More from the Summit for a Sustainable Economy

The American Sustainable Business Council had a very good Summit for a Sustainable Economy at the White House yesterday.  In addition to the morning's panel on sustainable economic growth that I moderated, I also facilitated a breakout group on small business taxes and revenue in the afternoon with a representative from the White House National Economic Council and the Small Business Administration. These two ladies might have wished that they had not been at the meeting because of the grilling they received.

Today I am leading a meeting at the Security Exchange Commission to discuss crowdfunding that the SEC is responsible for writing the regulations.  Later in the afternoon, I and some other ASBC folks will be meeting with the Congressional offices of Senators Jeff Merkley, Thad Cochran and Lindsey Graham.

I will be back in Columbia late tonight. 

Procurement codes need small-business bulldogs

State Senator Jake Knotts of Lexington County, South Carolina, is angry. 

Recently a school district in his county gave the contract to build a new school to a big Chinese general contractor that had the low bid.  Senator Knotts shares the outrage of many of his constituents.  While a local architectural firm is being hired to draw the plans and supervise construction, only one other in-county business is being brought on board the project.  The rest of the construction services appear to be going to U.S. businesses outside the county and state.   

But the main concern for the Senator is the Chinese general contractor, and rightfully so.  We can expect to see the steel, concrete, furniture and other goods needed for the contract being imported from Chinese manufacturers.  Millions of local tax dollars will flow back to China draining much needed cash from our local, state and national economies. 

Senator Knotts, who has a reputation as a legislative bulldog, wants to change the procurement code to give locally-owned businesses an advantage in the bidding process for government construction contracts.

For many years, the South Carolina Small Business Chamber of Commerce was concerned about the State procurement code, not because of China, but because we did not feel that in-state small businesses were getting their fair share of contract work.  After many years of lobbying, in 2009 the Small Business Chamber of Commerce (co-founded by Senator Knotts), the state’s General Assembly passed legislation that increases the chances that South Carolina small businesses will receive more state government contracts for their goods and services.  However, this procurement change did not apply to construction contracts, which have traditionally been solely based on low bid.

But the problem for small-locally owned businesses in government contracts isn’t just a local and state issue.  The largest government purchaser of goods and services, the United States federal government, is also a concern.

According to the American Small Business League (ASBL) Congress passed the Small Business Act in 1953 that set a goal of awarding 23% of all federal contracts to small businesses each year.  Sounds good doesn’t it.

So what small businesses have been the beneficiaries of this Congressional effort?  ASBL looked at the data from the Federal Procurement Data System and found these “small business” federal contractors in FY 2011:

Apple-IBM-Microsoft-Chevron-Shell-Sony-Siemens-Toyota-Coca Cola-Wells Fargo-Bank of America-Citigroup-General Electric-PepsiCo-Ford Motors-Home Depot-Xerox-JP Morgan Chase-Ernst & Young-PriceWaterhouse Cooper-Raytheon-Hewlett Packard-Panasonic-CVS-Verizon-Time Warner-Boeing-Disney-Comcast-Lockheed Martin-AT&T-Rolls Royce-British Aerospace-General Dynamics

ASBL says that these big businesses get away with being counted as small business contractors by the federal government and every year they siphon off billions of tax dollars intended for real small businesses “due to fraud, abuse and loopholes”.  ASBL lays the blame for this outrage primarily on the U.S. Small Business Administration and Department of Justice, for failing to enforce procurement laws; and on outdated carve-outs for special interests.

This problem has apparently existed for years with calls for Congress to act not having much success. 

Sounds like small businesses need a bulldog in Congress on this procurement issue.  How about it, Senator Knotts???

Small Business Strategies: Obama's proposal could hurt

By Rhonda Abrams, USA TODAY

January 20, 2012

Want an SBA loan? Don't bother applying if you needed less than a few hundred thousand dollars.

In looking at President Obama's just-announced proposal to combine the SBA with five other agencies, I'm fearful we'll soon return to the days when small business received little attention and fewer dollars from the government.

The president has proposed to consolidate a number of departments focused on business and trade into one super pro-business agency. The goal is laudable.

"We'd have one department where entrepreneurs can go from the day they come up with an idea and need a patent, to the day they start building a product and need financing for a warehouse, to the day they're ready to export and need help breaking into new markets overseas," Obama said in announcing the plan.

Everyone can agree it's a good idea to make it easier to navigate government programs and reduce government waste.

But is this really the place to start? After all, it's not like small-business programs are rolling in dough. The network of Small Business Development Centers — one of the most efficient and effective government programs ever created — now receives what one person so aptly described as "budget dust."

"These changes would help small-business owners like you. It would also help medium and large businesses," Obama said.

Uh-oh. What do you think's going to happen when programs charged with helping businesses like yours and mine get subsumed in an agency charged with helping large corporations, too? Who do you think is going to get the bulk of attention?

It doesn't have to be malevolence, just human nature.

If I'm a government official charged with helping businesses grow, it's a lot less effort to help one 3,000-person company grow to 5,000 employees than helping 200 small companies add 10 employees each.

I'm also somewhat concerned about the president's use of the term "entrepreneur."

A trend is developing with some entrepreneurship advocates to focus only on fast-growing companies with the potential of being the next Google, Apple, or Microsoft.

I love those kind of companies. Heck, I live in Silicon Valley, and I'm surrounded by entrepreneurs working on building mega-businesses. America needs them, they keep us competitive and they create tens of thousands of jobs.

But America needs companies with 10 employees as well as 10,000.

Companies with fewer than 20 workers employ more than 21 million Americans, and companies with fewer than 100 workers employ about another 21 million. That's roughly a third of all working Americans.

And that's not counting the many millions of one-person businesses — the self-employed construction workers, consultants, hair stylists, software programmers. In much of America, self-employment is the only path to a middle-class income.

Small businesses and the self-employed represent a significant portion of our economy. We need a decently-financed, strong agency that will work especially for small companies with an independent voice.

If the president's plan goes through as proposed, small businesses will lose their seat at the table.

Obama just elevated the Small Business Administration chief, Karen Mills, to a Cabinet position. But she shouldn't get too comfortable with her chair. In the proposed agency, the new director would replace her.

I'm all for creating a one-stop website to make it easier for companies to access all the resources available from the federal government. But that doesn't require restructuring a bunch of agencies. In fact, Obama announced that he's soon launching a site called Business USA.

Why collapse the SBA?

Being part of a larger agency is almost certain to diminish what little voice it has now. Instead, why not give the Small Business Administration greater powers, bringing more of the far-flung programs within other agencies under its purview?

Details of the proposed uber-agency have not yet been explained, and we'll have to see what those are.

But, remember, while it may be a great idea to bring all the animals under one roof, when you do, the smallest ones are most likely to get trampled.

Rhonda Abrams is president of The Planning Shop and publisher of books for entrepreneurs. Her newest is the 5th edition of The Successful Business Plan: Secrets and Strategies. Register for Rhonda's free newsletter at www.PlanningShop.com and "like" The Planning Shop on Facebook for updates. For an index of her columns, go to smallbiz.usatoday.com. Twitter: twitter.com/RhondaAbrams.
http://www.usatoday.com/money/smallbusiness/columnist/abrams/story/2012-01-19/obama-small-business-plan/52685870/1

SBA under attack

When the federal government was bailing out big banks, Wall Street’s corporate America, Fannie and Freddie; one important federal financial program stayed solvent—the Small Business Administration. 

The SBA’s primary job is simply to encourage private financial institutions to make small business loans that they might otherwise not do.  The SBA accomplishes this by guaranteeing up to 85% of the loan, which reduces the risk to the private lenders.   If the loans are repaid, the taxpayers aren’t out any money. 

So it is amazing that during the recent great recession that tanked the economy, you didn’t hear cries from the SBA that it was going under.  You would think that a program this successful in helping promote small business growth would earn it some respect and even the pledge from Congress to beef up the program.  But just the opposite is happening.

There appears to be a well-coordinated effort to strip the SBA of all funding.  Two days after the conservative-leaning Rasmussen Report released a most probably-skewed public opinion poll claiming that 58% of the public wants to end the SBA, an opinion editorial calling for the same appeared in free-daily conservative rag The Washington Examiner.  The next day the Wall Street Journal reported on both.   (This is how the conservative media pushes an issue into the main stream.)

In the op.ed Tad DeHaven, a budget analyst with the libertarian Cato Institute, says that encouraging private financial institutions to make small business loans isn’t necessary. 

Obviously Mr. DeHaven has no experience as a small business owner.  His idealistic “think tank” views are great for a salaried employee who doesn’t have to worry about his or his employees’ next paychecks.

Capital markets have developed effective private solutions such as credit scoring to overcome the asymmetry of information between lenders and borrowers.  Besides, small businesses with sound business plans and solid prospects should be able to raise debt and equity capital through private means.

Yet, there will be plenty of similarly “principled” members of Congress who buy into this dangerous “eyes wide shut” business philosophy and will encourage the budget deficit Supercommittee to axe the SBA.

But as Bob Coleman, editor of the Coleman Report, pointed out last month in a speech at the 2011 Mid America Lender's Conference in Fort Worth the SBA did not need a bailout and the program resulted in almost $10 billion in loans to Main Street in the 4^th quarter of 2010.  That is a tale of success, not a reason to terminate.

Here’s a change—Action instead of talk

Once again we are hearing the popular political refrain about small business being crucial to leading us out of the current economic malaise.  Yesterday President Obama announced his proposal that he believes will boost rural, small business economic development.

According to a Bloomberg report  the President’s plan will include:

(E)xpanded loan programs run by the Small Business Administration through a $1 billion investment fund aimed at luring private capital, job search and training services, and increased access to health care and technology.

(T)he Navy and the departments of Agriculture and Energy will invest as much as $510 million in a program aimed at producing biofuels for aircraft and ships. The plan, part of the administration’s energy strategy, will benefit rural areas, according to Agriculture Secretary Tom Vilsack.

What makes me have more hope that this talk about helping small businesses is not just more political pandering is that the Administration doesn’t need Congress to put his proposals into action.  The President can just shift some existing funds around in the agencies he controls. 

This mean that these programs, while still not the big job creation programs we need, can actually come to fruition to help some small businesses.  Plus, since the effort won’t add a dime to government spending, our federal-budget watchers should be appeased.