First 100 Days: Do not marginalize small businesses

February 3, 2009

georgecloutier1— George A. Cloutier, a graduate of Harvard Business School, is the founder and CEO of American Management Services, one of the nation’s largest turnaround and management services firms specializing in small and mid-size companies. He is also the author of the upcoming book, “Profits aren’t Everything, They’re the Only Thing.” The views expressed are his own. —

Why are the Obama Administration, Congress, and the Senate marginalizing the nation’s largest industry in the new stimulus plan?

Small Business Inc. employs about 60 million people, accounts for 70 percent of new jobs each year, and clearly represents the backbone of almost every regional and local economy. For this vital industry, the administration has allocated less than 1 percent ($700 million earmarked vs. $1 trillion in proposals). The nation’s leaders continue the small business program of the Bush years: talk a lot and do practically nothing.

The sponsors of the bill, most likely to succeed, say that small business will benefit indirectly from the spending programs. This is the same discredited thinking of Reagan’s “trickle-down” economics.

Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and Lawrence Summers, director of the Economic Policy Council, have absolutely no experience with small business.

They have no idea what it’s like to not meet a payroll, have no money because collections are slow, and to be able to only pay a fraction of their bills to stay in business.

Approximately 12,000 small businesses will close their doors every week this year. The Obama administration says it cares about the little guy, but what they should say is that they care about the little guy except for those who own small businesses.

The current proposed stimulus bill offers $630 million to support the loan guarantee program of the SBA, although the SBA’s two largest business loan programs were down 40 percent so far this year and over 30 percent last year. The proposed bill fantasizes that by cutting the loan fees to small business, volume will skyrocket. Loans are down because banks don’t want to take the risk on marginal credit with only a 75 percent guarantee from the government.

The stimulus bill includes various minor tax cuts for small business, as well as additional depreciation and write-off incentives. Of course, these benefits can’t be collected until at least 12-15 months from now in 2010, when small businesses file these tax returns – assuming of course that they made any money in a widely-acknowledged terrible year for small business. Stimulative effect here is, in fact, probably near zero.

And what about the approximately 600,000 plus small businesses that will fail this year, and the millions of businesses that won’t make a profit?

President Obama has continually said he and his administration wants new ideas so let’s see if they are listening. Here are some honest proposals that bear consideration:

1. The stimulus package should immediately allow $25 billion in direct loans to small business, bypassing the recent history of declining bank-guaranteed loans to make sure that the money gets quickly and efficiently to small businesses. Small Business Inc. will never be a gold-plated borrower and the bill must make allowances for this, by broadening the loan criterion ensure the great majority of small businesses are eligible.

Small business loans are no less risky, when we look at the current situation, than those that have already been given by the government and Federal Reserve to the likes of Citibank, Bank of America, AIG, the auto industry, etc.

2. The current SBA bank loan guarantee program should be altered to a 100 percent guarantee by the government rather than the current 75-85 percent allowed. This guarantee program is down 40 percent not because of the fees involved but because the banks are risk averse to losing 25 percent on marginal loans that are costly to collect anyway.

If you and I were running a bank we would not like this program and we would attempt to marginalize it, which is what is actually happening in the marketplace. Actually, the government should pay increased loan fees to ensure that the banks get solidly behind the program.

Small businesses would willingly pay the bank’s fees if they could secure the money they need. For example: right now the fastest growing service offered to small businesses is “merchant advances.” These are small loans made at interest rates of anywhere from 30 percent to 250 percent by legally organized companies. These companies make payday lenders look benign.

3. The SBA budget should be increased fivefold to $3 billion and emphasize management assistance and serious outreach to small business. In surveys we have conducted recently, less than 10 percent of small business owners understood the loan programs offered by the government.

4. There are many other stimulative programs that can be offered including technical assistance, a Small Business Peace Corps, broader and better enforcement of set aside programs.

5. The Federal Reserve should be directed and empowered to make loans to small businesses at 2 percent to 3 percent, which is currently being charged to the mismanaged Wall Street companies.

The Obama Administration repeatedly asks for proposals. They say, “Yes we can!” Small Business Inc. asks, “But will you?”


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Small businesses are getting second, third, and fourth mortages on their homes to keep in business during these rough times. Small business owners are working other jobs in order to pay the bills at their businesses. Then the banks not only mortgage their homes, but charge them a high interest rate. This is just giving the banks more money. I’m all for the government giving the small businesses loans at 2-3 percent, so that they can pay off these high interest rate loans with interest that is more manageable. Then they can lower their prices (which helps the american consumers) because they don’t have so much going out on interest payments.

Posted by Doris Hammersley | Report as abusive

I am a small business owner that by months end might have to close our business. There is not enough help for us little guys for sure. And all the big banks are doing is closing our accounts so there is no capitol left to even survive with. I with the government would remember us and help us before it is to late.

Posted by jean | Report as abusive

From my own perspective, the best thing our government could do for the true small business man or woman is to enforce our immigration laws. I cannot compete with companies or other small businesses that are using illegal aliens in their work force…that means I either A) become a law breaker and hire illegal aliens myself, or B) close the business because I cannot compete with the pricing structure brought to the market by those wrongfully and illegally hiring illegal aliens.

Small business may create 70 percent of the jobs in America, but who are they hiring? If the answer is illegal aliens, then you deserve NO HELP from our government, and no support from the American buying public…call me jaded, but I find it odd you failed to bring this important subject up in your discussion here.

As to giving ANY BUSINESS access to funds because our government backs the loans 100 percent…I am against such quarantees (see nuclear industry as example of why). If you are going to be in business, risk your own money, not the tax payers money. The banks do not share their profits with taxpayers when the loans do not go into default, so why should we as taxpayers have to cover their risks? If we have to do that, it would make more sense for our government to simply cut out the banks and lend money directly to the end line user be it a retail customer or a small business owner…at least then we share the benefits as well as the risks in backing loans being made, rather than the current system where banks benefit greatly in the good times, then pawn off their debt on the American Taxpayer in the bad times.

Posted by Sherwood | Report as abusive

What is the diffreence between small business and big business in 2009?

Small business/entrepreneurs are making money not losing hundreds of billions in write-downs. The list of mind numbing failures includes some long standing blue chip companies. The cornerstones of American Business. It is beyond mind boggling. The only big businesses that are still making money are McDonalds, Microsoft, Exxon, and the big Defense weaponry and oil and energy services contractors.

Most new jobs are created on the local, small business level. These are the new wealth creators. They don’t need to steal it, they make it. They serve their customers, deliver a product or service, and make a profit.

Remember those? Profits..
Don’t see many profits in big business these days do you?

Posted by cyn | Report as abusive

The Government likes it when employers employ illegals!
The “illegal” has payroll taxes deducted and FICA deducted, but never file a claim for those funds! The withholding tax and FICA stay with the government. Our small business ahd several illegals working for us, for about 3 weeks! we were notified that there Social Security numbers did not match the names, so we had to terminate them until they got the mess cleared up, none-the-less, we did include their payroll tax in our quarterly reports! They will never see a tax refund! Whats not to like about that in the eyes of our wonderful Government??
Our business is suffering,we are behind on our mortgage, and we have sold some equipment to make payroll and payroll taxes, there is no reliefe in sight for us or the hundreds of thousands of other small guys like us. We are moving to Canada.We cannot stand our Government mis handeling the taxes we pay them to run our country, so they are fired! Hmm, I wonder if we could get them charged with embezzlement???

Posted by Patty | Report as abusive

The govt standing guarantee to any kind of loans would mean a free distribution of money. The loan should be available to somebody who can return the money. Else is it not subprime lending

Posted by TS | Report as abusive

Thank you for writing this. I have owned a small business
for 20 years. I enjoy being innovative and encouraging others
to do so. My risks so far have provided ample income to myself
and many others. I have never ben late on a bill. This year I
will probably close as risk taking is proving increasingly difficult.
What happened to the American dream?

Posted by siobhan Morgan | Report as abusive

The Borgen Project has some good info on the cost of addressing global poverty.

$30 billion: Annual shortfall to end world hunger.
$550 billion: U.S. Defense budget

Posted by Abel Tsegga | Report as abusive

[…] If you would like to read more please click here. […]

Posted by The First 100 days – Where is the Green for American Business Financing .org : Business loans. | Report as abusive

I have owned a family restaurant for 28 years. I work here 7 days a week. I have always turned a very decent profit for my efforts until the past 18 months. I have, over the years, grown and gradually employed more people(many family). This has been the worst year ever for business with our costs soaring, energy bills high, (Pennsylvania)and profits and volume at an all time low.
I am located in a very small town where more and more people are losing their jobs everyday and I know there is nowhere for me to turn. The money I have saved for my eventual retirement is now being eaten up just to keep my doors open and my loyal employees from losing their houses. Through no fault of my own this is happening, and there is NOTHING I can do but try to decide whether to keep holding on or get out. Only problem is, I’ve just lost a huge portion of what my business was worth a year ago, and there is no one able to get financing in this market even if they were willing to take the risk now and buy a stagnant business where you are guaranteed to work 7 days a week for your trouble.
Where is the help for us? And I do not mean loans. No one in their right mind wants to make payroll or pay bills on credit. We need immedialte tax breaks and substantial enough to actually “stimulate.”
If not, my last 3 decades of hard work will be worthless and my employees will be even worse off.
I would sell the company jet if I had one but I don’t so I guess my car is next. How bad does this have to get before anyone looks our way? Busineses like mine are the backbone of America. I worked hard and acheived the American dream only to now watch it slip through my fingers because of the greed factor of big business.
Yet we get no help. We get socialism to boot. Help, please.

Posted by Kim from PA | Report as abusive