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Surviving in uncertain times


May 27, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

With the budget deficit this administration inherited estimated at $1.3 billion (although our numbers indicate it is closer to $2 billion), the Commonwealth’s credit rating suffering a downgrade by credit agencies, and the local government appearing to have come to a near standstill, the island’s business community is working seven days a week to keep the economy going.

This week, CARIBBEAN BUSINESS recognizes the labor and achievements of entrepreneurs in Puerto Rico, many of whom have endured personal and physical challenges and hardships to get their businesses off the ground and provide employment to others. It is through their hard work, creativity, and dedication that hundreds of thousands of Puerto Rico residents are able to earn a living and support their families. While we have highlighted the successes of several entrepreneurs this week, we recognize that for every one of the businessmen and women featured in our front-page story, there are thousands of small-business owners throughout the island who also deserve recognition and support for their outstanding efforts, hard work, and many sacrifices.

While many large companies are trimming payrolls and hiring is lagging, small businesses are growing quickly and continue to hire. In Puerto Rico, over 120,000 small businesses generate over 60% of the island’s jobs. Without a doubt, these entrepreneurs are a major force behind Puerto Rico’s economy.

For small businesses, operating times may vary, but their day is far from being short. Small firms with employees are open on average about 11 hours a day and most operate seven days a week, according to a survey released earlier this year by the National Federation of Independent Business. Despite the long days and hours, data released by the Small Business Administration (SBA) indicates that 40% of the new business start-ups fail within a year and 80% within five years. These entrepreneurs and their families often put up their homes and any assets they possess as collateral to start or expand their small businesses and, unfortunately, often lose everything and their credit standing when their companies fail. It takes a well-developed business plan, as well as financial and technical assistance, for entrepreneurs to survive; even then, it isn’t easy, especially during a soft economy such as the one Puerto Rico is currently experiencing.

While many organizations, such as the SBA, exist to help small businesses with financial and technical support, these entrepreneurs also depend on a positive business environment in order to survive. Small businesses can’t afford to wait years to obtain the necessary permits to begin operations, nor can they carry a heavy tax burden that is often larger than that of multinational companies operating on the island, which receive generous tax incentives and grants to establish local operations. Furthermore, small businesses must struggle with the high cost of operating on the island since they are unable to close operations and relocate to low-cost countries or cheaper areas. The bottom line is that it isn’t easy for entrepreneurs to survive in a difficult business environment and yet they somehow manage to do so. Obviously, the main reason is their roots are located here, and they must find a way to survive on the island. They just can’t pick up their marbles and move to a lower-cost country.

As Carmen Culpeper, the SBA district director for Puerto Rico and the U.S. Virgin Islands, puts it, it’s unfortunate big corporations receive greater recognition than small businesses, when it’s the small entrepreneurs who take on the major risks without receiving any government incentives or the same economic support or beneficial legislation from the Commonwealth government that big corporations receive.

The administration of Gov. Aníbal Acevedo Vilá has established a $30 million venture-capital fund through the Government Development Bank called La Llave Para Tu Negocio, which seeks to create 1,000 new businesses over the next four years. While this is an excellent idea and start, it’s interesting to note that the maximum amount of the loans under this program will be $50,000, a far cry from the millions the Commonwealth tends to provide offisland corporations that often create a lot fewer jobs than those generated by local businesses. We aren’t against providing incentives to large companies that come to Puerto Rico and create jobs, but we think greater assistance needs to be provided to local businesses that are just starting out or want to grow.

This Caribbean Business article appears courtesy of Casiano Communications.
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