Small Business Technical Assistance: Helping Businesses Grow

Overview

This report is the work of a task force formed out of three regional California technical assistance forums sponsored in 1998 by the California Reinvestment Committee (CRC) and the Community Affairs unit of the Federal Reserve Bank of San Francisco (see Appendix A for more information on these forums). Bankers and economic development professionals attended these forums to find ways financial institutions and technical assistance providers could jointly expand access to management training and credit for small businesses, which make up a large part of California's business sector. Forum participants agreed that attracting resources to the technical assistance industry, which provides services essential to the success of many small businesses, would require a task force be formed to identify high-quality products and services.

Financial institution lending to small businesses has expanded dramatically in recent years. However, even with this growth there are thousands of micro, very small and small businesses that have not yet gained access to credit from conventional financial institutions. These businesses include many that are located in low-income communities or are owned by women or people of color. Lack of capital can mean these businesses are unable to secure funding needed to improve operations or to hire consultants who can assist with business planning or securing funding. These businesses represent a potential market for financial institutions and other funders, but first may need technical assistance such as management or loan packaging assistance.

There are important reasons to focus on the needs of small businesses. According to the California Trade and Commerce Agency, half of all employment in California is by small businesses and, over the last several years, more new jobs were created in small businesses than in large businesses. The Agency reports that in 1997, more than 6.9 million workers were employed in business establishments with fewer than 100 workers. To say small businesses drive America's economic engine underestimates their impact, because they affect American life not only in the aggregate, but also in personal, local, and sociological ways. Small businesses sustain the families of their owners and the neighborhoods in which they reside. When small businesses succeed, they bring services and employment to their locales. When they fail, the impact jars their local economies. Unfortunately, statistics show that small businesses fail at a faster rate than larger businesses.

California's smallest enterprises exhibit the same needs as larger ones, often with greater intensity and less power to resolve problems. Small businesses require capital, management support, mentoring and guidance, community-oriented financing options, and the power conferred by peer associations. They need these services at rates they can afford and tailored to the specific needs of their size, growth rate, culture, and business type. When they get such support, they are as likely to prosper as larger ventures. When they do not, they are more likely to fail.

The needs of small and start-up businesses have created a management and technical assistance industry. Today, this industry includes for-profit consultants, not-for-profit economic development organizations, churches, professional and neighborhood associations, and financial institutions. As with all developing industries, nonprofit technical assistance providers began as a tremendously diverse group serving different community and business needs. Some of these organizations simply offered neighborhood business courses while others maintained incubation facilities. Regardless of structure, an advantage most technical assistance providers have had in supporting local businesses is their ability to be responsive to local needs, such as by working with diverse languages and cultures.

This report defines technical assistance providers as those nonprofit organizations that provide appropriate business resources to entrepreneurs to start, stabilize and grow successful businesses. Cash-poor small business owners can turn to nonprofit technical assistance providers for assistance in designing, managing or financing their businesses. These technical assistance providers are community-based organizations that assist current or potential business owners with planning, managing or financing their businesses.

The conceptual framework and definitional categories in this report do not necessarily represent all the actual or specific programs or organizations in the field. The products and services described are the most basic and common and are therefore likely to be included among the offerings of all technical assistance providers. It is unlikely that all products and services described in this report will be offered by any one technical assistance provider but more often by a network of providers in a geographic area. The products and services offered will depend on local needs and client demand.

Technical assistance providers are as diverse as the communities and businesses they serve and they all must seek to work with clients with varying levels of experience and should offer services that are appropriate to each client. Businesses that use nonprofit technical assistance providers vary in size, type, and time in business, but generally fall within certain categories that are illustrated in the following Business Diversity Matrix. This report will focus on core competencies for broadly defined groups of technical assistance in these categories.

¹ This is not the U.S. Small Business Administration definition of small business but is based on the experience of technical assistance providers involved in the task force and forums.