Does Wal-Mart Have Something to Teach Small Biz?

Wal-Mart opened its second Supermercado de Walmart last month in the Phoenix area, after launching the first store in Houston in April. The stores reportedly offer fresh produce, specialty meat cuts, Mexican-branded goods and other items that specifically appeal to their target audience, American Hispanics and Latinos.

Although many American citizens and small business owners love to hate Wal-Mart, perhaps these business owners should do more to emulate the giant chain’s strategies. Despite the potential negative public relations risks of opening a store that caters to Hispanics (the majority of them Mexican-Americans and, yes, maybe even a few without documentation) in these times of immigration hysteria, Wal-Mart is going down the proven path of giving customers what they want.

What are the lessons we can learn from the launch of the Supermercados?

1. Target an identifiable niche market, whether that is based on ethnicity, special interests, language, or some other characteristic.

2. Tailor or expand your product offering to match changing demographics in your market.

3. Move outside your comfort zone. Let’s say you don’t speak Spanish, but you are eager to sell to your community’s expanding Latino population. Hire a bilingual marketing expert who can help you identify opportunities, create Spanish-language advertising, and translate your store’s labeling into Spanish.

By all accounts, Wal-Mart is a profitable and dominant retailer, and their current stores attract plenty of Hispanic and Spanish-speaking customers. They aren’t satisfied with resting on their laurels, though.

Hispanic Business Compiles HB 500

Hispanic Business magazine published the Hispanic Business 500, a list of the top 500 Hispanic-owned businesses in the U.S., in its June issue.

The annual directory of Hispanic-owned firms tells a story of consistently improving weather. Since the directory first appeared with only 400 companies in 1983, its tally of revenues has increased seven-fold and only twice have the numbers dipped from the previous year.

Interestingly, 2008 was not one of the years in which revenues dropped. While the earnings of Fortune 500 companies plummeted 85 percent, the firms on the Hispanic Business 500 reported a small increase from $36.13 billion to $36.15 billion. Is that because more Hispanic-owned enterprises operate in industries that are less vulnerable to recessionary forces?

Small Business Stimulus in States With Largest Hispanic Populations

In the past few weeks we’ve noticed announcements about efforts to help out small business in the 3 U.S. states with the largest Hispanic populations: California, Texas and New York.

In California, Wells Fargo gave a $200,000 grant to the California Hispanic Chambers of Commerce to go toward leadership training and business and economic development.

In Texas, legislators approved a bill to dedicate a portion of the Texas Enterprise Fund — an economic development tool — to small businesses that create jobs or move here from another state.” Though not specifically targeting Latinos, the fact is that most Hispanic-owned businesses are small, so this could be very positive for some enterprises.

And finally, New York’s Mayor Bloomberg and Commissioners of Immigrant Affairs and Small Business Services announced a 5-point strategy to support development of Hispanic business. One of the five initiatives is a partnership with the National Hispanic Business Information Clearinghouse, a bilingual information source for Hispanic and Latino entrepreneurs.

What do these programs and initiatives mean? I think they illustrate the importance that small business in general, and Hispanic businesses in these states, have in rebuilding and strengthening the U.S. economy.

What Makes a Business “Small,” and Why Does It Matter?

There is no objective definition of “small business,” though the U.S. government has a 44-page document that lets us know what “small” is in various industries for the purposes of federal contracting. Many people might be surprised to know that companies with up to 500 employees (or up to 1,500 in some fields) are considered small by federal standards. Other industries are classified by average annual receipts, in which case small means up to $750,000 in receipts (if you’re an apple grower) or $35.5 million (if you run a Job Corps Center).

I was reminded of these distinctions by the latest brouhaha over the federal Small Business Innovation Research (SBIR) program, which awards grants to small businesses to conduct high-risk (from a profitability perspective) research that addresses a particular need of one of eleven federal agencies and departments.

Intuitively, I feel that a company with 500 employees is probably larger than “small.” The U.S. Small Business Administration (SBA) likely had to set a higher threshold due to lack of response and capacity, and therefore an inability to meet small business contracting goals, from smaller firms.

That’s all well and good, in terms of federal procurement. However, I feel that truly small businesses are not given enough attention when they are lumped in with companies of 400 employees and perhaps tens of millions in revenue. The startup entrepreneur has very different needs than those companies, and I’m not sure how well the “Small” Business Administration serves the average start up.

According to common wisdom, the biggest reason small businesses fail is lack of capital. (This is probably a self-reported statistic, however, and how many failed owners will identify “poor management” as the reason their biz went bust?) Does the SBA provide much capital assistance to new entrepreneurs?

As far as I can tell, a true start up has very little chance of borrowing money through an SBA-guaranteed loan, unless they have significant collateral (usually this means a second mortgage on a personal residence) or a fairly lengthy cash flow history. So the only thing SBA can do for most small business is to offer counseling and training at Small Business Development Centers and SCORE chapters, which is nice but not enough. In fairness, they do also have some fine online training courses, Spanish-language content, and programs to advance women-, minority-, and veteran-owned businesses. But is this a sufficient return on an $825 million budget (2009 estimate, not including loans and guarantees)?

Maybe the SBA should change its name to the U.S. Medium-Sized Business Administration, or better yet, spin off another agency that really focuses on the small entrepreneur. Offer direct microloans to new businesses, along with mandatory and extensive training programs. If the new firm has a clean record after a certain time period, step up the financing limit. Use fees and interest, not tax dollars, to finance the administration of these programs. These are things that have worked in the private and non-profit sectors; I’m sure our highly creative legislators and policy analysts could invent even more effective tactics, if their goal was really to help the smallest of businesses grow.

SBA ARC Loans Available Now!

Existing small businesses can apply for America’s Recovery Capital (ARC) loans as of June 15, 2009:

ARC loans are deferred-payment loans of up to $35,000, available to established, viable, for-profit small businesses that need short-term help to make their principal and interest payments on existing and qualifying business debt. ARC loans are 100 percent guaranteed by the SBA and have no SBA fees associated with them.

Call your local SBA office, a Small Business Development Center, or the national SBA Answer Desk at 1-800 U ASK SBA.

Consensus Is…Money Is Available, Just Ask

I’ve been wondering how much truth there is in the current common wisdom that credit markets are “tight” or “frozen.” Small business owners might infer that this means it is difficult to get a loan.

According to the latest newsletter from the SBA’s Office of Advocacy, the American Recovery and Reinvestment Act of 2009 provides about $660 million to encourage and fund small business lending in various ways. The SBA also reports that interest rates for loans of less than $100,000 are the lowest they’ve been in 5 years. Demand for these loans, however, has shrunk.

Since government statistics are best consumed with large doses of skepticism and reason, I looked at a few other sources:

According to CNN Money, banks who received federal TARP funds to stimulate lending actually decreased commercial lending 1.2% from February to March of 2009, while consumer lending decreased by just 0.5%. But from the banks’ viewpoint, the reduced lending activity was a result of lessened demand, not availability of funds or willingness to lend.

In a Chicago Tribune article concerning banks paying back TARP funds, an analyst attributes lending stagnation to several factors: 1) reduced demand due to businesses cutting inventory and refraining from acquisitions; and 2) banks being more selective about borrowers.

Finally, we have a YouTube video featuring Steve Fleming, president of a Sacramento-based bank. Though obviously a quasi-commercial for his institution, he does claim that, at his bank at least, funds are at the ready and they’re eager to lend them out.

How do we interpret this sometimes-conflicting data? My impression is that if you are seeking a loan for a startup with no cash flow history and insignificant collateral, you’ll have a hard time. But this has nearly always been the case, so not much change in the big picture. Smaller loans may be relatively easier to get than larger, and small businesses should try and take advantage of the new, higher SBA guarantee levels. I also believe that, like real estate, location has a lot to do with banks’ ability and desire to lend. Some metropolitan areas have been hit much harder than others by the economic downturn, and it’s probably more difficult to obtain capital in those regions.

Hispanic Business Owners Lack Key Financial Knowledge

According to a survey and study performed by University of Houston business students and reported in the Houston Business Journal here, many Hispanic business owners report that they need more knowledge of financial planning, employee health insurance, and business succession. Not surprisingly, business owners who prefer Spanish utilize financial planning services less than those who prefer to communicate in English.

Is it possible that these statistics, aside from the language issue, are common to all small business owners? There’s no way to know that without survey data from a corresponding non-Hispanic control group of business owners.

The study does imply to me, however, that there may be a profitable niche for Spanish-speaking financial advisers and other business consultants.

One other question comes to mind: Are there inherent cultural factors that engender distrust of financial planners (and other business-to-business service providers) in Hispanic business owners? I’d like more insight on this issue, as it might help to understand whether information is simply not available to business owners, or if there is enough accessible information but it is not trusted or valued. If the latter is the case, what can be done to present vital business information so that it is more highly valued and better accepted?

Majority of Latino Children Offspring of Immigrants

According to an analysis by the Pew Hispanic Center, as of 2007 52% of America’s Hispanic children are second-generation, meaning at least one of their parents was born outside the U.S. And 11% are first-generation, meaning they themselves are foreign-born. In contrast, in 1980 57% of Hispanic children were 3rd-generation or higher, meaning both of their parents were also born in the U.S.

Hispanic children’s generational status corresponds to their level of English fluency, education, income level, and legal residency standing.

…first and second generation Latino children are less likely than third or higher generation children to be fluent in English and to have parents who completed high school. They are more likely to live in poverty. But they are less likely than third or higher generation Latino children to live in single parent households.

Projections for the future show that 2nd-generation Hispanic children will peak soon and that 3rd-generation numbers will begin rising again in the next decade.

What can we take from these statistics? It seems that perhaps the cyclical nature of generational status is tied to the U.S. economy–when the economy was generally growing every year and the U.S. required an influx of labor from Latin American countries, the number of Hispanic children born from that population of workers greatly increased. Now that the economy has suffered a downturn over the past several years, the number of immigrants arriving and/or staying has dropped off.

It wouldn’t surprise me if this also mirrored a long-term trend in U.S. immigration patterns from the 19th century onward. When America needed extra labor in the past, whether to build railroads, dig mines, pioneer new territory, and so on, the country welcomed newcomers who could perform that work. Then it took a couple of generations for those immigrants’ children to assimilate in terms of language, economics, etc. I think many people perceive the increased immigration of Latin Americans into the U.S. over the past 25 years as unprecedented, but to me it’s just another familiar chapter in American history.

Which Lenders Make SBA-Guaranteed Loans?

If you’re curious about what banks have historically distributed the most SBA small business loans and microloans, check out the latest report here. Note that this report is based on data collected in 2007 and 2008.

The report provides data on the top institutions lending to small businesses in each state.

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The information is useful to both small businesses in search of loans and lenders who seek to compare their lending with that of their competitors.

To see SBA lending data going back to 1994, including American Samoa, Guam, Puerto Rico, and the U.S. Virign Islands, check out this page.

SBA Announces New Loan Program for Established Businesses

If you already own a viable business but are having trouble with payments on previous loans and certain other commitments, the U.S. SBA announced a new loan that is 100% guaranteed with no interest and no fees:

Beginning on June 15 [2009], SBA will start guaranteeing America’s Recovery Capital (ARC) loans.  ARC loans are deferred-payment loans of up to $35,000 available to established, viable, for-profit small businesses that need short-term help to make their principal and interest payments on existing qualifying debt.  ARC loans are interest-free to the borrower, 100 percent guaranteed by the SBA, and have no SBA fees associated with them.

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As part of the Recovery Act, the ARC program was created as a no-interest, deferred payment loan to help small businesses that have a history of good performance, but as a result of the tough economy, are struggling to make debt payments.

ARC loans will be disbursed within a period of up to six months and will provide funds to be used for payments of principal and interest for existing, qualifying small business debt including mortgages, term and revolving lines of credit, capital leases, credit card obligations and notes payable to vendors, suppliers and utilities.  Repayment will not begin until 12 months after the final disbursement.  Borrowers don’t have to pay interest on ARC loans.  After the 12-moth deferral period, borrowers will pay back the loan principal over a period of five years.

This loan could be a life saver for companies that are struggling right now. Recipients would be able to hoard some of their precious cash flow to pay employees, maintain marketing efforts, and fund other aspects of their daily operations. And it’s nice to see a program aimed at existing small businesses, as it’s probably much more efficient for our economy to keep current jobs and tax revenues intact than to launch new ventures.

I wonder how this will play out in the real world, though. Simply because the SBA will guarantee a loan doesn’t mean banks will provide the money in what is still being reported as a tight credit environment. If any businesses apply for and receive ARC money I’d be interested to hear about it.