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Businesses owned by blacks struggle Downturn devastates already tenuous progress

THE BALTIMORE SUN

Calvin Mims didn't know the meaning of the word recession -- until recently.

Mr. Mims started an electrical contracting business, Calmi Electrical Co., in 1986 out of the sparse, brightly lighted basement of his West Baltimore rowhouse. Business was slow at first, but as the size of his projects increased, so did his reputation.

Last year Calmi Electrical won an $800,000 contract to wire the Camden Yards warehouse for television, audio and cable. The company's largest job to date, it kept 15 workers busy from August 1991 through April. The American dream, so alien to so many blacks, was within reach.

Until recently. In the second quarter of 1992, most of Calmi's larger contracts dried up. The government construction that provided the bulk of Calmi's jobs -- and those of most black contractors -- withered amid the economic drought.

In some ways, Calmi is lucky. The business is not capital-intensive, and overhead is low: The 40-year-old Mr. Mims owns his office and home.

Still, Calmi's challenges are those of many black businesses. In Baltimore and across the nation, the recession has staggered many black-owned companies, which typically are smaller, younger and less capitalized than white-owned competitors.

For smaller companies the recession "has had a devastating effect on minority business," said Raymond V. Haysbert Sr., chairman and chief executive officer of Parks Sausage Co., Maryland's fifth largest black-owned business, according to Black Enterprise magazine. "Most of them are usually small and underfinanced, and they couldn't stand the bludgeoning."

And the problem may be worsening. Black-owned businesses, which usually start with little capital and few business contacts, often can't find emergency financing when sales drop off. Customers of many of these businesses, particularly retailers in some city neighborhoods, face more and more trouble -- the jobless rate among blacks in the Baltimore region, at 12.2 percent last year, was almost three times higher than that for whites.

Reversing these trends is crucial, says Harriet Michel, president of the New York-based National Minority Supplier Development Council.

When black businesses are full participants in the economy, entire communities gain strength, she argued. By contrast, one symptom of the economic distress of blacks, Ms. Michel and others say, was the violence in Los Angeles this summer.

Mr. Mims of Calmi fears for the future of his company once his contracts with the University of Maryland Dental School and the National Aquarium end. "This recession is also being felt by the local government and the federal government," he lamented, "and they're putting less work out there to bid."

"We're just doing small projects as they come in," he added, "living day to day."

He's not alone.

One disadvantage the average black-owned business faces, in a boom or bust economy, is size. Maryland has been recognized for the volume of minority businesses, but the size and success of those companies is another story.

While blacks owned 8.9 percent of Maryland businesses in 1987 -- the highest percentage in the nation -- the companies were smaller on average, as measured by the number with paid employees. Only 12.7 percent of Maryland's black-owned businesses had paid employees, compared with 22.8 percent of all businesses. Nationwide, 16.7 percent of black-owned businesses had paid employees, vs. 25.5 percent of all businesses.

And average annual sales of $33,200 at Maryland's black-owned businesses were about one-fifth of those for all state companies in 1987, according to the most recent U.S. Census Bureau data. For the United States as a whole, the average annual sales of $46,592 at black-owned businesses were almost one-third of those for all businesses.

For small companies, "the least little blip in their economic forecast is going to cause them real jeopardy," said Ms. Michel, whose organization certifies and refers minority contractors to larger majority companies. And, because many blacks are relatively new business owners, they seldom have wealthy friends or relatives to rely on in times of trouble.

"We don't have a buddy over at this contractor or that owner who we can call and say, 'Things are a little tight right now. Can you help me out?' " Mr. Mims said. He started his business not from a nest egg of savings, but with a $10,000 loan from an annuity program his electricians' union offered.

With a business based on debt rather than capital, it's tough to outlast the slow periods. "Our cash flow is almost negative," Mr. Mims said, "because people are tending to delay payments a lot longer than they did."

Nathan Chapman, who started his own investment management firm in 1986 after leaving Alex. Brown & Sons Inc., said the recession has thrown many leveraged companies into a dangerous spiral. "When business slows down you go out and get a line of credit, or you finance your receivables." The interest on that debt siphons off cash flow, and the high debt-to-capital ratio makes it difficult to raise more money, he said.

Meanwhile, the banks' own real estate-related financial problems have made borrowing money harder for everyone, much less highly leveraged companies. "That makes it an unusually tough recession for black businesses," Mr. Chapman said.

It is even tougher for cash-hungry companies that have poor prospects because of the communities they serve. "If you look at a McDonald's franchise in the inner city, you're looking at a different business than one located in Columbia," said Joseph Haskins Jr., president of the Harbor Bank of Maryland.

For many, minority contracting laws are the only available springboard to economic independence, said Andrew Brimmer, a Washington economist who recently completed a study on minority contracting laws in several cities. In Atlanta, for instance, black contractors in 1989 and 1990 received 93 percent of their revenues from the public sector, whereas white-owned contractors relied on the government for only 20 percent of their income.

That's why many blacks rely so heavily on public projects. Mitchell Smith, director of the Governor's Office of Minority Affairs, said he's trying to make public procurement more available before the recession's toll rises. Three weeks ago, he convened a meeting with minority contracting groups and a half-dozen state department secretaries.

The goals: Making it harder for white male contractors not to hire minority subcontractors, agreeing on administrative sanctions against violators of those requirements and strengthening minority contracting laws.

Mr. Smith said he also hopes to increase cooperation between procurement officers and the state's primary minority business financier, the Maryland Small Business Development Financing Authority.

MSBDFA, part of the Department of Economic and Employment Development, offers loans, loan and surety bond guarantees, and sometimes even buys an ownership position for small businesses that can't find money elsewhere. More than 80 percent of the money MSBDFA has provided since its first loan in 1981 has gone to black-owned busineses, according to executive director Stanley Tucker. Last year MSBDFA made about $19 million available to companies with few other financing alternatives.

Maurice B. Tose, the owner of Annapolis-based Telecommunication Systems Inc., was one of the beneficiaries in 1989. The company designs and manages information and engineering systems, mostly for U.S. military agencies. When its business started to accelerate a few years ago Mr. Tose (pronounced toh-SAY) sought contract financing.

"We went out to the banks to try to get a line of credit, and they said, 'Yeah, right,' " Mr. Tose said sarcastically.

MSBDFA came through, first with a $250,000 line of credit, and later with a loan guarantee for a credit line from Maryland National Bank. "MSBDFA took a chance on us when we needed it," Mr. Tose said. "Without having that, I would daresay where we would be right now -- maybe not around."

Despite the hardships of the recession, some business owners see a silver lining. Many blacks are beginning to look to each other, by networking more and considering joint ventures and mergers. Organizations that help black business owners find contracts and partners are reporting more inquiries.

"Prior to the recession we got maybe 20 phone calls a day. Now that's doubled," said Charles R. Owens, executive director of the Maryland/District of Columbia Minority Supplier Development Council.

He and others reason that if black entrepreneurs can start a business in or steer a business through hard times, they will emerge smarter and more likely to thrive in good times.

"You certainly do learn to deal with a crisis, how to deal with a slowdown in your business," Mr. Chapman said. Still, he added, "it's tough to look at the recession as something positive."

Calvin Mims would agree. "If we pick up a couple nice jobs, we'll be OK," he said. "If I have to go back myself with my tools and a helper, that's what I'll do.

"If I have to."

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