Worldwide crisis in small business lending

At last week’s annual Small Business Administration’s conference for National Small Business Week, SBA Chief Karen Mills took some questions.  One small business owner said that she received “invaluable support” from one of the SBA’s Small Business Development Centers, which operate in every state.

The lack of credit from banks was a complaint of two small business owners.  The Federal Deposit Insurance Group reports that loan balances to small businesses fell in the first quarter of this year (while loans to big businesses increased).  But it’s even worse for small businesses in other countries.  Headlines say that small business lending from Spain’s crumbling banks is drying up and in England 50 small businesses are failing daily due to lack of lending.

Bank resistance to small business loans and credit has forced countries to look at alternative avenues for access to capital.  China will start allowing small businesses to sell bonds.  Here in the U.S., Congress passed legislation to allow small businesses to seek small private sector investments through crowdfunding.

We don’t know how successful these new alternatives to traditional financial institution lending will be for small businesses.  Crowdfunding is a novel and not understood concept for most small businesses.  So the results of a recent national poll finding that 45% of small business owners not knowing if crowdfunding would be helpful and 53% not thinking it would is no surprise.

However, a few other results of this poll show why crowdfunding and other access to credit avenues for small businesses are important.  Small business owners are still getting most of their lending from a combination of family and friends (71%), personal credit cards (62%) and business credit cards (59%). 

With small businesses creating at least half of the net new jobs in this country, we shouldn’t be letting the vital growth of these real job creators up to the whims of family, friends, and credit card companies.  We need crowdfunding and other alternatives sources of capital if banks won’t or can’t do the job.

Cash flow and job tax credits

In my blog on Monday, I made the following observation about the job tax credits within the President’s proposed American Jobs Act.

Tax credits are taken when tax returns are prepared, not at the time of hiring.  If a business doesn’t have the capital to do the initial hiring, the tax credit months later won’t do them any good.

Therefore, small business must have access to lines of credit and loans for the job-creating tax credits to succeed.  We must step up our efforts to prod financial institutions to provide access to capital for small businesses qualifying for these tax credits.

Apparently I am not the only one to have indicated concern about the tax credits not being available but only once a year.  Cash flow for small business is always a major issue.  Getting a financial incentive later doesn’t help you if you can’t afford to hire today. 

Yesterday Karen Mills, the head of the U.S. Small Business Administration, was reported by the North Carolina News Network to have heard the same concern when she talked to small businesses.

So we said to them what's the most important thing you need and they said a tax credit that comes into my hand week by week, month by month, I don't want to wait until the end of the year, I have more cash so I can go out and market more, get more business so I can go out and hire that next person

I am trying to track down the story on this.  Is the Administration intending to allow small businesses to take the proposed tax credits for hiring the unemployed throughout the year? 

This is a critically important issue.  If the answer is yes, the jobs tax credits will be much more effective in creating jobs.  If not, then it’s back to my comments from Monday.

I’ll let you know.

Microenterprise Development Month

Last week, Small Business Administration Administrator Karen Mills spoke to the Greater Miami Chamber of Commerce. She had good news for many businesses seeking credit. “Lending is back to 2008 levels,” Mills said.

But the news wasn’t so good for the small businesses in geographically challenged areas and our smallest of small businesses. According to Mills, “we are not back in underserved communities and we are not back when it comes to small loans.”

The truth is that lending hasn’t been good in underserved communities and for our very small businesses for a very long, long time.

This June will be Microenterprise Month in South Carolina. These businesses with fewer than five employees and started with less than $35,000 represent 87% of our businesses. These are the businesses we need to grow with proper technical assistance and very small loans.

If you want to find out more about organizations in the state trying to help microenterprises, come to a forum on May 25th at 12:30 in the Blatt Building (room to be announced) on the State House grounds. That’s when we’re kicking off June as Microenterprise Development Month.

Hope to see you on the 25th.  Let me know if you want to be involved in Micorenterprise Development Month.