Big Friend to Small Business : Nonprofit Firm Is Key to Millions in Loans in Santa Ana

In Santa Ana, where 85% of the companies employ 10 or fewer employees, keeping the small business in business is the job of the Economic Development Corp.

The EDC, founded in 1980 as a private, nonprofit corporation, operates in partnership with the city and works closely with the local Chamber of Commerce to assist Santa Ana’s 8,075 small businesses. Since 1980, the EDC has been the key in channeling $42 million in loans to the city’s small businesses.

The EDC’s main job, according to President Gerald A. Wolf, is to step in and provide financing in situations where banks are not overly eager to lend, such as making building renovations in the downtown area and financing for small start-up companies.

The corporation also is a lending agency for the U.S. government’s Small Business Administration programs.

It is perhaps best known for its 1981 role in distributing city funds for a $7.5-million restoration of the historic section of downtown Santa Ana. Virtually all of the restored buildings had been slated for eventual demolition. Now many, including the Old City Hall, are among the city’s most cherished landmarks.

Wolf, a 42-year-old attorney, is now serving a one-year term as president of the EDC and has been on its board of directors since 1985. He also served as chairman of the board of the Santa Ana Chamber of Commerce in 1985. A founding partner of Wolf & Associates, Wolf has been practicing law in Orange County since 1974 and has been intimately involved in the Santa Ana small business community for most of his professional career. In an interview with staff writer Eric Schine, Wolf discusses the outlook for the Santa Ana small business community and how the EDC can help the small business owner get a break.

Q. What is the EDC’s charter?

A. The Economic Development Corp. was established to enhance and promote economic development. And, as a nonprofit corporation, the EDC works in conjunction with the city, in the sense that the city provides staffing for the Economic Development Corp.

Q. How does the EDC get its funding?

A. The funding comes from a couple of sources. In the past, there have been community block grants, funds from the federal government, and some funding from the redevelopment agency of Santa Ana.

Q. What is the significance of receiving funds from the redevelopment agency?

A. It’s really a commitment made by the city that it is prudent to spend tax monies for economic development.

Q. Is part of your mission to lure more business to the city?

A. Absolutely. Our primary function is to have economic development for the city of Santa Ana. Our function is not to have economic development for Orange County. Most of the programs, however, are focused on existing Santa Ana businesses. Most job growth, in fact, occurs from existing businesses.

Q. And what are some of these programs? What have you done to help Santa Ana businesses?

A. When the city made a decision to require earthquake (improvements) for all the older buildings in Santa Ana, the city, in conjunction with the EDC, set up a rehabilitation loan program. We have gone through, I believe, 27 commercial rehabilitations in downtown Santa Ana to bring the buildings up to earthquake safety standards. As a result, we’ve loaned in excess of $7.5 million, all of which has been entirely infused into the downtown area. If that had not occurred, we would have had to board up buildings in downtown Santa Ana.

Q. Is a healthy downtown area an important goal of the EDC?

A. Absolutely. Downtown Santa Ana is unique in Orange County. There’s hardly any downtown in any other city in Orange County. Thousands and thousands of people work here in the Civic Center complex. A lot of governmental employees, title insurance people, people associated with the legal profession; all those people have to use the downtown facilities. But in addition to that, there is tremendous minority shopping in downtown Santa Ana. The Hispanic population of Santa Ana uses the downtown area as a primary source of shopping.

Q. Is there any plan or hope to gentrify downtown Santa Ana, to transform it into a more upscale shopping area?

A. No. Absolutely not. The economic reality is that there is a substantial portion of individuals who live in the inner core city of Santa Ana who are Hispanic. They shop in downtown Santa Ana, which is very positive in a sense that if they weren’t doing that, and if those buildings hadn’t been rehabilitated, those buildings would be sitting vacant.

The economics of Orange County are such that I don’t believe we’re going to see a revitalization of downtown Santa Ana where it’s going to become a chic place to come shop. I think the economic vitality of downtown is precisely where it is right now, serving the retail outlet with some office use. There are some interesting plans on the horizon, like trying to develop a jewelry mart.

Q. What are some other accomplishments of the EDC?

A. We have a storefront improvement program. This is a rebate program, not a loan program, for individuals who have existing businesses in the city and who are desirous of revising the outside appearance of their buildings. They can get up to $10,000 through the rebate program. A typical renovation costs from $30,000 to $40,000.

Q. How many stores have used the rebate program?

A. We have given out 81 rebates for a total of $450,000. And had it not been for that program, which gives the business owner approximately 25% to a third of his up-front monies back, a lot of the buildings up and down the streets of Santa Ana would not be revitalized. And that’s very positive for both the owner of the business and the economic development of the city, because we’re keeping the consumer dollars within the city.

Q. Is this storefront renovation program intended to spruce things up to lure shoppers from outside Santa Ana?

A. No. The program is designed to keep the existing business people in Santa Ana, to tell them that the city and the Economic Development Corp. cares about them, that we want to keep them in the community. Most retail stores will tell you that their major customers come within a 5- to 10-mile radius from where they are. So it really gives the small business owner a chance to compete against the large shopping malls and department stores.

Q. Aside from retail stores, is part of your job to attract large corporations and manufacturers to Santa Ana?

A. No. We focus on small businesses. A large portion of what EDC does is to administer Small Business Administration loan programs. The majority of businesses that apply for SBA loans are companies that already exist but need to expand. These are primarily small manufacturing facilities, which are very important to the economic vitality of Santa Ana because those manufacturers pay an awful lot of sales tax. A lot of people think that sales taxes are only generated by retail stores. But a large percentage of sales tax is generated by manufacturers shipping finished products.

Q. What are the manufacturing industries in Santa Ana?

A. Electronics is a large aspect of it, there’s some furniture manufacturing, but I think that a large portion of the manufacturing in Santa Ana is electronics and the defense industry. There are a lot of small operations out there generating dollars every month.

Q. But would a defense contractor need an SBA loan?

A. Absolutely. Many small defense contractors are prime candidates for an SBA loan, to expand facilities, to get needed equipment.

Q. Is there an emphasis on helping minorities?

A. No. This is not a minority program. We look at from the standpoint of do they have a good chance of making a success of it and are they going to add economic vitality to the city by expanding or hiring more employees.

Q. How much money are we talking about for these loans?

A. We’ve been involved in approximately $12 million in SBA loans over the last three years. One goal we have is to process more Small Business Administration loans because we’re a licensed lending agency. We act as loan brokers, and take applications for people who are interested in getting SBA loans. We get a brokerage fee (for processing the loans) and we act as a collecting agent for these loans, so the more loans we process, the more money that is generated for the Economic Development Corp. We will then become a much more self-supporting and, we hope, eventually a completely self-supporting agency.

Q. How much of your funding needs are met by this kind of fee program now?

A. At the moment, it’s rather small. The real key to getting funding is to be authorized by the Small Business Administration to become a countywide lending agency rather than just citywide. Right now, our charter is strictly limited to the city of Santa Ana, but we’ve made application to the SBA to go countywide.

Q. Everything we’ve talked about so far has had to do with helping existing businesses. What about assistance for start-ups?

A. We have a program called the Business Enterprise Center. Santa Ana is one of 10 cities in the state chosen to establish this program.

Q. How does it work?

A. The city constructed a building which is administered by the EDC. The purpose is to offer to small start-up companies a very convenient place to do business, where the rental rates are somewhat lower than market rates and where businesses can share common facilities, such as a receptionist, conference rooms and computer equipment. We also actively participate in putting together their business and marketing plans. And we help out with accounting and legal problems.

There’s a cooperative effort by the staff and other volunteers who are professionals to assist these people in leading them through the first year or two of their business existence. Then the idea is to then have them move into their own facilities, preferably in Santa Ana.

Q. It’s not a requirement that they move to a facility in Santa Ana?

A. No, it’s not required. But it’s certainly advocated that they do so.

Q. How many businesses are participating in the program and what sorts of business activities are they engaged in?

A. We have 11 tenants right now. We have a general contractor, an architect, a time-clock repair facility, and a radio communication repair service.

Q. Are these your first tenants, or have any graduated and moved on?

A. We’ve just had our first anniversary, so there are a couple who should be ready to graduate soon. There is a three-year time limit, but we feel most of the businesses will stay from 1 1/2 to two years before they decide that it’s time to move on.

Q. How would a prospective businessman go about applying for space in the building? What are the qualifications?

A. The qualifications are that they have a good business plan, that their objective is to grow and to employ a few more individuals, and that it just looks like they have a basis for success.

Q. Does the EDC help out with the financing? For instance, will it help a start-up get a bank loan?

A. We have a direct loan program through which we can lend each business up to $5,000.

Q. Do applicants need any prior business experience or a certain level of education?

A. We’re not looking for people that have been in business for five or 10 years and are looking to reduce their overhead. What we’re looking for are individuals who have been in business for a year or two, who maybe have been working in their house or sharing office space with someone, and they just decided they really want to go out and attack this as a full-time occupation.

Q. Have you gotten a lot of applications?

A. About 75. And it’s been a very difficult process to turn down applicants. Many have generally good ideas, but they just haven’t done their homework, they haven’t really sat down and thought about the economics of the plan. The program may very well work to the advantage of sometimes discouraging people from opening their business because they haven’t really thought it out. More than 50% of new businesses fail in the first year.

Q. Is this an experimental program?

A. We’re not plowing new ground. But it is unique to Orange County. Many people would contend that Orange County doesn’t need the assistance of government to help its businesses.

Q. Well, that’s a good point. The economy is so strong here, that perhaps those critics are right.

A. Yes, but you can walk across the street to the Bankruptcy Court and look at all sorts of businesses that have failed in Orange County. That’s what we’re trying to prevent. We’re trying to prevent people from failing.