Small Talk

IN THE YEARS FOLLOWING World War II, thousands of soldiers stayed on in San Diego and started defense-related businesses. That set the tone for the town’s business development. And 60 years later, the vast majority of local firms are still classified as small businesses.

This phenomenon isn’t restricted to San Diego. According to the federal government, 99 percent of businesses in California, based on the number of workers they employ, are also considered small.

One success story is EOS International, a Carlsbad-based supplier of Web-based systems for corporations that maintain their own libraries. EOS International CEO Tony Saadat spent 20 years in software development before taking over a company he says lacked focus. In May, he was named San Diego’s Small Business Person of the Year, for guiding EOS to $7 million in revenue.

“We were looking at way too many services, so I had to bring focus to the company and evaluate our strength in providing information solutions to corporate libraries,” Saadat says. “Some business software companies invest millions of dollars into a product that is not really what your client is asking for, so you’ve got to be a good listener.”

Well, listen to this: The Small Business Administration is undergoing major change.

The San Diego SBA has a new director for the first time in 25 years. Ruben Garcia, cofounder of the National Association of Hispanic Real Estate Professionals, succeeds George Chandler, who guided the local SBA to national prominence. In 2005, Chandler led the San Diego office to a victory lap—a number-one ranking among the 70-plus nationwide SBA offices, based on loan volume and other goals.

In 2004, the local SBA was responsible for funneling $312 million on about 1,200 loans. In 2005, Chandler and the local office rung up $402 million on about 1,400 loans. If Garcia is able to match Chandler’s feat for the fiscal year ending in September, it would be the first time in the SBA’s 53-year history that a local office has won the lending title in back-to-back years.

GARCIA’S TASK WILL BE TOUGHER. The national SBA, under the direction of administrator Hector Barreto, has embarked on a centralization program that takes resources and decision-making away from local offices and moves authority to a few offices nationwide. Undaunted by change, Garcia has set the local office on a goal of $500 million in loans, and says he’s up to the challenge.

“I relate everything to a small business,” he says of the new SBA game plan. “When you have a cutback in your income—and the administration of the national program has had its budget cut from $1 billion to $425 million—you have to be intelligent and do the right things” to succeed.

The 58-year-old Garcia says he’s been training all his life for this job. He recalls how his father was forced to give up the family business, a gas station, because of a lack of capital.

In this new and leaner SBA, the number of employees in the San Diego office was slashed from 34 to just 12.

“It’s a drastic cut,” says Garcia. “I can understand the concerns of some who feel the district office will be diminished, but I’m not concerned. I think there are other areas where we can direct our energy. One of the things I’m trying to do is to get the word out about what the SBA does and has to offer.”

His biggest challenge will be to increase awareness of the lending program without a marketing budget. “So I have to be innovative,” he says. He plans to tape a series of public service announcements, and hopes the local media will help him spread the SBA gospel.

DESPITE BUDGET CUTBACKS, Garcia does have a few arrows left in his quiver. One is the attraction of the lending program itself. Borrowers taking advantage of the “504” SBA program—used for buying commercial real estate or equipment—can now put down just 10 percent, versus up to 30 percent with conventional financing. As such, a $1.5 million property can be secured for $150,000.

CDC Small Business Finance is a major dispenser of 504 loans. Under the direction of president and CEO Kurt Chilcott, CDC has branched out from its San Diego roots and now offers loans throughout California and Arizona. Its loan portfolio has reached $1 billion.

Chilcott believes SBA centralization is a double-edged sword. “There are positive aspects to it,” he says. “We now send all of our loan applications to a central facility in Sacramento for approval. That means there is one interpretation to the process, instead of approvals through 70 district offices, some of which, unlike San Diego, were not responsive or didn’t make decisions very quickly.

“The downside is you don’t have anybody who understands the local market making approval decisions. We have had a fantastic working partnership with the local office, and you lose the local flavor that we’ve had in San Diego.”

Rick Benito, a locally based senior vice president of government lending programs with Bank of America, agrees with Chilcott. “Centralization of loan approval authority creates consistency across the districts,” he says. “Having said that, there’s a certain relationship we have had with the district office, so if something needs to be pushed, they’re on the ground.”

BofA closed 182 loans in 2005, and for that was named the local SBA lender of the year.

Loan applicants can still get assistance forming a creditable business plan from the SBA’s Small Business Development Centers at Southwestern College and Mira Costa College. In addition, local members of the Service Corps of Retired Executives (SCORE) will help a small businessperson spruce up plans for presentation to a local lender.

“An applicant goes into a bank,” Garcia says, “and the banker says this might have potential, but let’s look at your business plan. Sometimes, the applicant doesn’t have a business plan, so SCORE can help them put it together and serve as the missing link.”

Despite the assistance small businesses receive from the government, about 60 percent fail within the first two years. Garcia says newer businesses are often tripped up by a lack of vision and preparation. Some, like his dad’s gas station, are underfunded. The San Diego district has a default rate of about 5 percent—under the national rate of 7.5 percent.

“Don’t do it until you’re ready,” Garcia advises. “A lot of people think they have the ability, but if they have no background [in the business they’re entering], they’re being overly optimistic.”

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