Charles Wallace has been a feather in battered cap of the Small Business Administration.
An orphaned ex-sharecropper with a 12th grade education, Wallace runs a fuel oil distribution company that is one of the most successful firms in SBAs, program of aid to minority business.
Today, Wallace is reaching out for a much greater success. He is attempting to penetrate the oil industry - as deeply as possible for one who does not own an oil well - by building a $660 million oil refinery in Tuskegee, Ala.
Ironically, Wallace is finding that a major obstacle in the path of his refinery dream is the SBA, the very agency largely responsible for the considerable success he has enjoyed until now.
Wallace's story is a fascinating one, both for its latter-day Horatio Alger flavor and because if he is successful, it will mark the first appearance of black-owned firm on the Fortune 500 list of America's largest businesses.
The story also raises delicate and thorny questions about the limits of the government's obligation to the businesses it nurtures, and about the relationship between small businessmen, who must gamble - and sometimes cut corners - to survive, and their bureaucratic benefactors, who must play by the rules and may be held responsible when something goes wrong.
Wallace nosed his way into the oil business in 1968 when, with one green and white truck and a $5,000 bank loan, he opened a fuel oil distributorship in his New York City basement.
Today, Wallace Fuel Oil Co. is the cornerstone of what he hopes will grow into an industrial empire. The company owns 19 trucks, employs about 60 people, and delivers 40 million gallons a year of fuel oil to apartments, schools and military installations throughout the New York area.
Along the way, SBA has been one of Wallace's best friends.
When his business began to expand too quickly for his delivery trucks to keep up, the agency bough him five new trucks, at a cost of almost $100,000.
When Wallace has needed additional cash, the agency has thrice extended him loans.
And in the routine course of business, SBA has routed to Wallace a total of more than $30 million in contracts making him one of the largest participants in its "black capitalism" program of set-aside contracts for minorities.
But in the past three months, SBA has altered its relationship with Charles Wallace.
From where Wallace sits, it feels as though he is being struck by the hand that used to feed him.
SBA, for its part, is worried about what Wallace may be doing with its money.
Wallace and SBA officials agree that the seed of the change was planted when Wallace began dreaming seven years ago of expanding his distributorship into a major, integrated oil company.
When I got into the oil business, I found out I'd never be independent as long as I had to buy from my competitors," Wallace said the other day.
"I'd bid against a man, then have to turn around and beg him for oil.
We were just leeches.
"Well, there was no way for me to get an oil well, but I could buy the crude from OPEC (the Organization of Petroleum Exporting Countries), and build myself a refinery."
Wallace is a man whose voice propels passion through the telephone wires, an unlettered man who paints word pictures so vividly he can actually make you want to visit Macon County, Ala., and trek through the red dirt of his refinery site.
"I was born with nothing, and I made it through," Wallace said. We're got to prove to young blacks that we can do anything. They read about Rockefellers and Whitneys building a fortune but they don't read about any blacks building a fortune.
"Everything I could raise or scrape, everything I've made on my companies, has gone into this dream of mine. If I can't build this thing, my wife and I will have to go on food stamps . . .
"I've been criticized more for trying to do right than if I'd been doing wrong," he said in reference to his current troubles with SBA."I have more trouble than a cat in a dog pound."
The cause of Wallace's troubles is the project that has become his raison d'etre, the Alabama oil refinery.
To date, according to John Adams, Wallace's chief lobbyinst in Washington, he has spent about $7.5 million on planning, designing and site preparation.
His plans call for building a 150,000 barrel-a-day refinery, surrounded by light industry, residential housing, a shopping centre, and a museum dedicated to the nation's first black fourstar general, Daniel (Chappie) James, on land used by the Army Air Corps to train segregated black pilots during World War II.
The project would also include a barge facility at Burkeville and a docking site in Mobile. Ships carrying crude oil from Venezuela would land in Mobile, and transfer the oil to pipelines for transportation to the refinery, which would convert it to gasoline, fuel, oil, diesel fuel, jet fuel, propane, asphalt and sulfur.
Wallace has in hand most of the ingredients needed to make the refinery a success: a guaranteed supply of crude oil; fixed-price commitments from a consortium of top firms to plan and build the refinery; guarantees from customers to purchase his product.
He lacks but one ingredient, the most important of all: a loan of $660 million to finance the project.
With a respected former governor of the Federal Reserve Board, Andrew Brimmer, as his financial adviser, Wallace is confident he can raise the money, if he can extricate himself from his current difficulties with SBA.
"The guy has put together plans for a 747," said Keith Jackson, Wallace's chief counsel, "and SBA keeps shooting out the tires."
The focus of the dispute between Wallace and the agency is a unique financial arrangement they have entered into.
SBA routinely makes available to its clients advance payments on SBA contracts.
The advances are used to pay labor, supplies, and other front-end needs the contractor encounters before beginning to perform the contract.
In Wallace's case, however, the simple cash advances SBA usually makes are not sufficient. Oil is not purchased with cash - instead, importers obtain bank documents known as letters of credit as the medium of exchange in oil transactions.
Accordingly, Wallace and the New York office of SBA entered into a one-of-a-kind agreement, under which Wallace's advances are deposited in the Chase Manhattan Bank and used as collateral for letters of credit or other contract-related borrowing.
For all its success, Wallace's business, like all small businesses, is fragile and easily jolted. The past year has seen a series of brutal jolts: a competitor's decision to discontinue allowing Wallace to rent his terminal to unload oil-laden ships; a blizzard followed by a truckers' strike that resulted in his inability to perform on a city school board contract; delays in payments from SBA that have cost him thousands of dollars.
As a result, the profits Wallace was using to pay for the planning and preparation in Tuskegee began to dwindle. He resorted to borrowing against the SBA funds in Chase Manhattan for some of his refinery needs, and to purchase oil forosme of his non-SBA contracts.
When an SBA auditor took a routine look at Wallace's books in February, he threw up his hands in dismay, sources said. Under an arrangement the auditor had never heard of, SBA funds were being encumbered for purposes not directly related to SBA contracts.
Top SBA officials in Washington moved in. They froze Wallace's bank accounts, and in effect shut the company down for the month of March, resulting in layoffs of about one-third of Wallace's 100 employes, salary cut-backs for the rest, and a loss of between $2 million and $4 million in sales, according to lawyer Adams.
SBA's action, since modified, came closer to driving Wallace out of business than any of the other setbacks he suffered this year.
SBA officials in Washington "don't know what's happened, and they don't know the effect of what they're doing," said a Capitol Hill staffer close to the situation. "Wallace is getting screwed."
Wallace bitterly protested. Instead of freezing the company's cash flow, he said, the agency should have initiated an investigation while continuing to allow the company to operate at an efficient level.
"You had a dynamic situation," explained Adams. "You have some colateral, and you borrow against that collayeral when you need something . . . It was envisioned and known (by SBA officials), but I can't prove that to you. That's the trick bag - you can make agreements with them, but you can't make them write anything down. So when there's a question, you have no protection."
SBA officials take another view. "The problem is, Charlie wants us to finance the refinery, while we can't do," said one official, who asked not to be named.
The official noted that SBA's rules and regulations do not provide for financing research and development of new project, but only for providing assistance on contracts obtained through SBA.
"The agency has committed itself to making him a profitable fuel oil distributor, not to helping him build a refinery," the off the official said.
But Wallace notes that SBA has walked with him every step of the way on the refinery path. The agency leases equipment for him to use in Tuskegee, SBA officials have visited the site on numerous occasions, and the agency has been kept informed in detail on his progress.
"This latest activity by SBA really leaves Wallace up the creek without a paddle," said Adams,"especially since he has extended himself and made commitments anticipating since he has extended himself and made commitments anticipating more help . . . if you build a bridge from here to Europe, and let a man get one mile from the shore and then drown, you've done him no favor."
A decision by any government agency against Wallace is bad news for him. He readily admits he will need help from "every government agency that ever helped anybody."
In addition to continued loans and contracts from SBA, Wallace said he will need loan quarantees from the Farmers Home Administration and the Commerce Department's Economic Development Administration, as well as long-term contracts to sell the Defense Department about $80 million worth of jet fuel a year.
SBA officials contend they have already gone a long way Wallace. They have ventured into a no-man's land with the collateral advance arrangement. SBA attorney are now examining whether officials in New York erred by entering into the arrangement, as well as whether Wallace erred by using SBA'S money as collateral on non-SBA business expenses.
"I don't think Wallace is being held back" by SBA, said a top agency official.
"Wallace is honest. We want to help him, but we're just too godamn small to help with that refinery."
For Wallace, though, tha issue is not the limits of SBA's authority but whether the government will come through with the help he needs to bring 10,000 jobs to the nation's second poorest country by making bis dream come to life.
After spending seven years living and breathing the refinery, Wallace tends to equate it with government's commitment to blacks in general. For him, success would redeem government's post-civil War pledge of "40 acres and a mule" for blacks.
"I just want my 40 acres in downtown Dallas," he said.