Posted: 02/21/2012 10:11 am
Lenders are concerned that President Barack Obama’s proposed 2013 budget and the political scuffling in Congress may leave the U.S. Small Business Administration and U.S. Department of Agriculture with inadequate loan-guarantee authority to satisfy the needs of small-businesses owners. If that happens, and “guarantee coffers are low, the borrower needs to worry if their loan will be approved before the program runs out of money,” says Mike Rozman, co-president and chief strategy officer of BoeFly.com. The New York City-based company matches borrowers with lenders online. Of further concern, he notes that “there is still limited conventional financing for start-ups.”
Before the financial meltdown and the Great Recession, start-ups were able to get financing when the applicant had related experience, invested approximately 20-percent equity into the venture and pledged collateral. That has changed drastically and fledgling entrepreneurs are left with few, if any alternatives. For more mature companies, however, “we’ve seen an increase in conventional lending over the past six months for existing profitable businesses seeking to expand or refinance debt,” Rozman says.
Kraig Kramers, a management consultant and consummate entrepreneur who turned around such Fortune 500 Companies as Snapper-brand lawn mowers, has advice for surviving economic turmoil and a possible tightening of credit. “Stay close to lenders and prospective investors long before you need them,” Moreover he says, “You must have prior happy relationships with those who will provide the cash timely when you really need it.”
He also coaches business owners to drill down “into cash management with tools you can introduce into your business to accelerate incoming cash.” Additionally, “Delegate these tools to those managers and employees who can do the best with them.”
Borrowing an idea from “a Fortune 500 company,” he says, “Look at a detailed balance sheet, yes, to the penny.” As a result, “we found a half-million-dollar stock certificate that had been forgotten.” But the technique is not just for large corporations. Kramers also found “recapturable deposits in several smaller businesses this way.”
Equally as important, cleaning up your financial statements, footnoting the most important line items and highlighting key financial ratios, prepares you for making a loan application. Furthermore, include an extensive discussion telling the loan officer and her committee how you arrived at the forecast for the next 12-month’s proforma.
Rozman adds that if customers get the cold shoulder from their exiting bank, the borrowers will need to be “aggressively seeking alternatives.” BoeFly’s 1,500 participating lenders pay subscription fees in order to view applications from entrepreneurs seeking financing. In addition to conventional loans, some of the lenders make loans that are partially guaranteed by SBA and USDA and may consider start-ups — especially for franchises.
SBA’s 7(a) loans are suitable to finance real estate, equipment, machinery, working capital, and to purchase an existing business. The agency’s 504 program is for fixed assets and most suitable to build, expand or purchase real estate. More recently, SBA initiated a temporary 504 program to “rescue” borrowers who have existing loans with balloon balances coming due and find that take-out lenders are scarce.
The basic 504 program requires job creation or retention and does not include working capital. But the temporary refinancing program waives the job-creating requirement. And it also allows some working capital for projected operating expenses.
USDA’s Business and Industry Loan Program is similar to SBA’s 7(a) but the businesses must be in rural locations. Sometimes, sparsely populated locations on the fringe of urban areas are approved. Unlike SBA’s loan limits of $5 million for 7(a) and approximately $10 million for 504, USDA’s B&I program tops out at $25 million under certain circumstances. And the loans may go up to $40 million for rural cooperative organizations that “process value-added agricultural commodities,” according to USDA’s web site.
Small-business owners are holding their collective breaths as the Obama Administration’s proposed budget wends its way through the politically-charged Congress. It is as much the chief executive’s opening salvo, as it is his wish list. But if the budget that survives includes large reductions of SBA and USDA guaranteed loans, you need to be prepared.
To test the water, talk to your bank’s loan officer about your chances of getting financing. It is better to see if your loan officer tap dances and stutters now than before crunch time. And if you don’t get a positive reply, start looking for other funding alternatives.
Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA’s 2006 national “Journalist of the Year” award winner. He is a former entrepreneur, commercial mortgage banker, commercial real estate dealmaker and business lender. You can follow him at http://www.Twitter.com/JerryChautin
Copyright © 2012 Jerry Chautin — All rights reserved
Huffington Post readers are permitted to distribute with attribution to the author
Follow Jerry Chautin on Twitter: www.twitter.com/JerryChautin
At each year end a favorite task for many editors is a look back at top stories of the “old” year” and in the early days of the new year sharing some highlights with readers. The choice of news items to highlight is usually sharpened as events throughout the past year put things in perspective, as to importance or “passing fad” items. Here are some of the hot issues of 2011 as your CIN editors saw them at the time.
How did we do in our trend-spotting? Send us your thoughts – and candidates for top stories of 2011. And what do you think the top stories of 2012 will be – let us know!
To start a look back at 2011: If you were keeping a scorecard on fiscal and housing issues during 2011, you would have needed extra paper and pencils (or in today’s world, lots of changes on those Excel spreadsheets).
The year was certainly filled with housing and economic news, including many twists and turns, as the US and global economies continued to struggle in an attempt to rise from the nagging Great Recession. (Still a top story for most of us in 2012).
The impact trickled down to virtually every household, every wage earner and every business during the year, and your CIN editors continued to provide timely information on a variety of important related subjects. Like Dave Letterman of late night fame and others, we have a Top 10 list of 2011 news and trends we will share with you over the coming issues of the newsletter.
Here is our choice for the top two trends of 2011 as we look back at our CIN Alert archives.
Hot Topic #1 – Is the American Dream Becoming a Nightmare?
As we brought the news in the issue of July 18, 2011. The day was perfect for early June: a bright blue sky, temperatures in the mid 80‘s and about 120 friends and family gathered around a village gazebo in the Southeast as Mike and Meredith tied the knot. There was just one thing wrong: the couple, who had dated for five years, recently learned that their plan to buy their own home a few months after they were married may be unraveling due to a proposed rule change by the federal government.
“The end of the American Dream as we know it may be near for millions of working families” said John Taylor, President & CEO of the National Community Reinvestment Coalition (NCRC). “At a time when our economy is fragile and our housing values have plummeted along come the regulatory agencies with a solution that will limit access to mortgages for millions of families. If regulators move forward with the current plan, it will block homeownership for millions of Americans, who will find themselves being punished for the mere fact that they are not wealthy.”
The plan which John Taylor referred to was a proposal regarding the definition of a Qualified Residential Mortgage which would require 20% down payments to get a loan. For young people like Mike and Meredith, with a modest income and minimal savings, there is no way they could come up with the $60,000 needed for the $300,000 home they’ve had their eyes on.
These are the type of critically important issues CIN editors explore every day in our Housing Section. For as long as our nation has existed the dream of homeownership has been a primary motivating force for individuals and families. Thanks to far-sighted public sector programs – such as the GI Bill for returning WWII veterans, federal tax deductibility for mortgage interest, and FHA or other government guarantees of mortgages – the rate of homeownership has now passed the 70 % mark in the United States.
In theory, everyone today who earns a salary should be able to buy a home of his or her own. However the impact of the recession combined with the proposed down payment rule change could place first time homeownership in jeopardy for millions of families. CIN stays abreast of this and many other housing-related issues with fresh new material and updates posted every day.
Hot Topic #2: How’s Business Down on Main Street?
In the issue dated August 1, 2011 we brought you news of small business. Sharon had always dreamed of owning her own small furniture store. Her parents had owned and operated a hardware store downtown for three decades, and she had plenty of retail experience, good and bad, helping them out as she grew up. However, upon graduation from high school, Sharon decided to major in education, eventually landing a teaching job at a nearby high school.
Even though she had a successful 12-year run as an English teacher, her desire to own a store never completely went away. It was at the high school’s graduation awards ceremony four years ago when one of the parents told her they were looking to sell the small furniture store they operated in a community about 15 miles away.
Sharon had been able to save up some money while teaching, plus as an only child, she had received a significant portion of her parent’s estate. She viewed this as a once in a lifetime opportunity. If she could cobble together the needed funds, she would buy the store, tidy up the building and focus on selling the type of furniture the big stores often ignored.
Three years later, her Main Street business is doing quite well, even in the midst of the economic recession. Meanwhile, Rod’s carpet shop across the street shut its doors for good last year, and Larry, the jeweler next door, is barely getting by. These are tough times, to be sure, but Sharon is a very hands-on owner, with extensive knowledge about every aspect of the business.
Is her success story the exception rather than the rule? Maybe not. According to a recent study, women owned small businesses are faring better than those owned by men. Findings indicate that, this past quarter, women-owned small businesses seem to be rebounding faster out of the recession than those owned by men.
CIN presented this article prominently in our Small Business Section — the place where such news, information, research and perspective can be shared to benefit local communities and our precious hometowns.
What developments and issues will be in focus as we enter the year 2012? None of us know for sure, but you can be certain that CIN will be here to present pertinent news, commentary and trends for you 24/7!
What were your top stories for 2011? Please let us know – and while you are thinking about it, what might the 2012 top stories be? What trends are you watching?
For many of us, the idea of starting a small business is a lifetime goal. In fact, the chance to be your own boss by providing a product or service ranks right up there with homeownership as one of the true American dreams. Despite tough economic times, the environment for starting a small business in many parts of the country is better than you might think, particularly in view of the various assistance programs made available for small business owners.
An enterprising business owner can be very successful, but it takes a lot of work. (And usually a lot more time and money than the business plan calls for.) Christy is an individual who knows the score. A Registered Yoga Teacher, she has been helping people achieve healthier lifestyles through massage therapy, group exercise, yoga, and Pilates for over 17 years. However, success had rendered a problem for her: the small storefront she used for years in a downtown Midwest city is just too small for her growing clientele. She faced a daunting task: Find a new location that would be a lot larger — yet also fit into her operating and personal budgets.
Driving to work one day through town, she noticed that ‘for sale’ signs had just been posted in front of a small one-story home nearby. All along Christy had been thinking about finding a larger storefront or office. Suddenly, the idea of conducting her instruction classes in a small home made sense. The next several weeks were consumed with meetings and communications with the local town officials, realtors and the chamber of commerce, to be sure that the zoning was correct and that she could have access to some small business assistance programs.
That was three months ago, and the bottom line today is: Christy has much more room in brand new surroundings, her customer base is growing by the week and it all fits into her budget very nicely. Things are looking up now for her.
All told, there are an estimated 15 to 17 million small businesses operating in America today. Small businesses are still the backbone of our communities – our Main Streets! — and are seen by many as the embodiment of the spirit of entrepreneurship.
Entrepreneurs are credited with creating the vast majority of new jobs and employing the majority of the nation’s workers. Granted, big businesses have emerged in fields where new technologies permitted economies of scale in the production and/or distribution of goods. Still, small businesses have remained vital to the nation’s economic development, and even more important as a component of American culture.
Even as our new 21st Century embraced what many Americans could view as superior efficiency and productivity (for both small and big businesses), Americans continued to revere small business owners like Christy for their self-reliance and independence and can-do spirit.
Small businesses have also been the primary way immigrant families coming to America have climbed the economic ladder and achieved the American dream. Many minority populations today — in urban, rural and suburban communities — have seized the small business pathway as a road to economic independence and building personal wealth.
CIN editors have always recognized the vital role played by small businesses, and we devote a large section of the CIN to them. This resource tool provides basic information – including the pros and the cons of small business ownership – basic start up information – government assistance programs on the Federal and State levels – grassroots programs provided by NCRC members – private sector assistance programs – franchising basics – banking connections assistance – available small business resources and the latest small business news and information. Here are some recent excerpts:
Small Business Owners Think Controlling Employee Expenses Will Lead To Cost Savings
(Source: Gaebler) A recent Citizens Financial Group/Mastercard study found 55 percent of small business owners believe better management of employee expenses would reduce costs and benefit their business, while 40 percent said more control over employee spending would give them a better peace of mind.
Wells Fargo Lends More Dollars to America’s Small Businesses Than Any Other Lender
(Source: Market Watch) 2011 US Small Business Administration data shows Wells Fargo & Company is the top lender in dollar volume, approving $1.2 billion in SBA loans to America’s small businesses for the 2011 federal fiscal year.
How Small Business Owners Were Hurt by the Fall in Home Prices
(Source: Forbes) Personal borrowing plays a key role in how many small business people finance their companies. When the housing crisis hit, small business owners that relied on home equity to finance their companies’ operations faced a credit squeeze. Thus, small businesses have access to about $25 billion less in credit than they would have had if the trend in home equity loans had continued in the direction it had been going in the first half of the 2000s.
Coffee Fix: Starbucks Pushes Small Business Loans
(Source: Business Week) New York Times columnist Joe Nocera lauds Starbucks for supporting community development financial institutions, the nonprofit lenders serving small businesses and affordable housing in low-income communities. The coffee chain is donating $5 million and encouraging customers to pitch in at the checkout line as well.
Geithner Defends Performance of Small Business Lending Fund
(Source: Business Week) Treasury Secretary Timothy F. Geithner says that the Small Business Lending Fund had been successful even if it was smaller than envisioned. The program closed Sept. 27, having distributed $4 billion of its $30 billion to 332 community banks nationwide.
- PR Tips for Small Business (wordsforhirellc.com)
- Small Business Concepts That Work in Today’s Economy (cash-bandit.com)
By Catherine Clifford October 5, 2011: 2:06 PM ET
NEW YORK (CNNMoney) — This year was tough for small business and next year doesn’t look much better.
Sound like a crazy time to launch a business? Not necessarily. For bootstrapping entrepreneurs who do their homework, 2012 could spell opportunity.
Indeed. Some of the country’s most successful companies got their start when the economy was flat on its back.
When Thomas Edison opened his lab in 1876 and produced the first light bulb in 1879, it was right smack dab in the middle of a recession. His company eventually became multinational conglomerate General Electric. (GE, Fortune 500)
“Necessity is the mother of invention — it is absolutely true,” said Ted Zoller, the vice president of entrepreneurship at the Kauffman Foundation. Entrepreneurs often “are looking for resolutions to problems.”
Make no mistake — it’s rough out there: Problems are definitely plentiful. So starting a business is not for the faint of heart.
“We are really in a nadir of consumer confidence,” said Zoller. “People are not taking chances. They are not taking risks.” And they are more tight-fisted with money than ever before.
Zoller, a small business owner, knows this from personal experience. Recently at his bead shop in Chapel Hill, N.C., a customer “was quibbling over a $5 purchase,” he said. “She wanted to bargain it down.” That kind of haggling makes running the business difficult. “We have to survive here,” he said.
Lower chances of survival are exactly why next year is not a good time to launch a business, said William Dunkelberg, the chief economist at the National Federation of Independent Business. Sales are slow for the established companies and just staying open is becoming a problem, he noted.
In 2005, the number of firms that were born outpaced the number of businesses that closed by about 80,000, according to the Department of Commerce‘s Census Bureau.
But by 2009, the number of firms that were being shuttered outpaced the number of companies being born by about 90,000.
“For the most part, there are too many firms, like there are too many houses,” said Dunkelberg. “Like there are too many of a lot of things.”
The hunt for capital: Capital will continue to be scarce.
The credit markets of 2011 are expected to be just as tight next year. And most lending to small businesses will come from community banks, which are already doing the lion’s share, said Ami Kassar, CEO of Philadelphia-based MultiFunding, a loan brokerage for small businesses.
Getting loans will not be a walk in the park. New entrepreneurs will have to be a lot further along with their business plans to get startup capital, experts said.
“They have to prove themselves, prove the revenue stream, get something going,” said Zoller of the Kauffman Foundation. “I think you will see a much higher frequency of ventures being started with little to no capital.”
Those who do get capital will most likely get it from alternative sources, such as friends, family and credit cards, said Ken Yancey, the CEO of SCORE, a nonprofit association, who does not recommend using plastic.
“It is an awesome time to start a business,” said Kassar. “But you really have to bootstrap it, be creative.”
A silver lining: Starting at the bottom does have its advantages. There is only one way to go — up.
“I really don’t think things are going to get a lot worse than they are now. If at all, things are only going to go up,” said Todd McCracken, president and CEO of the National Small Business Association.
If the economy does start to show signs of life, business owners who launch in 2012 “will be in on the ground floor,” he said. “They will look back in 10 years and be glad they started in 2012.”
But it’s important to be prepared, said Yancey of SCORE. Jumping in the deep end and hoping things will work out is not the smartest approach, experts said.
CNNMoney agrees, which is why we are launching the ultimate startup guide, a series of articles to help entrepreneurs weather the challenges of 2012. Check out our first gallery on incubators here.
- Ted Zoller: U.S. Entrepreneurs Need A ‘True Global Mindset’ (huffingtonpost.com)
- Business tips from Recruitment Genius CEO Geoff Newman (simplybusiness.co.uk)
- Do First Things First, EzTimeSheet Employee Attendance Tracker Helps Small Business Be Productive Amid Downturn (prweb.com)
The community is the natural nest for hatching new enterprise — it is the birthplace and home of small business, which provides the largest growth in employment. Friends and family often provide the capital and sweat equity to start a business.
The culture of a local community is a key factor in nurturing entrepreneurial spirit. A community where local people feel they are a center of enterprise creates the vision and support. The culture encourages people to initiate enterprises, members use their buying power to support local enterprises, and they put their savings to work in community credit unions and banks. Their dollars circulate, providing the economic support that parallels and strengthens local social support. Some communities even have a local currency to incentivize support of local economy. A related economic power of a connected community is access to jobs. One quarter of job seekers get information from relatives, friends, and neighbors.
Without strong community connections the economy becomes
co-opted by systems.
Strong community connections spawn new enterprises, sustain them, and provide primary access to employment. Without these functions, the economy becomes a land of large-scale institutions unable to sustain a local workforce (and so large they’re destined to fail to serve any interests but their own).
In the consumer ecology, care is co-opted by systems: businesses, agencies and governments. Insurance agencies send letters to tell us they care about us. Charities ask us to give money to pay for the care of people. Government pays hospitals and medical professionals for their service. In each case, they are providing a paid service — not care. Systems offer services for pay.
Genuine care can’t be paid for — it is given, free of charge. You can pay for services for your mother in a nursing home, but she may lose the care of family, friends, neighbors, faith, and service groups. They become visitors to a service system; she becomes a client.
The place to look for care is in the dense relationships of neighbors and community groups. We have a competent community if we care about each other, and about the neighborhood. Together, our care manifests a vision, culture, and commitment that can uniquely assure our sense of well-being and happiness. This source of satisfaction is complete in and of itself — not dependent on the next purchase.
No business, agency, or government can fulfill basic community functions. If we don’t know our neighbors, aren’t active in local community life, pay others to raise our children and service our elders, and try to buy our way into a good life, we pay a big price. We produce a weak family, a careless community and a nation that tries hopelessly to revive itself from the top down. Reversing this situation is difficult because of the power of systems to make consumers out of citizens.
By seeing the consumer ecology for what it is, we can shift our thinking and become producers of our own future.
By seeing the consumer ecology for what it is, we can become citizens again. We can shift our thinking and decide who we take ourselves to be: producers of our own future, or purchasers of what others have in mind for us. Consumer society begins when what was once the province or function of the family and community migrates to the marketplace. It begins with the decision to purchase what might have been homemade or produced locally. This is how citizens yield their power to the lure of consumption.
Consumption is like an addictive drug. The market promises what it knows won’t be fulfilling. This defines its counterfeit nature — trying to make something appear to be gratifying or satisfying when it is not. The fact that dissatisfaction persists after achieving the good life means the good life is not satisfying. Unfunctional families and incompetent communities signal that we’ve reached the limits of consumer satisfaction.
For example, we talk of the child as a product of the School System, starting early the migration of the child from citizen to consumer, from family and community life into system life. We count on the School System to perform many family functions—to feed them, discipline them, and provide custodial care.
The same dependency goes for other family functions — like health, entertainment, nutrition, employment, mental well-being, elder care, and environmental stewardship — all have been outsourced to professionals. All are organized in systems designed to deliver these functions in efficient, low-cost, consistent ways.
We made the leap from being citizens to being consumers in a culture that sells the idea that a satisfied life is determined first by defining and promoting needs and then figuring out how to fulfill them. We create a larger market by determining that families and communities are filled with needs that are best serviced by systems and professions.
Consumerism offers purchased solutions to being human, providing a substitute for what could come naturally to families and communities.
This is the more profound cost of the consumer promise, the denuding of community capacity. The institutional counterfeit of compassion and support is a two-part package: first, the spin of optimism backed up by a purchase; and, second, the denial when it does not happen.
For example, in advertising we are promised immortality, eternal youth and happiness. This promise is elegant, moving, entertaining. At the end, ways the product could hurt us are described in small print or spoken rapidly — accentuate the positive, eliminate the negative. We call this “spin.” Responses of spin and denial are designed to keep organizations on course. Systems can’t allow sorrow to become personal. When systems lift the veil of denial and spin to apologize or express sorrow, it is either because they’re forced to by law, or it is long after any consequences.
The effort to find a fix for our humanity only forces us into counterfeit promises and unsatisfying results. Often we believe that if we do more of what does not work, it will finally work. This is the dilemma of the consumer economy: it leads to a place where when we reach a limit and still are unsatisfied, we think, if only we had more we would be successful or satisfied — more police, physicians, teachers, services, stuff.
This is not a solution — it’s an addiction. Consumerism is not simply an economic system — it can be considered an ecology. It impacts how we relate to each other; it shapes our relationship with food, work, music, ritual, religion — all elements of culture.
And for this ecological system to work, we have to participate in the effort to purchase what matters and persist at it, despite the lack of results. This consumptive ecological system produces hollowness in our lives, even for those who are winning at the game.
When the housing bubble popped in 2009, it left many American communities with foreclosed and vacant homes and businesses.
The American Jobs Act would help restore thousands of these abandoned properties and put construction workers back to work in the process with Project Rebuild. The $15 billion project would create thousands of jobs to tear down abandoned properties, renovate foreclosed homes and maintain abandoned properties until they can be sold once again. Intended to initially help communities with the largest number of foreclosed properties, Project Rebuild would create much-needed jobs and energize the country’s blighted communities at the same time. Key components of the project include:
- Stabilizing communities by focusing on distressed commercial properties and redevelopment;
- Federal funding to support for-profit development — when consistent with project aims and subject to strict oversight requirements;
- Increased support for “land banking“;
- Establishing property maintenance programs to create jobs and mitigate “visible scars” left by vacant/abandoned properties.
It can be difficult for a city to recover when, on top of unemployment, homes are boarded up or downtown is empty. Vacant properties can weigh down the value of nearby homes, increase neighborhood blight and crime, and stand in the way of economic recovery. Project Rebuild’s strategies are exactly how smart growth can help communities facing these challenges.
Communities are already using all of Project Rebuild’s strategies with great success. Between 2005 to 2009, foreclosure rates rose rapidly in greater Cleveland, Ohio, resulting in tens of thousands of vacant or abandoned properties. These unproductive areas of the city lowered property values and scared away businesses. In response to the crisis, the Cuyahoga County Land Bank was formed to revitalize neighborhoods, improve the local economy, and create jobs. The quasi-governmental organization takes land off the books of lenders if they agree pay for demolition of the properties.
New York State has also used the strategies outlined in Project Rebuild. Governor Andrew Cuomo signed the New York Land Bank Act into law on August 1, giving local governments across the state a critical tool to return vacant and abandoned properties to productive, income-generating use. Land banks can promote reuse of existing land, spur downtown investment, and speed neighborhood revitalization. And land banks put control in the hands of local leaders, making it possible to work with specific community circumstances and goals.
Vacant property revitalization is just one of the smart growth strategies included in the American Jobs Act. The bill also includes strong funding for public transportation projects, as well as road repair — both of which have been proven to create more jobs per dollar than new highway construction. Smart Growth America’s analysis of 2009’s American Recovery and Reinvestment Act revealed that public transportation projects created 70% more job hours per dollar than highway projects. In addition, studies of transportation job creation show that on average, road repair produces 16% more jobs per dollar than new road construction. Both these types of transportation infrastructure projects mean this bill will help communities above and beyond its direct job creation potential.
The American Jobs Act recognizes that America’s towns and cities are a worthy investment. The proposed investments in transportation choices, land banks and vacant property redevelopment as well as the federal grant programs that support these strategies are exactly what many struggling communities have been waiting for. Congress should pass this bill to put thousands of Americans back to work now and rebuild the country’s economy for years to come.
Follow Geoffrey Anderson on Twitter: www.twitter.com/smartgrowthusa
- Rebalancing the Housing Market (ritholtz.com)
- The American Jobs Act, Summarized (news.firedoglake.com)
- Rebuilding New Orleans and the Gulf Coast (scoppcanton.wordpress.com)
- Obama’s Plan To Target Foreclosed Properties Depends On A Broader Recovery (huffingtonpost.com)
- US Data: Cost Breakdown Of $447 Billion America Jobs Act (forexlive.com)