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Wednesday, June 2, 2010

The Sadness of the Hawai‘i Women’s Business Center

Brief disclaimer: Feel free to skip this. It isn't funny. It isn't even very interesting to anyone but a handful of people. It's just that occasionally you have to get something off your chest and say what needs to be said. That doesn't make it important to anyone other than me. I understand that.

I haven’t written anything lately because, frankly, I just don’t feel very funny. My heart is heavy as I mourn the closing of the Hawai‘i Women’s Business Center (HWBC).

I have been careful not to speak about the Center since leaving as its Executive Director last summer. But with its passing, I think that there are a few pretty serious problems that should be brought to light and discussed. They have to do with Washington bureaucracy run amok, the failure of community support on the most fundamental of levels and a political circumstance that makes it impossible for a federal agency to go to bat for a local not-for-profit organization that it helped parent.

The Hawai‘i District Director of the Small Business Administration (SBA), Jane Sawyer, was one of the founders of the HWBC. She and co-founder Cherylle Morrow, HWBC’s final program director have both done superlative jobs in holding things together through the devastating economic storm of the past couple of years. As far as I know, HWBC was the only free economic development center in the state whose mission was assistance to Moderate to Low Income (MLI) women.

This is a loss to me, personally, because I worked so hard to build the Center up and I have so much invested in it. The loss is overwhelming to clients who depended on the Center to assist them in becoming self-sustaining. But it is an even greater loss to small business in Hawai‘i and the community as a whole, whose government and financial industry have let them down once again.

(I hate acronyms and it pains my fingers to type them but there are going to be a lot of them in this article because the federal government is an organization that has never met an acronym it didn’t like.)

The Structure of the Operation: The HWBC had two funding mechanisms:

1. a national component, as part of the U.S. Small Business Administration (SBA)
2. a local component, as the Center is required to match all federal funding with local dollars

Congress created and funds the federal Women’s Business Center (WBC) program through an earmarked line in the SBA budget, much like the federal Small Business Development Center (SBDC). The SBDC is similar but much older and better supported.

The Hawai‘i Women’s Business Center was funded in part through matching funds from the Office of Women Business Owners (OWBO), the division of the SBA that oversees the WBC program. Unfortunately, only about 30% of our funding came from the SBA and all of that was in “matching dollars,” which meant that we had to find outside funding for every dollar that was “matched” by the SBA – and then only for a limited amount each year. That still left approximately 70% of the HWBC operating budget coming from outside resources.

The Hawai‘i Women’s Business Center was unusual in several ways, all of which have to do with community support. Many WBCs are attached to their local Chamber of Commerce or other local economic development organization that provides on-site staffing. The Department of Economic Development in the administration of Mayor Mufi Hannemann was generous in allowing us space within a city-owned building at a substantially reduced rent. As much as that was appreciated, HWBC was one of the few stand-alone centers with no assistance from an on-site partner. (We did not share a receptionist, an accounting staff, pooled record-keeping resources, etc.).

Community Investment: Additionally, many WBCs enjoy strong economic support from their local banks, often as a part of the financial institution’s federally mandated Community Reinvestment Act (CRA) requirements. Much has been made of the fact that the Center opened in 1998 with startup money from American Savings Bank. True and appreciated. But it has been years since any local financial institution has made a substantial donation or grant to the Hawai‘i Women’s Business Center. This was always a mystery to me since all banks are required to reinvest in their communities by federal law. It is also to the advantage of financial institutions to see that entrepreneurs applying for SBA-guaranteed loans have been nurtured to a degree that their success is better assured.

How the CRA Works: The CRA was created by Congress in 1977 to prevent banks from excluding or “redlining” low-income or minority communities from access to credit. It was designed to encourage banks to meet the credit needs of the “entire” community in which they operate. In 1997 the ways in which banks could meet the CRA mandate were broadened to include investments in the community as well as loans. There were also provisions for special consideration of minority and female owned institutions and partnerships as well as broader interpretation of community investments aimed at economic development of LMI segments of society.

So What? As Dr. Seuss once said, “Things like this are important to know – and that’s why I’m bothering telling you so.”

At virtually every other WBC, they enjoy a partnership with a variety of local financial institutions through grants and donations. Some are programs to support a bank's CRA performance evaluation, others are donations from the banks' foundations. Either way, this makes sense to me, since non-profit WBCs help women start businesses (which will need a bank), improve financial literacy (good for banks), become self-sufficient and increase family assets (also good for banks and S&Ls). Additionally, the HWBC assisted clients with a variety of SBA loan applications as well as working to obtaining traditional financing through a local banks or other lending institutions by helping to develop a workable business plan, raise credit scores, and fill out complicated paperwork and other forms of assistance. All of this is good for banks both directly in the formation of services and indirectly by creating a stronger community economic base.

So why did Hawai‘i banks fail to support the HWBC in ways that other communities were able to take for granted? I don’t know. I never figured it out. This is not a criticism of the local banking industry. It’s just what’s so.

State funds: Unlike our sister-organization, the SBDC, which receives funding from the Hawai‘i Legislature through a line-item in the state budget, the HWBC has never been part of the state’s funding plans. Many other states have included WBCs in their economic development budgets or fund the WBCs through grants-in-aid. The state of Hawai‘i, however, has never given the HWBC a grant-in-aid, despite many requests. Why doesn’t the state support the HWBC in ways that many other WBCs are able to take for granted? I don’t know. I do know that money is tight and there have been practically no grants-in-aid given over the past several years. But even before the current economic crisis, the State of Hawai‘i has never seen fit to award a grant-in-aid to the HWBC. This is not a criticism of the state legislature. Once again, it’s just what’s so.

Federal Funding: When the SBA began funding the WBCs through OWBO, the allocation was $150,000 per year. In the two years that I was Executive Director of the HWBC, we faced significant and steady annual cuts in the per-center program budget. Annual allocations have now fallen from an average of $150,000 per year per center to as low as $80,000 per center.

During this same period, the demand for services increased wildly. Historically, small business creation runs in a counter-cyclical fashion to overall national economic health. When the economy is running well at “full employment,” fewer people are thinking of starting their own businesses. When economic conditions deteriorate and layoffs increase, people launch their own ventures in increasing numbers. WBCs are on the front lines of this situation; as the economy tanked, women turned to entrepreneurship as a way to provide for their families. Walk-in traffic increased dramatically at the very time when our funding was being cut.

Loan Programs: Between the initial funding pool enacted in February 2009 and three additional appropriations, the American Reinvestment and Recovery Act (ARRA) funneled a total of approximately $730 million to temporarily eliminate fees for SBA loans and increase the portion of each loan that the government guarantees, up to 90%. That has supported more than $27.5 billion in lending to more than 60,000 small businesses nationwide.

This was terrific news for small businesses in America, but it created a serious problem for already under-funded Technical Assistance Providers (TAPs) such as the Hawai‘i Women’s Business Center. TAPs are vital to the SBA program because small businesses such as one and two-man operations often need extra help in putting together a workable business plan, a fiscally responsible cash flow chart, an accessible back-up strategy and other tools required to guarantee that the borrower will be able to replay the loan in a timely manner. This is a labor intensive process on the part of the TAP and it is often accompanied by stringent time deadlines.

TAPs are required to attend seminars, participate in phone conferences and review reams of written information in order to learn the specifications of each different SBA loan program (I believe there are somewhere between five and seven different ones currently, including ARC). The TAPS then work with clients from helping them find the right program for their needs to actually submitting the paperwork. When the ARRA was first passed, it contained $25 million for staffing-up to meet demands for new programs. Unfortunately, not a cent of that money trickled down to the WBAs. The result was a LOT more work with another cut in funding.

Anyone who understands physics knows that you can’t cram 10 lbs of work in a 5 lb. bag. And, anyone who understands finances will appreciate how important the Technical Assistance Providers are to the program: A government-backed loan reduces the risk for the lender because if the small business borrower defaults, the government eats the guaranteed portion of the loan (in some circumstances, that’s up to 90% of the entire loan amount). So the less assistance small business folks are getting, the more likely they are to default on the loan. This would be a disaster for the federal government. This is federal bureaucracy at its most inept.

Buried in Paperwork: While we are on the subject of federal bureaucracy, let me point out that because of its legislated structure and funding, the WBC Program is complex. The paperwork is overly complicated and inefficient. In report after report, huge chunks of the exact same information is required to be typed into forms, in defiance of the federal Paperwork Reduction Act of 1980. During my period at the HWBC, I can honestly say that there were large periods when I was so inundated with redundant federal paperwork, I didn’t have time to do my job.

Untimely Payments: SBA grant payments are supposed to be made to the WBCs in quarterly installments (more or less). When I first came to the center in the summer of 2007, it was not uncommon for a Center to go four to six months (or more) without a payment. OWBO recognized that they had a problem and instituted new procedures designed to fix the problem. On September 20, 2007, Anoop Prakash, Associate Administrator of the SBA’s Office of Entrepreneurial Development testified before the Senate Committee on Small Business & Entrepreneurship. Prakash talked about “…grant disbursement backlogs and delays, and other customer service issues that have affected at least one-third of Women's Business Centers and have periodically placed them in difficult financial circumstances.”

Even after the restructuring that was intended to fix the system, testimony related to SBA Entrepreneurial Development Programs and the Role of Women’s Business Centers in an Economic Recovery submitted to the U.S. House Committee on Small Business on February 11, 2009, admitted that huge problems remained. “While there has been some significant improvement in the speed with which grant monies are disbursed, the paperwork burden remains exceedingly high – especially when compared with other federal, state and local procurement procedures that WBCs follow – and the program grant disbursements are not always made in a timely manner. In recent years many WBCs have waited months before they received the funds for the services that they were delivering throughout the course of the year.”

Can you imagine how difficult it would be to maintain reasonable cash flow in your business if your primary client regularly withheld all payments for half a year at a time? How would you meet rent and payroll? How would you continue to provide your services and products to your clients? How can any federal agency that purports to “provide business training, counseling and other resources to help women start and grow successful businesses,” withhold payments and behave in such an un-businesslike and unconscionable manner?

In the end, the loss of the HWBC is more than just unfortunate. It is a blow to small business in Hawai‘i and should be a serious concern, as it is indicative of several significant problems in both Washington, D.C. and in our community.



  1. Interesting and informative article and how incredibly, incredibly sad that the hard work came to this point.

    I like your blog. A little edgy and blunt but at the same time sincere and insightful. Love the title too.

  2. I am in another State with the WBC program. Unfortunately, I can say things in regards to funding timeliness and reporting requirements have not changed. Added to that I believe the SBA in Washington is not as well staffed, it makes for a bad situation for the host non-profit.