distinguish between on-the-job and off-the-job drug use. Indeed, the Court's statement that there are compelling
interests in having a "physically fit" employee with "unimpeachable integrity and judgment" infers that drug abstinence
is an ongoing duty imposed on certain workers and thus not protected from the intrusion of drug testing.
In the Skinner case, moreover, the Court stated that drug use, regardless of when it may have occurred, is important
information and therefore relevant. As an illustration, the Court stated that "[E]ven if urine test results disclosed
nothing more specific than the recent use of controlled substances by a covered employee, this information would
provide the basis for further investigative work designed to determine whether the employee used drugs at the relevant
times."(9, p. 1421)
MEASUREMENT: A STANDARD FOR DETERMINING THE REASONABLENESS OF DRUG TESTING
COMPELLING GOVERNMENT INTERESTS VS. THE EMPLOYEE'S PRIVACY EXPECTATIONS
Arguably the most important implication of the two cases was the emergence of a new standard for determining the
reasonableness of drug testing. As mentioned, the Fourth Amendment's prohibition of unreasonable searches and
seizures by the government or its agents of their employees in the public sector has often been the most critical legal
hurdle to overcome in a drug testing program. The new standard, discussed below, may now legalize many types of
drug testing programs which formerly would have been legally risky.
In general, a search is reasonable and therefore legal if a warrant is issued upon proving the existence of probable
cause. However, as explained in the Von Raab case, "neither a warrant nor probable cause, nor, indeed, any measure of
individualized suspicion, is an indispensable component of reasonableness in every
circumstance."(6, p. 1390) Consequently, the Court stated that "where a Fourth Amendment instrusion serves special
governmental needs, beyond the normal need for law enforcement, it is necessary to balance the individual's privacy
expectations against the Government's interests to determine whether it is impractical to require a warrant or some level
of individualized suspicion in the particular context."(6, p. 1390) Thus, to apply this test on a case-by-case basis, it is
necessary to articulate the special governmental needs or compelling interests and then weigh these needs against the
employee's privacy expectations. If the governmental interests outweigh the privacy expectations then a search, even
without a warrant or individualized suspicion, would be deemed reasonable and legal.
MEASUREMENT: IMPLICATIONS OF SKINNER AND VON RAAB TO THE SMALL BUSINESS OWNER
In light of the discussion of these cases and their implications, what might all this mean to the small business owner?
One very important inquiry is what businesses like the railroads under the FRA, will be considered agents of the
government. Private businesses, such as airlines, trucking and others that are more pervasively regulated businesses, fit
into the category of agents of the government under the Skinner analysis, especially in light of regulations issued by the
Department of Transportation. Moreover, whatever private sector businesses which are deemed to be agents, the
relevant federal laws will preempt conflicting state laws as well as labor agreements and arbitrations. For those which
are less reguated, it remains to be hammered out in the courts their status as agents with important implications either
way. If a business is not an agent of the government, a worker would have to rely on traditional common law actions in
tort, such as invasion of privacy(1) or defamation or possibly state statutory(12) or constitutional protections(2) to fight
an employer's drug testing policy he/she feels is illegal.
Secondly, if a business is considered to be an agent of the government, it no longer has to ponder what were once
considered impediments to drug testing. Thus, proving that there is a drug problem as a prerequisite to a testing
program, wrestling with the reliability of the testing procedure, and determining if the positive results have a direct
impairment effect or "nexus" on the worksite, are no longer important issues.
Thirdly, to legally justify any type of drug testing approach (i.e. tests which are random, mandatory, announced or after
an accident etc.) it will be necessary to prove that there are compelling governmental interests and then to demonstrate
why they outweigh the employee's privacy expectations. These interests include integrity, public safety and protecting
sensitive information. Whether more interests will appear in the future, of course, remains to be seen. In any case, these
interests must be weighed
against an employee's expectations of privacy. Furthermore, those employees with jobs which incorporate any of these
interests, will be deemed to have considerably diminished privacy expectations. However, the connection or "nexus"
between the employee's job and the interest(s) must be direct and therefore not so broad as to include other employees
with only an indirect or incidental connection to the interest.
The bottom line, assuming a private business is an agent of the government, is that business can potentially justify even
a random, mandatory drug testing now. The business would first have to articulate characteristics in its workplace such
as public safety to warrant such a procedure since it is unlikely that integrity or protection of top secret information in
the context of the Von Raab case would be present in many private businesses. Again, businesses such as the airlines
and trucking would fit neatly into this category. Pilots and truckers would also have diminished privacy expectations
due to the direct implications their drug use could have on public safety.
The testing of employees for drug use is becoming pervasive in both the public and private sectors. Two recent
Supreme Court decisions, Skinner and Von Raab may help clarify the parameters of drug testing, particularly in the
public sector, but possibly in areas of the private sector as well. In either case, as more lower court decisions continue
to illuminate employers on what they can and cannot do, employers can concentrate their efforts and resources on
eliminating the well documented effects of drug use in the workplace and less on concerns on whether they are treading
on the legal rights of their employees. Employees, on the other hand, must grapple with the realization that the
legislative, executive and judicial branches at all levels of government are aggressively pursuing a public policy aimed
at purging drugs from the workplace. The eventual outcome may be a sacrificing of privacy rights, especially for
workers in certain industries.
(1) Aalberts, Robert J., "Drug Testing Walking a Legal Tightrope," Business Magazine, Jan., Feb., March, 1988, pp.
(2) Bible, Jon, "Screening Workers for Drugs: The constituional Implications of Urine Testing in Public Employment,"
American Business Law Journal, Vol. 24, 1986, pp. 321-338.
(3) Camara v. Municipal Court, 387 U.S. 523 (1967).
(4) Castro, Janice, "Battling the Enemy Within," Time, March 17, 1986, pp. 53-56.
(5) Drug Testing Regulations Published November 21, 1988, by the Department of Transportation, Special
Supplement, Bureau of National Affairs, Inc., Nov. 23, 1988, pp. S-3 to S- 169.
(6) National Treasury Employees Union v. Von Raab, 109 S. Ct. 1384 (1989).
(7) Sand, Robert H., "Drugs in the Workplace: The Supreme Court, Congress, and the Federal Agencies Declare War,"
Employee Relations Law Journal, Summer 1989, pp. 125-130.
(8) Schwartz, John, "Using Spies to Win a War," Nov. 6, 1989, pp. 57-62.
(9) Skinner v. Railway Labor Executives Association, 109 S. Ct. 1402 (1989).
(10) Stanley, Richard A., "Drug Testing in the Workplace Creates New Judicial Doctrine," National Law Journal, Oct.
16, 1989', pp. 15-17.
(11) United States v. Martinez-Fuerte, 428 U.S. 543 (1967).
(12) UTAH CODE ANN. 34-38-1 (1988).
(13) 53 Federal Register 11985-11986 (1988).
COMPENSATION POLICIES FOR FRANCHISING BUSINESS
Robert T. Justis, Louisiana State University Peng S. Chan, California State University - Fullerton Ben L. Kedia,
Memphis State University
Many changes have taken place in franchising organizations during the last quarter century including the compensation
practices for franchisors and franchisees. This article investigates the compensation systems which are generally used
in franchising organizations. This paper covers the reward and incentive policies which may be used by franchisees and
franchisors for different level managers in promoting and motivating their employees.
In today's rapidly changing world, over one-third of retail sales in the United States are handled through franchising
outlets. Over 20% of our gross national product is attributed to franchising operations. Franchising has become the
fastest growing method of doing business in the world today. Franchisors and franchisees both depend upon highly
motivated and dedicated employees to help run and operate their business practices. The compensation policies which
are used in a franchise organization need to be solely tailored for that franchise organization. Traditional compensation
systems which are found in well-established or bureaucratic organizations often hamper the desired performance levels
in franchising organizations. One example, the seniority- based compensation systems, while being very useful and
beneficial for manufacturing firms, often are detrimental or send a poor message to employees in franchising
organizations. In this article we review the compensation policies which can be used to encourage and develop proper
attitudes and behaviors of franchising employees.
Characteristics of a Franchising Organization
There are specific characteristics which differentiate franchising organizations from other traditional organizations. The
main differential is found in the partnership which exists between the franchisor (headquarters corporation) and
franchisee (local store). The franchisor is looking for growth through enlarged number of units being opened and larger
sales volumes per unit. The franchisor is interested in selling franchises and developing company-owned stores on as
rapid a basis as possible. The franchisee, on the other hand, is looking to utilize an established system to establish their
own business units. The franchisee wants large sales and improved profits.
Franchisees act as entrepreneurs in that they are individuals who establish a new business for the purpose of developing
profit and growth. This entrepreneurial trait is characterized by the innovative behavior of the franchisee. Franchisees
have a tendency to use strategic management practices as they search for growth and profit opportunities.
The key employees of both the headquarter organization and the franchising organization are concerned with
profitability, innovation, creativity, cooperation, and a desire to have a highly successful franchise outlet. The
compensation policies established for these employees should be developed by the franchisor or the franchisee to
properly inform these employees that their behaviors are responsible for the success and profits of the organization.
Proper attitudes and behavior should be properly rewarded.
There are two different groups of individuals in franchise operations which need specific reward strategies based on
their performance. These two groups include: (1) the headquarter organization staff responsible for the operations and
sales of franchise units and (2) the managers and assistant managers of the individual (franchisee) stores.
ORGANIZATION LIFE CYCLE
The organization life cycle is an important concept which allows us to relate the compensation policies (including
incentive programs) to the business strategy and practices of the franchising organization. The organization life cycle as
adopted by a franchising organization consists of four organizational stages including: (1) start-up, (2) growth, (3)
mature, and (4) decline. The organization life cycle can illustrate the developmental stages of a franchising organization
with the sales revenues and size of the organization (see Figure 1).
The organizational life cycle matrix shown in Figure 1 relates the organizational characteristics with the different
compensation packages and incentive programs for both the headquarters organization staff and the franchisee staff.
Start-up Stage. The growth rates for most beginning franchising organizations is often very slow during the start-up
phase. This slow start-up is generally coupled with a small number of units actually sold and opened during the first
few years of operation. The central focus of the franchising business is generally aimed at developing financing for the
organization and controlling costs. It is during this stage of business that risk is very high and it is difficult to attract
employees and provide them with sufficient pay and incentives to encourage them to join the franchise operation.
Growth Stage. The growth stage is shown during a rapid expansion. It is quite often during this time period, often from
two to ten years, that the franchise will expand from twenty to more than a hundred stores. As stores begin to open,
other people begin to realize the impact these stores may have and the opportunity for personal and financial success.
The focus of the business is centered around increasing the number of stores sold and opened. The focus of the
compensation program is around recruiting, training, and retaining key employees. The risk factor is moderating during
the growth stage and success is on the horizon for the headquarter's franchising operation. It is important during this
stage that key employees receive compensation for their several skills. Employees need to be recognized for their sales
efforts as well as for handling new start-up franchises.
Mature Stage. Generally the mature stage will occur after the franchise has been operating for six to ten years and the
number of units have increased to over one hundred throughout the United States. Sales revenues have increased from
mediam to large and the growth rate continues moderate to strong. The main focus of the business is generally around
profitability and the risk factor has declined to being low. The pay and incentive side is generally focused on the
consistency or motivation of the key employees.
Decline Stage. If a franchising corporation begins to decline, it is primarily because the franchisees have become
disgruntled with the franchisor due either to lack of sales or services provided from the franchisor to the franchisee
organization. The growth rate may begin to decline and become negative and earning power of the business will also be
declining. The risk factor is becoming high and the central focus of the business becomes survival rather than profits.
The pay and incentive focus is often around cutbacks and lay-offs. However, it is important to retain key employees if
the business is going to turn around and recover.
Compensation Policies for the Headquarter's Staff
The beginning franchising organization is generally divided into three different executive offices including: (1)
president's office, (2) director of sales, and (3) director of operations. These three offices form the executive staff of
most beginning franchising organizations and constitute the main creative, innovative, and driving force in the
development of the franchising program.
The base salary and benefits of these three key individuals is often the below the market level initially, but as the
organization expands and develops through the growth stage, the salaries and benefits should be raised to a competitive
market level. As the organization evolves into the mature stage, these individuals are often above the market level of
Many of these key employees are initially brought on board because of incentive programs including initial stock
options with broad participation by this very select number of people. As the organization will grow, the stock options
would become more limited to key employees, and finally during the mature stage a stock purchase program may be
initiated as an additional incentive for a limited stock option program to other employees. The short-term incentives are
generally in terms of stock or cash bonuses based upon performance of the key employees.
For key employees, the stock option may be the strongest incentive or inducement for joining the beginning franchising
corporation. Stock options are a great attraction and incentives for a new employee. These options also have the
tendency to hold on to top talent as they see the organization grow and develop. The most common stock options would
include incentive stock options (ISO), non-qualified stock options (NQSO), and restricted stock. With the ISO, the
employee receives an option to purchase stock at a specific price at the time the option is granted (generally the book
value or market value) and would have up to ten years to exercise such option. With the ISO, no tax is paid when the
grant is exercised: however, the gains on selling the stock will receive capital gains treatment.
The non-qualified stock option, while similar to the ISO, does require the employee to pay taxes when the option is
exercised as well as when the stock is sold. The restricted stock option generally remained with the company for a fixed
period of time, usually three to seven years. Stock options have become more and more valuable in attracting
employees both initially and during the growth stage. As the company grows, the eligibility for stock options becomes
more restricted with only the key executives and specially targeted employees being able to participate during the
growth and mature stages of the business. The director of sales and sales staff may often receive commission of $500-
$2000 for each franchise sold. This commission incentive is generally based on 3-15% of the initial franchise fee. Cash
bonus systems may also be developed for the operations manager and his staff, generally based upon the sales increase
of franchise and company-owned stores for which they have direct responsibility.
Compensation Policies for Franchisee Units
The franchisee generally has two major classifications of employees who receive salary and pay incentives. These
generally include the store manager and the assistant manager(s). The salary structure for managers and assistant
managers is generally very competitive within local markets and franchise stores should try to ascertain what the
competitive base salary is competing stores.
A franchisee is generally responsible for the success and profitability of the franchising unit. Therefore, the franchisee
wants to bring on board the best managers and assistant managers available to insure the success and profitability of the
business. The initial benefit package for managers and assistant managers is generally below the market level because
of limited finances available in franchising. It is important that the base salaries be competitive for initial managers and
Several first time managers of franchising operations are recruited from competitive firms and promoted from assistant
managers to store managers. The managers and assistant managers from a specific unit are generally quite young and
don't have a lot of experience in management or operations. The long-term incentives for these individuals are often
provided through travel and profit-sharing programs. Travel programs have been very successful for franchise
managers and assistant managers and should vary from year to year, while profit-sharing may often be anywhere from
3% of the sales of the franchise unit. Figure 2 illustrates the incentive or cash bonus system which may be used for
store managers and assistant managers in franchising outlets. The short- term incentives are often based on cash bonus
systems. Many managers or assistant managers develop an incentive system based on sales or percent of increase of
sales or a previous period of time. Figure 2 illustrates how a manager with a 13% increase over the previous year's
quarter would receive a $1000 bonus with two assistant managers. This bonus could rise to $6000, assuming expected
increases in business sales.
Also shown are different travel incentives for store managers and assistant managers who have been able to obtain
expected sales levels for a given period of time. There is generally a differentiation in reward structures between the
store manager who may be going to Honolulu and the assistant store manager who is sent to Orlando, FL.
Combining the cash bonus system with the employee profit-sharing program and travel plan provides a generous base-
salary and benefits package for the managers and assistant managers in the franchisee stores. This system should allow
the franchisees to recruit, train, and retain the necessary key managers in a franchising operation.
Both franchisors and franchisees need to be able to recruit, train, and retain top quality executives to manage and run
their respective operations. Many franchisors fail in providing appropriate compensation systems both in a short run
and long run, and are unable to keep their key executives for a long period of time. We have identified in this article
specific compensation policies which would help both the corporate headquarters organization as well as the individual
franchisee units. We have reviewed the choice pay incentive systems based upon the development stage of the
franchise life cycle.
Key executives are the strength of the franchising system. To be able to retain these executives a fair and proper
compensation policy needs to be developed for the key executives and the headquarters or animation as well as the
managers and assistant managers in the individual franchise units. Both long-term and short-term incentive packages
need to be developed and used to insure success of the franchising units.
Figure 1 Relationship between stages in the life cycle, organization characteristics and compensation strategy for
franchising firms. ------------------------------------------------------------------------------------------------------------------
Organization Characteristics Start Up Growth Nature Decline ---------------------------------------------------------------------
--------------------------------------------- Corporations: Years 0-3 variable, 2-10 10 plus variable Size (no. of units) 1-20
21-100 101 plus variable Sales Revenue very small small to medium medium to large declining Growth Rate slow
rapid moderate negative Pay & Incentives attract employees recruiting, retention consistency, layoffs, Focus
innovation, training motivation cutbacks motivation Risk Profile high moderate low high
Base Salary below market level market level at or above at or above market level market level Long-Term Incentives
(broad participation) (limited partici- stock purchase, not offered pation) cash bonus Short-Term Incentives stock or
cash bonus cash bonus profit sharing not offered
Franchise, Company-Owned Staff:
Base Salary market level at or above at or above below market level market level market level
Long-Term Incentives travel, profit travel, profit travel, profit cash bonus sharing sharing sharing Short-Term
Incentives cash bonus cash bonus cash bonus cash bonus
Figure 2 INCENTIVES FOR COMPANY - OWNED STORES
Increase in quarterly sales over previous years' quarterly sales
Percent Increase Total Store Bonus Mgr. Asst. Mgr. Asst. Mgr. 0 - 2.0% No bonus 0 0 0 2.01 - 4.0% 400 200 100 100
4.01 - 6.0% 800 400 200 200 6.01 - 9.0% 1200 600 300 300 9.01 - 12.0% 1600 800 400 400 12.01 - 15.0% 2000 1000
500 500 15.01 - 18.0% 2400 1200 600 600 18.01 - 21.0% 2800 1400 700 700 21.01 - up 3200 1600 800 800
STORE MANAGERS: Any company-owned store manager with annual sales of $500,000 or more for any continuous
twelve month period between now and Dec 31, 1991 will receive a 7 day, 6 night expense paid trip to Hawaii for two.
ASSISTANT STORE MANAGERS: Any company-owned assistant store manager with annual sales of $500,000 or
more for any continuous twelve month period between now and Dec 31, 1991 will receive a 5 day, 4 night expense
paid trip to Orlando, Florida for two.
INCREASING THE PARTICIPATION OF MINORITY OWNED SMALL BUSINESSES
Nathaniel Barber, Winthrop College Darrell Parker, Winthrop College
The problems of the minority business community represent an important challenge in the promotion of small business
enterprises. This paper presents a coordinated approach for identifying and incorporating minority owned small
businesses within the business community. The development program includes the establishment of a minority business
incubator, needs assessment through a Chamber of Commerce Minority Business Task Force, and the initiation of a
Minority Business Loan Pool.
Minority owned small businesses often face problems that effectively leave them out of the mainstream of the business
community. Greene (2) discusses some of the problems associated with small businesses and reviews the literature on
minority business problems. Butler, Neves, and Sanyal (1) focus on the capital problems of small businesses, review
this literature and provide a study on innovation within the minority community to overcome these financial problems.
This paper builds on the literature addressing the problems of the minority owned small business by explicitly focusing
on the participation of minority owned businesses and proactive strategies to identify and incorporate these businesses
within the mainstream business community.
The most apparent example of the relative isolation of the minority business community can be seen by attending a
local Chamber of Commerce meeting. The minority business community is typically not well represented in this type
Another example of isolation that contributes to the failure of small businesses involves the banking relationships of
minority owned small businesses. Without an established banking relationship it is more difficult to obtain the financial
In the most extreme case, the isolation of minority owned small businesses forces them into the underground economy.
In this extreme, the business owners do not have traditional advertising, checking accounts, or official business
The Winthrop College Small Business Development Center in concert with the Rock Hill area Chamber of Commerce
and local lending institutions have engaged in a multifaceted effort to identify minority owned businesses address their
problems and bring them into the mainstream business community.
The minority community efforts include the establishment of a minority small business incubator program using
funding from the Economic Development Administration. In addition, minority owned businesses were surveyed
through the work of a minority business task force of the Chamber of Commerce. One survey instrument explicitly
addressed financial needs within the minority business community. This survey was done in cooperation with local
lending institutions to serve as a guide for the type of lending pool needed to support the needs of the minority
PROBLEMS OF MINORITY SMALL BUSINESSES
The Region of South Carolina that includes York County and the City of Rock Hill has not been a fertile economic
spawning ground for prosperous minority owned small business enterprises. Therefore minorities are not well
represented in business organizations in the region. For example, minorities do not participate in Chamber of
Commerce activities -- thus, depriving the Chamber of important resources and depriving the minority community of a
voice and active participation in economic decision making.
However, there are many more minority owned businesses than the records indicate. Most of these are solid,
"underground" businesses that have been operated for years without a business license, a business telephone, or, in
many cases, even a business name. Workers in these enterprises do not enjoy fringe benefits such as insurance,
workman's compensation, unemployment insurance, or membership in the social security program. Consequently, they
have little long term security.
Owners of such minority businesses do not develop banking relationships. They operate on current cash flow and often
do not purchase the equipment necessary to improve performance. For example, if heavy equipment is needed, it is
rented on a daily basis. Over a short period of time, the minority business owners will pay the rental agent many times
over the cost of owning and maintaining the equipment.
Many minority underground business owners have attempted to legalize their operations but have been frustrated by
procedural obstacles and ceased such efforts and continue to rely on traditional practices. The most often mentioned
frustration is with the banking community. Banks require detailed financial records by businesses seeking assistance.
They want records that
the minority entrepreneur has not kept and cannot generate from memory. A chain of failed relations with banks has
developed in the minority business community. These business people have come to expect and accept that they cannot
be successful in borrowing from banks.
A mechanism is needed to assist these existing and new minority businesses in overcoming the obstacles which prevent
their advancement. Services such as information retrieval, business planning, basic record keeping, management
assistance, and marketing assistance would greatly benefit the minority business community.
In addition, an "incubator" is needed to provide such basic assistance as a telephone answering service, message
service, bookkeeping and other accounting services, and management consulting services. Such an incubator program
has been initiated, funded in part by a grant from the Economic Development Administration.
MINORITY SMALL BUSINESS INCUBATOR
The minority small business incubator was initiated with the mission to serve new minority owned business ventures in
the three county area of York, Lancaster, and Chester Counties in South Carolina. As a result of the incubator it is
anticipated that new minority owned business ventures in this three county area will be able to begin operation
following sound business principles. This will be evidenced by a decline in the failure rate of minority owned small
businesses. Prior to the initiation of the incubator program the failure rate had been estimated at 90 percent over a five
Further more, existing businesses in the service area, which did not begin operation properly or are having problems
legitimizing their businesses, would be assisted with incubator services. one major focus of the incubator program is to
encourage underground businesses to pay taxes, insurance, social security, and to fully legitimize their business.
The end result will be an increase in the three counties tax base, more employment opportunities, and more
participation by minority owned firms in the business community.
The small business incubator was conceptualized as providing basic assistance through a telephone answering service,
message service, bookkeeping and other accounting services, tax advisory services, legal advice, secretarial and other
office services, and management assistance. Each small business client is assessed a varying fee based upon his or her
ability to pay.
The incubator attempts to attract its clients from underground businesses as well as new business formations. The
incubator attempts to get these clients operating in a fully legal manner as quickly as possible. That is, they purchase a
business license, withhold taxes and social security payments from employees' pay, file tax returns, and perform other
functions that are required of legitimate businesses.
The incubator also actively seeks expanded business opportunities for its clients. Larger contracts, contracts with
government, and longer term contracts f or services could result. Increased growth, profitability, and long term survival
is an expected outcome.
FINANCIAL NEEDS OF MINORITY OWNED BUSINESSES
In order to determine the needs of the minority business community, a task force of the Rock Hill Chamber of
Commerce was formed on minority business. This task force determined that a survey was needed to assess the
financial position of minority owned businesses. This information could be used to design an appropriate financing
vehicle for the minority community. The survey instrument is included in Appendix A. The population for this survey
was a list of 91 minority businesses identified through the Winthrop College Small Business Development Center and
the Minority Business Incubator program. A sample from this list was selected and a total of 17 business owners
responded. This response rate actually represents more than 17 businesses, since some entrepreneurs were engaged in
more than one venture. The survey was designed to obtain information on the owner's home and business as well as
their loan experience and needs.
The following three points highlight the survey findings: 1. The financial needs of minority business owners are
primarily for business loans not home loans. 2. Since minority businesses in this region are primarily in the service
industry, any program targeted to this sector must recognize the lack of extensive collateral. 3. The role of the Small
Business Development Center to assist in the preparation of loan applications did not meet with any serious objections.
This sample of business owners were also home owners, with 15 of the 17 owning their own home. Further, one third
of those who owned a home stated that it was currently paid for. Only two
members of the sample expressed interest in a home or home improvement loan. The concerns of these business
owners (and their financial needs) were directed toward their business.
The businesses surveyed have a median of 8 years experience with a range of 1 to 40. The orientation is toward service
industries with a median net income of $25,000 and a median value of business assets in the $22,000-$25,000 range.
(On the high end, net income and business assets ranged to $200,000 and $500,000 respectively.)
One implication from the current level of business assets is that a relatively small loan pool could have a major impact
on the minority business community. Excluding the largest company, other businesses reported a combined level of
business assets less than $400,000.
Although 15 of the 17 businesses reported that they had applied for a loan, many reported difficulty in obtaining funds.
Consequently, fewer than one half of the businesses in our sample reported that they had received a loan (8 of the 17).
For those who had obtained loans, half attributed their success to their banking relationship.
The Chamber of Commerce received the above summary of the survey results and recommended that bank
representatives meet to discuss the financial needs of the minority community that were indicated. A primary focus of
this meeting was the potential to establish a financing vehicle for minority businesses.
A FINANCING VEHICLE FOR MINORITY OWNED BUSINESSES
There are seven major commercial banks that lend in the Rock Hill area. Representatives from these banks were invited
to a meeting with representatives from the Small Business Development Center to discuss the potential for targeting
loans to the minority business community. The plan discussed would involve each financial institution contributing a
specified amount to a loan pool dedicated to this use.
The banking representatives were particularly interested in this proposal since a lending arrangement of this type could
be considered as supporting community development as specified in the assessment factors used to evaluate their
compliance with the Community Reinvestment Act.
The original proposal to initiate a minority business incubator was put forth in June of 1988. This project has now
passed the start up phase of identifying its potential client base and is beginning to expand operations. The Chamber of
Commerce Survey of Minority Owned Businesses was conducted by the Minority Business Task Force in late August
By late September of 1990, an agreement on the composition and nature of the financing vehicle for minority
businesses is almost in place. A loan pool of $20,000 was decided upon. A detailed set of criteria were developed that
expressed the qualifying loan purposes, the information needed in the loan packet, the loan criteria, and the application
process. A breakdown of the loan criteria by type of loan is available from the authors.
The outreach to the minority business community contains three important elements: 1. The Minority Incubator
Program; 2. The Chamber of Commerce Minority Business Task Force; and 3. The Minority Business Loan Pool.
Combined these three components represent a program designed to increase the presence, participation, and
profitability of the minority business community.
(1) Butler, Roosevelt, Neves, Joao, and Sanyal, Rajib, "Obtaining Capital For A Small Business: A Method That Leads
To Success," Small Business Institute Director's Association Proceedings, 1990, pp.16-20.
(2) Greene, Walter, "Changing Profiles: Minorities in Small Business," Small Business Institute Director's Association
Proceedings, 1990, pp.203-208.
The Frank L. Roddey Small Business Development Center
1. Do you own a home or rent?______ 2. How old is the home?______ 3. What was the purchase price (range)?______
4. Who holds the mortgage?______ 5. What is the current market value?______ 6. How many dependents?______ 7.
Number of employed in household?______ 8. What is range of other income?______ 9. How do you classify your
business?______ 10. Is it a full or a part-time business?______ 11. How many years in business?______ 12. How
many employees do you have?______ 13. What is net income of business?______ 14. What is the value of your
business assets?______ 15. Have you ever applied for a bank loan?______ 16. From what bank?______ 17. Was the
loan approved or disapproved?______ 18. In your opinion why was it approved or disapproved?______
______________________________________________________________ 19. How many times have you applied?
_____ 20. What kind of loan do you want? Or if you applied for a loan, what kind of loan did you apply for?
______business ______personal ______new business ______home improvement 21. What type of collateral would
you be willing to use? ______business assets ______home ______car ______other 22. Would you use the service of
the Small Business Development Center in preparation of you loan application?______
Documents you may be interested
Documents you may be interested