lenders to small businesses. Now no new guarantees can be issued.

"We've turned down tons of requests already," said Michael A. Ocasio, chief executive of Small Business Finance Development Corp. of Orange County, one of 11 in the state that match borrowers with lenders for the program.

Many business owners have found these programs to be invaluable as the economic downturn has made operating a small enterprise even more fraught with peril than usual. Shrinking such programs could jeopardize the growth of the small firms California needs to power its economy.

Earlier this year, Perry Voogt kept running out of cash to pay vendors even though his All Valley Hose & Industrial Supply business in Van Nuys was posting annual sales of $1 million.

Voogt figured he needed a loan, so he turned to the Small Business Development Center at College of the Canyons in Santa Clarita for help.

Voogt didn't get the loan, but the co-owner of the retailer and wholesale distributor said he received something better: a fresh look at what his almost 4-year-old family business needed to succeed.

With free guidance from his consultant, Voogt took a sharp pencil to operations. He shaved his unpaid accounts receivables by one-third to less than $100,000. He worked with vendors to extend his payment terms up to 45 days.

Almost overnight, cash flow improved and he was able to increase his payroll.

"Now every week we make payables and I have cash in the bank; it's been that dramatic," said Voogt, who owns the five-person business with his brother, Randy Voogt.

The pressure off, the pair turned to crafting a business plan with their consultant's help. They met with five banks this month with plan in hand and are optimistic about their chances on two loan applications.

Voogt is one of thousands of Californians who have turned for help to the centers and other small-business programs funded by the state.

At the three centers in the San Diego and Imperial Valley area, counseling hours are up 27% to 4,284 through July compared with the year-earlier period.

The center in Santa Clarita, one of six in the Los Angeles region, has already blown past its annual goal of 360 clients, having already seen more than 400 this year.

The Small Business Development Centers have long relied on the state's annual grant, about $3 million total, as a building block to make up their mandatory annual match for the $11 million in federal funds that the centers receive. The 32% budget cut not only represents a loss of state funds but also could mean that federal money will go unused if the Small Business Development Centers don't supply their share of matching funds from state or other sources.

"California is actually returning federal money to Washington, which gives me great pain because it's so counterintuitive to our need," said Jose Millan, vice chancellor of California Community Colleges and head of its economic development and workforce preparation division.

Centers are scrambling to make up the reduction by boosting fundraising efforts targeting local banks, corporations, cities and counties.

The economy has made that job a lot harder as existing sponsors drop out or chop away at their giving. Cities have their own budget shortfalls. Banks have their own capital problems.

Steve Tannehill, director of the center hosted by College of the Canyons, said a longtime bank sponsor had just renewed funding for the year but cut support by two-thirds.

"It's very tough," said Tannehill, adding that about 15% of his budget comes from the state fund.

Worrying about where to get the money to match the program's federal funds, which come from the Small Business Administration, "keeps me up at night," said Mark Mitchell, director of the Tri-County Tech Center, with offices in Riverside and Irvine, which focuses on high-tech, high-growth companies in the Inland Empire and Orange County.

One longtime center at Mt. San Antonio College closed this summer because it was unable to raise enough money and its host couldn't fill the gap. Two other centers in California also have shut their doors.

With fewer state dollars available, at least one official is looking farther afield for help. Alberto Alvarado, director of the Small Business Administration's three-county Los Angeles District and acting director of the three-state SBA Region 9, said he was talking with banks and other possible partners about funding branded programs at the centers. That could include a financial training workshop or loan preparation program.

"The functions are so important . . . especially during these tough times," Alvarado said.

The centers' hosts are to get their funding this month and the directors expect to know by the end of September what their fate will be. Tannehill, the director of the College of the Canyons center, feels confident of his operation's ability to keep helping small-business owners.

Voogt is spreading the news about his success.

"It's been tremendously helpful," Voogt said. "People ask me what I've been doing and I point them all to the center's resources."

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smallbiz@latimes.com

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