Small firms may have to work harder for sales and cut costs

It turned out to be a year more daunting than many Los Angeles-area small-business owners had expected, and hopes are dimming for a noticeable economic rebound in the new year.

Credit troubles continued to dog many. And though some categories of small-business lending increased, the money typically went to businesses that had plans to expand, not to those desperate to keep the doors open. Even those that managed to bring in more revenue this year often found their profit margins squeezed by customers clamoring for lower prices.

“It was a tough year, with lots of tough choices and a fair amount of volatility,” said Carol Head, owner of Oliver’s Artisan Breads in San Fernando.

Head was able to buy an additional delivery truck to cover a new route, increase sales and reinstate merit increases for her employees. She even added a handful of jobs and now employs 46 people.

Yet, she said, profit margins suffered as her team spent more time and money to earn new customers.

Despite some spotty signs of recovery, 2011 looks to be another year in which small firms will have to work harder for sales and to cut costs.

Head said she will be looking for ways to offset wheat prices that jumped 30% in the last few months.

“I guess, sadly, we have more modest expectations for 2011,” she said.

At Eso Won Books, the landmark but long-struggling African American bookstore in the Leimert Park area of Los Angeles, co-owner James Fugate wasn’t able to turn around the store’s fortunes as he had hoped a year ago.

“We fell behind with our major supplier this month, which is disappointing because I really need books from them,” Fugate said.

Although Fugate said he has been more aggressive about returning books to his suppliers if they don’t sell in a month, he hasn’t been able to buy many lower-price remainder titles — older but good-quality titles — because he owes money to some of those suppliers too.

The importance of small businesses and their job-creating abilities has been much discussed. In California, businesses with 500 or fewer workers account for about half of all employees who don’t work for the government or on farms.

But efforts to save, stabilize and support these businesses have been uneven as policymakers debate options and government deficits limit choices.

More loans were the rallying cry for a time. Then as the downturn dragged on, small businesses seemed to be saying they needed more customers, not more debt.

Still, at least one banker said he is seeing some businesses that survived the worst of the recession without turning to banks now interested in loans.

“We are seeing more of these survivors really taking advantage of two things: Commercial property values have dropped greatly, and interest rates remain at historic lows,” said Don Mercer, national sales manager for Small Business Assn. lending at Bank of the West.

Although the bank looked for a positive, upward trend in revenue in the past from potential borrowers, now it is looking at those who have managed to stabilize their companies, cutting costs to offset lower sales, for example, Mercer said.

SBA lending at his bank is up 77% this year compared with the same period in 2009, based on dollar volume, the bank senior vice president said. And Mercer just signed off on a budget for next year that is based on a similar increase.

Many small businesses don’t have the skills to stabilize their companies and are being left behind when it comes to getting loans, despite government efforts to change the rules to make it cheaper to get an SBA loan, said Jorge Corralejo, chairman of the Latino Business Chamber of Greater Los Angeles.

“The problem is still with money and finding creative ways to get money into people’s hands,” Corralejo said.

His group has proposed using its free business consultants to help potential borrowers get in shape to qualify for loans.

Without working capital for these companies, “growth will be slow,” said Corralejo, who owns a leasing company.

smallbiz@latimes.com