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Small Business Owners Struggle to Benefit From U.S. Stimulus

Arab American News/New America Media, Investigation, Khalil AlHajal Posted: Mar 04, 2010

Editor's Note: This story, which originally appeared in the Arab American News, was produced as part of NAM's Stimulus Watch coverage and was funded with a grant from the Open Society Institute.

Ammana Meat MarketAmana Meat Market, on Warren Avenue in the
heart of east Dearborns Middle Eastern
business district. PHOTOS: Khalil AlHajal/TAAN
DEARBORN, Mich. -- After the U.S. government's $787 billion economic stimulus package passed a year ago, Nasr Moussa hoped to expand his meat market in the heart of the long Warren Avenue row of Middle Eastern-themed, Arab-owned businesses straddling the Detroit-Dearborn border.

He applied for a $30,000 Small Business Administration loan backed by the stimulus to help kick off a long-term expansion of his business that he said would eventually allow him to hire 15 to 20 new employees.

Moussa said he filed the paperwork soon after the bill passed, and since May 2009, Amana Meat Market has been listed as a recipient of the full $30,000 on the government's online stimulus database.

But he still hasn't seen a dime.

"I kind of gave up on it," he said.

He said Flagstar Bank still hasn't coughed up the money, even with heavy SBA backing of the proposed loan. Moussa said he's continually provided bank officials with information as they've asked for it, but that their requirements eventually became too costly.

"I realized that I have to spend a lot more money to be able to get the loan. Then I kind of thought they don't want to give me the loan... I filled all the applications. I gave them estimates. I gave them projections. I gave them everything, but then they started asking me questions that seemed like they wanted to get out of it," he said. "I want money. And then they tell me to spend more money. I'm going to have to hire some engineers and companies for more estimates."

Amana Meat Market Small business owner Nasr Moussa
hoped to begin an expansion of his meat market
with the help of a small, stimulus-backed loan.
Moussa's frustration echoes the sentiments of many small business owners who complain they're not feeling the effects of the massive federal stimulus the American Recovery and Reinvestment Act signed into law on Feb. 17, 2009.

About 19 percent of Arab Americans in the Detroit area own businesses, compared to about 14 percent of the area's general population, according to the Detroit Arab American Study Team, a group of University of Michigan professors who conducted a major survey in 2003 and released its results last year.

Political science professor Ronald Stockton, one of the study team's leaders, said the community's vast diversity makes it hard to tell whether Arab Americans are at a disadvantage in pursuing the federal funds.

"Some [Arab American] businesspeople are among the most sophisticated in the region in knowing how the financial system works," he said, "but others are small-scale operations that lack that sophistication and may not be able to comply with all the paperwork involved in getting federal monies."

The Recovery Act provided a boost to many SBA loan programs by raising government guarantees to up to 90 percent and eliminating upfront borrower fees. It also created the SBA America's Recovery Capital (ARC) loan, an emergency bridge loan worth up to $35,000 offering a 100 percent guarantee and 12 months of interest deferment.

Amana Meat MarketMohammad Ahmad, L, and Hussain Moussa work at
Amana Meat Market. The markets owner said he could eventually
hire at least 15 new employees if he is able to expand.
But few local Arab American business owners have been able to get through the administrative obstacles and long waiting periods involved in benefiting from the programs.

Richard Tempkin, Director of the SBA in Michigan, said lending of SBA loans in the state was down by two-thirds before the federal stimulus and has increased dramatically since.

"Our lending here in Michigan has almost doubled, from about 15 to 30 a week," he said.

He said about 55 ARC loans and 450 other SBA loans have been approved in Michigan since Oct. 1.

But long periods of time often pass between loan approval and actual disbursement of funds by banks, meaning many small businesses approved for loans under the Recovery Act have not actually received any money.

Tempkin stopped short of putting blame on the banks, but he said his office hears often from businesspeople who appear credit-worthy but continue to have trouble ultimately getting their hands on funds.

Molly Brogan, vice president of public affairs for the Washington-based National Small Business Association, said complaints of banks being stingy even with hefty SBA guarantees are coming from around the country.

"I think that's a very fair complaint of small business owners," she said. "The difficulty with that is that, while (banks) certainly haven't done as much as we think they could in terms of getting money out the door to small businesses, they're also hamstrung to a certain extent by federal regulators... I think there's been a severe overcorrection from three or four years ago, where perhaps money was being lent out a bit more easily than it ought to have been, but now everybody's gone so far the other way that they're so incredibly risk-averse that it's very difficult for small businesses to get loans. And certainly some of that responsibility lies on the banks, but it also lies in the hands of the federal regulators who are also, I think, a bit more risk-averse than they ought to be."

Jumana Judeh, founder and president of the Dearborn-based Arab American Women's Business Council, said the lending difficulties are contributing to a vicious cycle of bad news for small business.

"Lenders are still not lending and small business people are hurting," she said. "I know of not one single SBA loan that was given out as a result of the stimulus money... It is unfortunate."

But she said banks can't be expected to take risks in a bad economy.

"I don't necessarily blame the bankers. If we as a business community expect the lenders to lend against common logic, then we are just deceiving ourselves. If they were lending based on civic responsibility, they wouldn't be a bank."

One Arab American businessman who said he has gotten at least verbal approval on a major SBA loan recently said another obstacle is the complexity of the application process, making it harder for smaller, simpler businesses with less resources to navigate opportunities.

"The application process is very tedious," said Tarik Daoud, owner of Long Family Auto Center in the city of Warren on Detroit's northern border. "I think the SBA application should be reasonably simple, short and to the point. And then any follow-up questions should be done accordingly."

Daoud applied for a $2 million loan to expand the auto sales and service ends of the business and potentially create dozens of new and restored jobs.

Daoud said he has been approved for a loan but, like Moussa, has yet to receive a dime. "It has been at least two months since we got approved," he said, but there's been "no action by the banks."

Banks continue to be reluctant to lend even with heavy government backing, frustrating small business owners struggling to grow or prop up their companies.

"In the past, we could borrow millions of dollars with no problems at all," Daoud said. "But things have changed. I realize that the time is different. The economy is different. The bank business is different. But we still have to have loans to operate new businesses, small businesses especially, to hire more people to get the economy going."

During an October visit to the Detroit area, U.S. Commerce Secretary Gary Locke announced the opening of a local Commerce Connect office, meant to help businesses connect with Commerce Department programs.

Locke met with Arab American business leaders during his visit, and after hearing about lending woes and skepticism over whether small business people would be aware and able to fully pursue stimulus benefits, the secretary said the new office could help inform and aid in the navigation of programs like ARC. Commerce Connect is located in Plymouth, a western Wayne County suburb of Detroit with little diversity.

It's unclear whether the office has yet been able to provide guidance or outreach in the pursuit of stimulus benefits by small businesspeople. Multiple inquiries over several weeks about the office's operations were forwarded from national Commerce Department spokespeople to the Plymouth office, to White House spokespeople, and back to national Commerce spokespeople, with no answers as of yet.

Judeh also placed some blame for the lack of perceived stimulus among small businesses on the state, for using massive amounts of stimulus money to fill budget and school aid deficits.

But Beth Bingham, director of the Michigan office that oversees stimulus funding, said that money was in fact designated for those purposes, and that addressing the deficits prevented dramatically worse economic effects of the recession.

Dearborn Public Schools, where at least 40 to 50 percent of students are Arab American, was the worst-hit district in the state in school aid cuts, resulting in more than 100 teacher layoffs and a major mid-year classroom shake-up implemented this week. District officials said the number of layoffs would have been dramatically higher had stimulus funds not filled some gaps in state school funds.

Bingham said she expects more direct impact from stimulus funding to be felt in the form of job creation this year. She said the first part of recovery funding dispersed immediately in 2009 went to those most in need, in the form of unemployment extensions, disability and social security supplementation and aid for emergency entities like homeless shelters.

About a quarter of the federal stimulus funding also went to tax relief, meant to give small boosts in the average paycheck.

"We are just now really starting to see and feel the impact of the Recovery Act in a different way," she said. "Now what we're seeing is kind of the second part of it where... a lot of grants have been awarded... Those are starting to ramp up and will start to create what we hope are the jobs of the future."

She said a number of infrastructure projects are expected to begin this spring.

"What started immediately was the funding that went out to agencies that were serving those in great need and then what takes time is contracts, things that have to be bid on, it takes time to get that stuff together and to get it up and moving... I believe we're going to see more job creation and more impact in the coming months."

The White House on Jan. 30 announced that 599,108 jobs were paid for by the stimulus in the fourth quarter of 2009. The government reported that 20,140 of those jobs were in Michigan, which has the highest unemployment rate in the nation at 14.6 percent. Vice President Joseph Biden said the Recovery Act is on-track to create or save 3.5 million jobs nation-wide by the end of 2010.

At least one large Arab-owned company has received a multimillion-dollar stimulus contract. Ghafari and Associates, an international architectural and engineering firm based in Dearborn and owned by former U.S. Ambassador to Slovenia Yousif Ghafari, was awarded a major contract to help renovate federal buildings.

But Ed Deeb, president of the Michigan Business and Professional Association and the Michigan Food and Beverage Association, said large company contracts don't have the same impact in the crevices of communities that small business development does.

"Ghafari is a good man. He's one of our own," said Deeb, who is Arab American, "but that's a big business."

Deeb, whose two Warren-based organizations represent and consult for dozens of area small businesses, said several member companies want loans to increase the size the their businesses, but can't get credit.

"The banks are not giving the money that they're getting from the government to the small businesses," he said. "They're either holding it or giving it to the larger businesses."

The SBA has representation in Deeb's offices, "but we're not seeing any money exchanged," he said.

"I think we've got people applying, but they're disappointed at not being able to get anything because there's too much red tape... If we can get these small businesses the loans, I think that'll help not only increase the economy and make it more successful, but the small businesses represent hiring about 85 to 90 percent of all the new jobs in this country."

The government puts that number, the percentage of new jobs created by small businesses, at about 65 percent over the past 15 years.

President Barack Obama took on the issue of small business financing during his Jan. 27 State of the Union Address.

"When you talk to small business owners in places like Allentown, Pennsylvania or Elyria, Ohio, you find out that even though banks on Wall Street are lending again, they are mostly lending to bigger companies," Obama said. "Financing remains difficult for small business owners across the country."

Allentown, Pa. itself has a large population of Syrian immigrants, many of whom own businesses.

"So tonight, Im proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat," the president said.

He also proposed a tax credit for small businesses that hire new workers or raise wages, and an elimination of capital gains taxes on small business investment.

On Feb. 3, the Treasury Department announced a separate program that doesn't need congressional approval, in which between $500 million and $1 billion from the Troubled Asset Relief Program would be used to spur lending to small businesses in lower-income areas.

Passage of a wider small business incentive program, including an extension to the stimulus provisions that allowed for the SBA loan fee reductions and guarantee increases, which could expire at the end of this month, appears to have a long road ahead in Congress.

Related Articles:

Stimulus Can't Slow Black Foreclosures

For Ethnic Communities, a Year of Stimulus Not Enough

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