ANNAPOLIS – Michael Brey wasn’t a likely prospect for a business loan 10 years ago. At 28, he had very limited experience and little to recommend him beyond his “big idea” of opening a hobby shop.
Today, Brey owns stores in Laurel, Rockville and Fairfax, Va., and runs a small warehouse. His company, Hobbyworks, employees nearly 50 people and his profits have risen about 600 percent over the past decade.
But he would not have been able to start his business without the help of a loan from the Small Business Administration Loan Program, administered nationwide by the federal government.
The program is intended to help people who, like Brey, would likely have been turned down for a traditional loan to start up or expand their businesses. The SBA acts as a co-signer and guarantees the loan. Most businesses using the program are able to successfully repay loans.
“There is no possible way this company could have grown initially without the SBA loan,” Brey said.
Economists and the program’s facilitators credit small business with helping to revive local economies and create jobs, particularly in Prince George’s County.
“Prince George’s County is one of the brightest spots in the state,” said Pradeep Ganguly, chief economist for the Department of Business and Economic Development.
He said employment in the county is growing faster than in most other areas of the state, partially due to an increase in small business.
“It is clear that small business is first always to lead this country in terms of an economic recovery and they will do it again. They’re responsible for three-quarters of all the new jobs,” said Joseph Loddo, district director of the SBA’s Washington Metropolitan Area District Office which runs the programs in Prince George’s and Montgomery counties.
However, that does not mean the program is risk-free.
Of 84 Prince George’s businesses listed in a Federal Grants Database for 2001, one has gone out of business and defaulted on its loan, according to dozens of telephone calls and a Capital News Service analysis of the database for Prince George’s County.
Capital News Service chose to examine Prince George’s because its economic recovery is especially reliant on small business, and because it has a high number of minority business owners, whom the SBA is targeting for the program.
The analysis also found that two other businesses are in the liquidation process. They are working with the SBA to either reopen or pay off loans by selling their assets.
“It’s not dissimilar to an insurance company. You know there are going to be some loans that are going to burn out, but you don’t know which ones,” Loddo said.
Small businesses fail for a variety of reasons, said Ganguly, including lack of a viable business plan and a poor assessment of how much regular cash flow is needed to pay rent, electricity and other overhead costs.
To guard against such situations, the SBA offers free counseling to borrowers and must approve a business plan for loans.
The loans listed in the database ranged from nearly $5,000 to nearly $1 million in guaranteed federal funds.
The government sees that money as an investment in the local economy.
“We provide the initial shelter or support so that they will graduate and become viable commercial entities and move on,” Loddo said.
Any type of business is eligible for the program. Among those listed in the database for Prince George’s County were seven liquor stores, two car washes and Bronze Warrior Publishing, which puts out a magazine on diversity in the military.
Generally, companies receiving loans are either start-up operations, like Brey’s, or small businesses that simply don’t have enough collateral to secure a traditional loan.
Harris Lithographics in Hyattsville, which had been in business for 25 years, used the loan to buy its own facility, said Harold Harris, company president.
Chris Suser, president of The Mower Man, a lawnmower repair business based in Laurel, has taken out two loans through the SBA and is considering a third to expand or franchise his business.
“I think it’s a very good program,” Suser said, “If I want money again, I’m glad someone like them exists and they’ll help you.”