Franchising Profile Incentive Programs Aid Inner-City Entrepreneurs

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In Humboldt Park, an inner-city neighborhood of Chicago, Guillermo Alvarado is running a thriving Sign*A*Rama franchise, while next door Harry Maldonado is planning the grand opening of his new PostNet shop. And in East Detroit, Harrien Clark is serving up Blimpie's sandwiches from a restaurant site that had been vacant for years.

All three men owe their new businesses to public-private partnerships, new coalitions that are working to put franchises in underserved urban and rural areas and franchisees with less-than-stellar bank accounts behind their counters. While some programs, like the Latino Franchise Project in Chicago that helped Mr. Alvarado, 52, and Mr. Maldonado, 25, are designed for residents of the communities they serve, others are open to anyone willing to locate a franchise in an economically depressed area.

The new partnerships have a social-service tinge -- creating businesses in inner-city neighborhoods provides both role models and jobs for local youth -- but they have a strong commercial base. "We have 2,000 Blimpie's now, and most of them are in the suburbs," says Lance Moore, group vice president of the Blimpie's Subs and Salads of Atlanta Western Region. "If we want to continue to grow, we must explore new markets."

Ray Titus, the founder and chief executive officer of Sign*A*Rama, based in West Palm Beach, Fla., says, "What better place to locate a sign company than in a community that's rebuilding? By selling window graphics, banners and outside signs, we can change the look of every business there."

The formula is working in Humboldt Park, a Puerto Rican community northwest of the Loop subway system of downtown Chicago. Just down the street from Mr. Alvarado's new shop was a bakery with a dilapidated sign with wires dangling. Now that he's replaced it, other business owners are stopping in for quotes.

Erica Pascal, vice president of business development for the Hispanic Housing Development Corp. of Chicago, says her organization started the Latino Franchise Project two years ago with the stipulation that franchisees have ties to the neighborhood. "In the Hispanic community, there's a resistance to franchising, a fear that it will take away from the local culture. This way, the franchisee isn't an interloper."

For example, Mr. Maldonado's PostNet, a postal and business services franchise, is just a block away from the apartment building where he grew up, and he expects the schools he attended as a child will be among his first customers.

Financing Help

But people who grew up in the inner city are unlikely to have enough capital to start franchises on their own. The Latino project, says Ms. Pascal, provides loans to franchisees to help cover down payments and arranges financing through affiliated banks. Besides Sign*A*Rama and PostNet, nine other franchise systems, including the Coffee Beanery, Fantastic Sam's hair salons and Merlin Muffler, have signed on with the project and its sister group, Connections for Community Ownership, that serves Chicago's African-American communities. Once the program's franchisees open their shops, they attend training sessions and pay fees and royalties to their franchisor "exactly like everyone else," says Mr. Maldonado.

Blimpie's designed its Blimpie's Urban Initiative for Leadership Development (BUILD) program differently. The sandwich chain waives its franchise fee of $18,000 for any qualified individual who locates a restaurant in one of the nation's 89 federally designated urban Empowerment Zones or 53 Enterprise Communities.

That price break is a tremendous draw. When Blimpie's rolled out BUILD in Detroit by holding an "Information Day" fair for potential franchisees, 365 people showed up and 70 filed applications. The franchise chose 26 to attend a business-planning course and from that group selected four finalists, including Mr. Clark, says Mr. Moore.

Mr. Clark spent 28 years as a supervisor for a Michigan multiunit McDonald's franchisee and dreamed of owning his own franchise. "This program gave me a chance," he says. Representatives of the Small Business Administration's One Stop Capital Shop in Detroit over the course of a year helped Mr. Clark write his business plan, locate an eligible site and find financing. And because most of his 15 employees live in the neighborhood, Mr. Clark is eligible for tax breaks. "Everybody made it easy for me," says Mr. Clark.

"We actually drove through East Detroit with [Mr. Clark], looking at abandoned buildings," says Constance Payne-Logan, senior manager of the SBA's Empowerment Zone/Enterprise Communities office in Detroit. "After he'd chosen one, we selected contractors from the community to do the build-out."

The SBA has opened One Stop Capital Shops in 21 cities to act as centralized locations where prospective entrepreneurs and franchisees can use computers, do Internet research and get legal and accounting assistance and business advice -- all free of charge. And when the franchisee is ready to buy a business, its financial experts will link him or her with a bank that participates in the SBA's Empowerment Zone Financial Institution Consortium.

Opening an average Blimpie's costs $100,000 to $150,000, but BUILD franchisees like Mr. Clark can reduce that cost by leasing space in existing structures and buying used-equipment packages, says Mr. Moore. "We plan to have 200 BUILD franchises open by the end of this decade," he says. The other Detroit finalists have begun the process and Blimpie's will soon host information fairs in the Seattle/Tacoma area, Los Angeles, Newark, N.J., Denver and Portland, Ore. "We couldn't do this without the SBA's support arm," says Mr. Moore.

The International Franchise Association is helping franchisees and franchisers get support directly from underserved neighborhoods. Through a partnership with the National Congress of Community Economic Development (NCCED), a coalition of 4,000 community development corporations (CDCs) in Washington, it promotes franchising at its conferences and helps match franchisers and prospective franchisees with local CDCs.

CDCs, says Michael Savage, a consultant to the Corporate Partnership Program of the NCCED, often own land or have access to land and sources of financing that are helpful in starting franchises in their areas. The NCCED, says Mr. Savage, will soon add a registry to its Web site (www.ncced.org) that will allow people to post their interest in opening a franchise in a disadvantaged area, so that CDC representatives can contact them.

In addition, the IFA is piloting franchise showcase seminars in cities with large economically depressed areas, which included a session for prospective minority franchise owners at the International Franchise Expo in Washington in May. Marcel Portman, the IFA's vice president of emerging markets and global development, says his office is working directly with CDCs in Memphis, Tenn., and Shreveport, La., to promote franchising there.

The nation's inner cities have 80 million people who often must leave their neighborhoods to buy basics. They spend $300 billion annually on food, apparel and other items. "We encourage franchising as part of an economic development strategy to tap into that buying power," says Mr. Savage.

There was no question about buying power on April 6 when people lined up outside Mr. Clark's Blimpie's to attend his grand opening. Detroit Mayor Dennis Archer cut the ribbon. "That was a once-in-a-lifetime experience," says Mr. Clark. "Owning a franchise had been a dream for so long. Now it's finally a reality."

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