Partisan Divide in D.C.? Not Over the S.B.A.

The New York Times
June 15, 2012

By ROBB MANDELBAUM

 

How small-business issues are shaping politics and policy.

In this election season, the leitmotif to the story taking shape in Washington is that the partisan divide is vast and growing vaster — if last year it was difficult to pass bills that were once routine, now it has become impossible. But there appears to be at least one exception to the emerging rule: the Small Business Administration. Last week, the Republican-led House Appropriations Committee unveiled its bill (pdf) to finance the S.B.A. and several other government agencies, and what is most notable about the four pages dealing with the S.B.A. is the prospect for comity, not conflict.

In all, House Republicans have proposed appropriating $1.16 billion to the S.B.A. — $989 million when disaster funding is excluded — about $40 million more than the Obama administration has sought and $237 million more than the agency received this year. In its broad outlines, the funding proposal from the House is remarkably similar to the administration’s request. The main difference is that the House finances subsidies that would permit the S.B.A. to guarantee more lending in its main loan programs than the administration would. The increase may not have a meaningful impact on lending, though, since these figures are ceilings, and it’s not clear that lending will reach them. (If the first eight months of the 2012 fiscal year are indicative, the agency won’t come close to bumping up against the 2013 ceilings.) More meaningfully, the House would direct $112.5 million to small business development centers, as much as the centers received last year and $11.5 million more than the administration requested.

All of this is quite a turnabout from a few years ago, when the Bush administration struck many observers as indifferent at best to the S.B.A. and the Republican-led Congress was parsimonious in funding it. Perhaps most strikingly, House Republicans have agreed to support the S.B.A.’s microloan program at the same level the Democratic administration requested — whereas the Bush White House sought to eliminate microlending altogether. However, as we reported when the White House made its request public back in February, the proposal is less than the program received in 2011 or 2012. Indeed, while the S.B.A. would technically get more money under the budgets proposed by the White House and the House, most of that increase goes to subsidizing loan-making, which has become more expensive in recent years as the amount of risk has increased.

On Thursday, the Senate Appropriations Committee produced its own bill financing the S.B.A. (among other agencies) and largely followed the same template, proposing $1.12 billion. That is less than the House bill, but it directs more money to microlending and to the counseling programs than either the House proposes or the administration wants. At the same time, it pares back the House’s loan subsidy (and corresponding lending limits) to the administration’s request.

Elsewhere in its bill, the House is not nearly as conciliatory toward the Obama administration and the Senate. For example, it denied the White House additional money for the Internal Revenue Service to carry out provisions of the Affordable Care Act, and it would prohibit the administration from transferring money to the I.R.S. for that purpose. This could conceivably make it harder for the I.R.S. to process the health care tax credit for small businesses. But an aide to the House Appropriations Committee said that the bill does not prevent the agency from using the money appropriated to it to carry out the health care overhaul. “The I.R.S. would not be prohibited from implementing the tax credit,” the aide said. The agency would have to choose its priorities from an expanded portfolio of responsibilities.

The Senate bill provides the I.R.S. with about $700 million more than the House bill does.

http://boss.blogs.nytimes.com/2012/06/15/partisan-divide-in-d-c-not-over-the-s-b-a/

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.

Funding a resource for small business

It would be nice to believe that with Rick Perry dropping out of the GOP primary last week that the idea he floated earlier this month in South Carolina of killing off the Small Business Administration would itself be killed off.  But that’s not going to happen.

There are still too many politicians willing to sacrifice one of the only federal agencies charged with providing services to small business for the goal of deficit reduction.  And there are too many small business owners siding with the SBA-bashers because they have no clue as to the services of the SBA and the Small Business Development Centers (SBDC) if funds. 

So here is a primer on the SBDC in South Carolina.  It is a statewide network of 17 local centers promoting economic development through business consultation to new entrepreneurs and existing small businesses.  The program is supported with federal, state, local and private funds and is open to any present or prospective small business owner generally fee free.  As one of the few state supported efforts to help small businesses grow and prosper, the SBDC sees upwards of 3,500 entrepreneurs and current small business owners a year. 

Nationwide it is the same positive story.  The country has 900 local SBDC’s that provided services to over a half million entrepreneurs and small businesses in 2010.  SBDCs help those thinking about starting a business or  needing help in applying for a loan as well as working with existing small businesses wanting to find new markets or trying to right-size in the face of a bad economy.

Talk at the federal or state levels of ending the SBA or under funding the SBDC is economic development foolishness for those saying they want to create or save jobs.  We should be expanding the SBDC’s ability to serve our state’s small businesses and that’s why the South Carolina Small Business Chamber of Commerce supports our SBDC’s budget request of $520,000.

Maybe I'll start drinking coffee

"Banks start to make more loans"

That was the heading of a New York Times Dealbook story today.  But if you’re in the market for a small business loan or line of credit, don’t get your hopes up.

According to the story, “Loan growth is still modest. And it remains heavily weighted toward the strongest corporate and consumer borrowers.”

So while big corporate loans and consumers are finding access to capital easier, small business is still suffering.  The SBA reports that loans to small businesses dropped again in the second quarter although not as much as they have since 2008.

In spite of all the talk by politicians and government officials of how important small businesses are to the recovery of our economy, the rhetoric has been all talk.  Even the most important federal legislation passed to deal with the problem (Small Business Loan Fund) has been undermined by the banks and regulators and just screwed up by the Treasury Department.

What we’re left with is a very frustrated private, non-financial sector trying to come up with ideas to by-pass the government and spur small business growth on its own.    

How about this idea from Starbucks--buy some coffee and make a donation for small business development?

As Joe Nocera writes in his New York Times column today, the Starbucks plan will work like this.

Americans themselves would start lending to small businesses, with Starbucks serving as the middleman. Starbucks would find financial institutions willing to loan to small businesses. Starbucks customers would be able to donate money to the effort when they bought their coffee.

Starbucks did find a partner with Community Development Financial Institutions (CDFIs) in a project to start November 1^st.  You will even get a red-white-and-blue wristband with your $5 donation.

“Americans Helping Americans” is the theme.  We sure need something given the failure of our banks, Congress and the Administration on this critical issue.

Why only small business can save America

January 8, 2011
USA Today

By Steve Strauss

The bad news is all around us and never seems to end. If it's not Tea Party Republicans who somehow, shockingly seemed willing to allow the country to go into default before they would accept even the most basic of revenue increases, it's a president who seems unable to match his legislative ability to his previous soaring rhetoric, sharp mind and historic promise.

And that's for starters.

Unemployment remains far too high, hovering near 9%. The deficit is all too real and getting bigger. China is emerging as a global power, and taking the lead in creating green energy solutions - the clear, big playing field of this new century.

Here at home, Gen X and Gen Y'ers seem resigned to living in a country that was not as great as the one they were born into, and my generation - Baby Boomers - are only too happy to collect our benefits.

What are we to do?

Entrepreneurship is the answer. Small business to the rescue. Foster startup fever.

In America, small business has always been The Answer. More than 99% of businesses with payrolls in this country are small businesses, according to the Small Business Administration, and those small businesses historically employ more than half of all workers and create 80% of new jobs.

Small business is, and always has been, the engine that moves the country forward. So if the stagnant political class really wants to get this country moving again, and help reassert our rightful place as the most innovative, entrepreneurial, industrious place on the globe, they need to start enacting policies and programs that do one thing - help small businesses and entrepreneurs.

What we need is a comprehensive 21st Century Entrepreneurship Act.

Want to lower the unemployment rate? Cultivate small business startups and you will.

Want more tax revenue? Foster entrepreneurial growth and you will get it.

Want to see America create the Next Big Thing? Help small business and just watch where it leads us.

The last great boom, during the Clinton administration, created more than 20 million jobs, and many of those came from startups that grew. In 1992, hardly anyone had ever heard of the Internet and no one knew what an Amazon.com was. Today that company, started out of Jeff Bezos' garage, employs about 30,000 people. In 1992, Starbucks was a regional business with about 100 stores. Today it is a public company worth more than $27 billion, and it has more than 6,500 stores.

Was there ever a better friend to small business, someone who believed in the power of free enterprise, more than Ronald Reagan? As he said in a May, 1988 speech to students at Moscow University: "The explorers of the modern era are the entrepreneurs, men with vision, with the courage to take risks and faith enough to brave the unknown. These entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States."

The great economic growth during the Reagan administration was similarly fueled by a commitment to, and fostering of, entrepreneurship.

So what does "promoting small business and entrepreneurship" mean? What does it look like?

I am privileged to be a member of the board of the World Entrepreneurship Forum. This global think tank has spent a lot of time considering what governments can and should do to promote entrepreneurship. They include:

"Reform Regulations: To promote a truly entrepreneurship-centered business climate, reform tax and regulatory environments so as to make it easier, faster, and less costly for entrepreneurs to set up enterprises.

"Create Entrepreneur-Friendly Institutions: Introduce entrepreneurship-friendly support institutions that provide technological knowledge, market information, business know-how, certification services, access to capital, and other essential business support.

"Understand Entrepreneurship: Make it known that entrepreneurs are positive agents of social change, wealth creation, transparency, sustainability, and innovation."

A comprehensive 21st Century Entrepreneurship Act would include tax reform, and regulatory ease. It would include, as SBA administrator Karen Mills recently wrote, immigration reform so we can again attract the best and brightest entrepreneurs and engineers to our country. It would increase access to capital. It would help more startups start up. It would foster business incubators and programs like Business Matchmaking.

And it would require something that those in Washington have forgotten about, something that cannot be legislated, but cannot be ignored: It would require pulling together for the common good and the promise that is America.

I, like many Americans, am disappointed in both the president and Congress. But I still hold out hope, because I know what is possible, what we can do together. So to our leader, I say: Mr. President, tear down these walls!

Ask an Expert appears Mondays. You can e-mail Steve Strauss at: sstrauss@mrallbiz.com.An an index of Strauss' columns is here. Steven D. Strauss is a lawyer, author and speaker who specializes in small business and entrepreneurship. His latest book is Get Your Business Funded: Creative Methods for Getting the Money You Need. You can sign up for his free newsletter, "Small Business Success Secrets!" at his website —www.mrallbiz.com. Follow him on Twitter at http://twitter.com/stevestrauss.

Action Alert--SBDC budget vetoed

Yesterday Governor Haley vetoed the entire state budget for the South Carolina Small Business Development Center. Please see the letter below for our reasons for asking the Legislature to override Veto # 12.

Call your House and Senate member ASAP, before noon today, and ask them to vote t override Veto # 12. You can find a list of all House members here and all Senators here.

Please take this action immediately.

-------------------------------------------------------------------------------------------------------------

June 29, 2011

South Carolina General Assembly
State House

Re: Veto 12, Small Business Development Center

Dear Legislator:

Governor Haley, like Governor Sanford before her, has vetoed the entire state budget of the South Carolina Small Business Development Center (SBDC). We are asking you to vote to override Veto 12 as you and Representative Nikki Haley did last year. The reasons for your override vote have not changed since last year because the incorrect reasons for the veto are the same.

Governor’s Reason #1: This program is not central to the university’s (USC) mission.

The federal government requires that its one-to-one matching funds for the nation’s SBDCs go through an institution of higher learning. USC provides this administrative function for its partner institutions of Clemson, Winthrop, and SC State. The approximately $1.4 million federal dollars the state receives is added to the state, local government and some private funds to operate SBDC offices in Aiken, Beaufort, Charleston, Clemson, Columbia, Florence, Greenville, Greenwood, Hilton head, Myrtle Beach, Newberry, Orangeburg, Rock Hill, Spartanburg and Sumter. Every one of these offices will close if the Governor’s veto is not overridden. Local governments and private businesses will not continue to fund a program the state has abandoned.

Governor’s Reason # 2: This program duplicates services already offered by the South Carolina Department of Commerce and the U.S. Small Business Administration (SBA).

Neither the S.C. Department of Commerce nor the SBA provides one-on-one consulting services to small business owners trying to grow their businesses or simply trying to survive in this economy. The S.C. Department of Commerce only lists three small business functions of its website: providing information on educational resources, providing information on financial resources and its small business ombudsman’s office (which refers small business owner to the SBDC). The SBA lists Small Business Development Centers as a provider of SBA’s consulting services. Therefore the SBDC is not a duplicative service of the SBA because the SBA relies on the services of the SBDC.

In her letter, Governor Haley indicates that her vetoes will help us “move forward in strengthening our economy”. Her veto 12 does the opposite. It will seriously damage our economy that depends on our small businesses.

Sincerely,

Frank Knapp, Jr.
President & CEO
The South Carolina Small Business Chamber of Commerce

Billions still waiting for lending to small businesses

Last week at my meetings in DC with representatives of the Administration’s economic development team and key staff of the U.S. Senate Small Business Committee I expressed concern that possibly up to half of the $30 billion Small Business Lending Fund established last year would not be claimed. The fund was to encourage community banks and non-profit lenders to make more small business loans and the deadlines for applying for the money is this month.

On Monday the SBA announced a final push to inform the lending institutions of this important program.

You can help spread the word of the webinar being held today at 3 p.m. Let your community banks and those with Community Development lending programs know about this opportunity.

U.S. Treasury to Host Small Business Lending Fund Webinar

By CARLOS ORTEGA

On Thursday, June 9, at 3 p.m. EDT, the U.S. Department of the Treasury will hold a webinar discussing how Community Development Loan Funds and community banks can apply for the Small Business Lending Fund. The webinar will cover many topics including participation eligibility requirements, small business loan qualifications, and sample financial statement calculations.

The Small Business Lending Fund, part of the Small Business Jobs Act of 2010, is a $30 billion fund established to provide capital to qualified community banks with less than $10 billion in assets. The goal of the fund is to stimulate lending to small businesses, thus working toward the creation of more jobs.

The U.S. Department of Treasury will supply the capital by purchasing Tier-1 qualifying preferred stock or equivalents in each bank.

The cost of capital to the banks will be no more than 5 percent and can decrease if the bank increases its small business lending. However, the cost will increase if the bank decreases its lending in the first two years.

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.

SBA's Community Express loan ends

"Small business owners have reason to be a bit less merry this holiday season." 

That is the conclusion of Jerry Chautin, a local volunteer business counselor with Manasota SCORE, Counselors to America's Small Business. 

You need to read his opinion editorial (below) that ran in the Herald-Tribune on December 20, 2010, to understand why the SBA's termination of the Community Express loan program will probably make it harder for small businesses to get small loans.

SBA ending important program of lending

By JERRY CHAUTIN

Published: Monday, December 20, 2010 at 1:00 a.m.

THE U.S. SMALL BUSINESS Administration announced on Dec. 15 that it was ending its Community Express pilot loan program on April 30.

The program has been widely used by small business owners in need of small amounts of working capital -- up to $25,000 in most sites and $50,000 in Historically Underutilized Business Zones, called "HUBZones."

Even though SBA initially created the program to target women and minority applicants, it was offered to both minority and majority owned businesses. Lenders relaxed their underwriting requirements, relied heavily on credit scoring and streamlined processing. Loans could be approved within one week.

Because of the small loan sizes and acceptance of lower credit scores, community express lenders made loans to applicants that were not able to get credit elsewhere.

SBA created the pilot 10 years ago and it was never made permanent. That enabled the agency to end it with a stroke of the pen. Even so, Superior Financial Group and Borrego Express Capital Lending, the only two national lenders that make these loans in Southwest Florida, took the risk of developing the infrastructure necessary to make the loans profitably.

SBA said it will replace Community Express with two new programs on March 15. One is called "Small Loan Advantage" and the other is "Community Advantage." Both will go up to $250,000 and carry SBA's basic 7(a) program guaranty structure -- 85 percent for loans up to $150,000 and 75 percent for those greater than $150,000. But the loan application process will be more streamlined than basic 7(a).

But neither replacement will be made available through Borrego or SFG because both are non-bank, SBA-approved lenders. Instead, Small Loan Advantage will only be through the largest banks in the agency's "Preferred Lender Program." These banks have historically made larger loans that are 50 percent guaranteed up to $350,000 under the Express program, and 75 percent guaranteed up $5 million with basic 7(a).

Meanwhile, Community Advantage will be made available through "Community Development Financial Institutions, Certified Development Companies and non-profit microlending intermediaries," SBA said. Presumably those organizations are sensitive to the needs of their local constituency and will provide technical assistance along with their financing.

But to make a meaningful number of Community Advantage loans, the lenders will have to sell their loans on the secondary market to replenish their funds. SBA spokesman David Hall said lenders "will have to apply for authority to sell loans on the secondary market."

"We'll be evaluating those requests based on a number of factors, but primarily how well-capitalized they are," Hall said.

In my opinion, SBA is not offering enough of a carrot to get large banks in SBA's Preferred Lender Program to change their culture of making larger loans.

On the other hand, helping the underserved is in the DNA of community-based institutions. But it will take a while for them to understand SBA's 7(a) program and they will not make enough loans to have the enormously beneficial impact that Community Express lenders had on the small business community nationwide.

Small business owners have reason to be a bit less merry this holiday season.

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