Entrepreneurs grow in numbers but lack support

WASHINGTON - Reservations have long had their share of scrappy
entrepreneurs. But these "rez" business owners, although growing in numbers
and momentum, currently have access to little of the support they need,
according to a new report.

"While the traditional sources of capital for most emerging entrepreneurs
are family and friends, credit cards and home mortgage financing, all three
of these vehicles are generally not available to Native entrepreneurs on
reservations," according to the "Native Entrepreneurship: Challenges and
Opportunities for Rural Communities" report recently published by CFED and
the Northwest Area Foundation in St. Paul, Minn.

Some barriers to their success are a lack of access to mainstream financial
institutions, limited use of trust land as collateral, lack of community
development and other alternative financial institutions, lack of equity
investors in Indian country and lack of financial education, according to
the report's lead author, Jennifer Malkin, CFED senior program manager.

While the report's tally of obstacles to successful business development on
reservations is compelling, its findings were not all negative.

A boom in the number of Native entrepreneurs beyond the gaming arena, and
some data suggesting they outperform other minority-owned businesses in
some categories, are hopeful signs for this group, the report suggested.

"Thousands of Native individuals in lower-income communities produce goods
and services for their local markets, often in response to the lack of
mainstream businesses like supermarkets, gas stations and video stores,"
the report pointed out.

"In some cases these entrepreneurs trade and exchange goods as a means of
survival; in many cases, they run businesses on the side to patch together
incomes to support their families. In still other cases, Native
entrepreneurs launch high-growth small businesses that produce jobs and
attract mainstream venture capital."

The Census Bureau, which CFED cites as the most relevant source for data on
this niche, reported in its 1997 "Business Census" the existence of nearly
200,000 Native businesses, a jump of 84 percent from the 1992 measurement.
CFED, in a previous analysis of Native entrepreneurship, quoted First
Nations Development Institute of Virginia in estimating that 170,083 of
these were microenterprises.

CFED concluded that Native entrepreneurship "has the potential to
contribute positively to wealth creation, economic development, and poverty
alleviation and can be compatible with Native traditional cultures."

Besides the financial barriers, it concluded there are others as well -
political, attitudinal, legal and informational - that "add to the normal
challenges of trying to foster successful entrepreneurship in the rest of
rural America."

Just the financial barriers as laid out seem daunting. CFED cited a CDFI
Fund report whose tribal respondents reported "66 percent of non-tribally
affiliated financial institutions do not offer startup business loans on or
near Indian reservations, 74 percent do not offer micro business loans, 71
percent do not offer small business loans, and 80 percent do not offer
larger business loans."

Also, "although trust status has successfully protected Indian land from
leaving Native control, it has complicated the process for Native people to
use their land as collateral for small business financing." This is due to
the difficulty in using Indian land as collateral for mortgages or business

Alternative financial institutions, like Native CDFIs, could be a potential
source of funds for Native small-businessmen. However, "the vast majority
of alternative financial institutions that serve Native Americans are still
in the early stages of development, do not have staff capacity, and have
not yet closed their first Joans."

The CDFI Native Lending Study called Indian country "an equity desert," and
CFED pointed out that additional equity investment in cases is simpler to
achieve than lending. But, "industry leaders note that equity investments
ranging from $50,000 to $5 million in non-high technology companies
represent the biggest financing need among Native American businesses. This
void has retarded business growth and economic development on

Lack of financial education, addressed in a previous CFED study by Malkin,
also hampers Native entrepreneurs. Increasing financial education in recent
years is a positive step.

Others include tribal credit departments, which can access money through
the BIA, Small Business Administrations loans, banks, CDFIs, foundations
and "angel investors."