Small Business Issues Take Center Stage at Treasury
EmailIt's small business week on Wall Street and in Washington. In wake of yesterday's announcement by Goldman Sachs that the megafirm would devote $500 million of its bonus pool to small business development, the Obama administration is launching a new initiative today. Matt Jaffe has the details: With the nation's unemployment rate at a 26-year high, the Treasury Department Wednesday will host a forum on how to help small businesses survive the economic downturn. "Our economy is growing but jobs are not," an administration official told ABC News. "Unemployment remains a substantial challenge that requires sustained action, and any focus on jobs requires a focus on small business." The administration is currently winding down some of the economic rescue efforts implemented last year, but the official noted, "We know that for small businesses, the recession remains alive and acute. That is why we need to look at every possible step we can take to ramp up support for them." The forum, said the official, will give Treasury Secretary Tim Geithner and Small Business Administrator Karen Mills the chance to seek out the best ideas and strategies to take to the White House on how to increase access to financing for small businesses. It is also a chance to re-energize regulators, Congressional leaders, small business owners and lenders around the issue, the official stated. The forum, which President Obama called for last month, comes just weeks before the White House's December 3 forum on jobs growth and economic improvements. The president wants the administration to conduct as much outreach as possible on job creation before the budget process concludes later this year, the official said.
Along with Geithner and Mills, Wednesday's Treasury forum will also feature FDIC chief Sheila Bair and the chairs of the House and Senate committees handling issues involving small businesses. Following opening remarks by Geithner and Mills and the other featured panelists, a handful of small business owners will also speak. This panel includes Charles Baker of MCB Lighting Solutions in Owings Mill, MD; Andy Cabral, who runs 10 Dunkin Donuts in the DC area; Kevin Galvin of Connecticut Commercial Maintenance in West Hartford, CT; Lani Hay of Lanmark Technologies in Fairfax, VA; William Ortiz-Cartagena of Gentle Parking in San Francisco; Mike Tie of Paramount Building Solutions in Tempe, AZ; and Susan Walvius of SHEEX in Chapin, SC.
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Credit risk is the principal obstacle to increased lending to small business. Neither of the Administrations’ two strategies for addressing the small business finance problem adequately addresses this issue. Giving more resources to the SBA won’t solve the problem. Because of the cost and bureaucracy associated with SBA programs the number of banks making SBA-guaranteed loans has declined from 5,000 to about 3,000 over the last decade. In addition, the SBA won’t or can’t guarantee the very types of loans that might be most useful to small business in today’s environment. An example is subordinate debt, a substitute for equity for the 99% of small firms who will never qualify for venture capital. The Administration’s other strategy providing low-cost TARP capital to community banks and CDFIs also fails to get at the credit risk problem. What should be done? Use TARP funds to capitalize one or more private companies that would provide forms of small business loan guarantee and insurance that SBA doesn’t. The fact that the SBA Loan Guarantee Program has historically a negative credit subsidy rate–borrower and lender fees finance all losses–suggests that a private alternative is feasible
Posted by: Paul Pryde | November 18, 2009, 10:04 am 10:04 am
Uncertainty is why small businesses like mine are not hiring. In the next 1-4 years our health care, energy and tax costs are completely unknown. As a result, we need to clean up credit and save money in order to be ready for whatever comes. Until that uncertainty goes through the system, small business must wait on the sidelines
Posted by: Jeff Schroeffel | November 18, 2009, 1:35 pm 1:35 pm
I’m a small businesses that will never qualify for venture capital. This economic downturn is destryoing my business!
Posted by: Courtney Brown | November 18, 2009, 1:36 pm 1:36 pm
One of the biggest issues we face as small business owners is the ability to offer competitive wages and benefits with Health insurance being one of the carrots we must be able to dangle in front of candidates. Unfortunately, my insurance company dumped my business because we only had one person on the plan and one on continuation. I am preparing to hire another employee in the near future and cannot even offer insurance because insurance companies hold all the cards. How can I remain competitive and continue to create new jobs in this environment?
Posted by: Kristin Baird, RN, BSN, MHA | November 18, 2009, 2:19 pm 2:19 pm
What I fear is yet again another short term, economic stimulus injection that is not based on a long term plan to help sustain growth. For example: While providing a “cash for clunkers” incentive may have increased car sales for a short period of time, it certainly was not a platform for long term economic growth and recovery for the automobile industry. Shedding obnoxiously high healthcare and pension obligations to reduce the cost per car manufactured makes much more sense for the long term. We do not need another short term, knee jerk, feel good reaction in an attempt to pander to special interest groups or in the hopes of winning the next near term election. I am an owner of a small business (established in late 1992). We have weathered several economic declines by conservatively managing both our company and our finances. I crave a well thought out solution that focuses on the long term effects of any program suggested, and not just a quick fix approach. It seems the days of our dual party system being able to effectively work together (as opposed to a win at all costs attitude) to devise well thought out long term solutions has completely disintegrated.
Posted by: Wayne Rampey | November 18, 2009, 6:55 pm 6:55 pm
The worst form of support is to be patronized. Politicians continue to do just that with one slight of hand photo op after another. Today’s “conference” was no exception. It was invitation only, the location and time wasn’t even disclosed until two days before hand (likely so the majority couldn’t organize to have their voice heard), and once again, the real issue wasn’t addressed.
True small businesses are not being allowed to participate in any recovery dollars. This article claims “More than 1 in 4 contracting dollars under the American Recovery and Reinvestment Act are going to small businesses.” That’s an easy claim to make since the SBA defines “small” as any business with less than 500 employees. That’s like saying everyone under 7′ tall is short.
The fact is true small businesses under 20 employees, which constitute 90% of all businesses in America, are receiving no help from the politicians or the SBA. And to make it all worse, they SBA and the politicians continue to pretend with every photo op that they are doing something substantive to help.
An example conveniently left out of today’s conference – Olympia Snowe very quietly slipped a piece of legislation into the Senate on Monday that calls for the immediate end of the $35k SBA ARC Loan processed and the recapture of all remaining ($125 million) funds back into the Treasury immediately. The ARC Loan was the only piece of the stimulus set aside for true small businesses, and the supposed small business advocate, Olympia Snowe, wants to kill it immediately. Imagine how those who don’t claim to be small business advocates as Snow does are treating small business.
The fact is the government owns the banks and are micro-managing salaries while claiming they can’t make the banks loan small businesses any money. The hypocrisy in this is palpable. Those same banks were given hundreds of billions of dollars in a matter of days by those same politicians last fall. And not a single one of them would have qualified for even a $35k ARC Loan.
The biggest problem the politicians face this time around is that there patronizing but unhelpful stance toward small business has been clearly exposed by the speed with which they dumped $1.4 Trillion on big banks and big business, much of it without any restrictions at all, and the sloth which with have have meted out a crumb to small business.
The $255 million ARC loan constituted 3/10th of one percent of the bailout for 56% of the GDP produce by small business. The other 99.7% went to big businesses. The politicians now want to take have of the paltry $255 million and simply pull the rug out from under those few businesses that were hoping they might see some small sign of support. Small business has never had a seat at the table – this recession has exposed that more than any other.
Small business owners have become the aborigine in the missionary’s photo op, allowing politicians to pretend to help but walking away after each flash bulb goes off.
Posted by: Chuck Blakeman | November 18, 2009, 7:10 pm 7:10 pm
It is my opinion that the economy is not going to recover until the Obama Administration finds a way to lend to small businesses again. It is absolutely impossible as a small business to obtain a loan right now, and most lines of credit have been cut on small businesses as well since the recession hit. This is coupled with the fact that it’s difficult to land business and when you do land business it is even harder to collect payment. Plus, credit card companies have hiked interest rates on all these closed lines up to 30% or more in many cases and doubled or tripled the minimum monthly payments. Small businesses are just being hit in every possible direction. I cannot for the life of me understand why the Obama Administration has ignored small businesses completely up to now while focusing on bailing out large businesses which someone decided were too big to fail. The majority of working people are employed by small businesses and not large companies “too big to fail”, and the government could have accomplished a lot more for a lot less money by providing small loans to a lot of little companies. As it is, we are over a year into the recession, and many small business owners have run through almost every dime they have in retirement, savings, etc. to try to prop of their businesses, and in many cases, there is nothing left. If something doesn’t happen soon to reach out to small businesses, there may not be any small businesses left, and that will unfortunately have a very detrimental effect on any recovery. The SBA is not doing its job, and the banks have no driving interest in changing anything. The ARC program has been a total failure, and did nothing but infuriate those of us who were trusting enough to participate in the program. It is long overdue for the administration to start thinking out of the box on this issue, and to come up with a solution while there are still small businesses to save.
Posted by: Dawn | November 19, 2009, 5:46 pm 5:46 pm
I for one have lost confidence in Geithner’s ability to do the job. Everything this guy touches falls apart. TARP and Cash4Clunkers have completely backfired. He should pursue a new career as a magician, because he’s good at making money disappear.
Posted by: mike | November 19, 2009, 7:56 pm 7:56 pm