Obama fails small businesses

November 12, 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. The opinions of George Cloutier are his own and do not represent those of the United States Conference of Mayors or Partner America. –

President Obama gets an “F” for his small business program. The SBA has guaranteed a paltry 50,000 loans  to the nation’s 29 million small businesses – that’s .0017. Loan volume is down 36 percent from 2008 and 50 percent from 2007. Obama and his advisers have actually done the unimaginable; they have reduced the flow of aid to small businesses in the face of a deep recession. The program’s bank lenders have left $15 billion on the table due to “regulatory problems.” Even an administration plan to provide lending to 70,000 vehicle dealers has no takers and failed.

Administration “experts” allocated less than 1 percent of the stimulus bill to small business. It’s mind-boggling that Washington ignores the biggest economic sector in the country employing 60 million people, producing 50 percent of GDP, and creating 70 percent of new jobs.

In the past several weeks, I have had the honor to lead events for small businesses in 15 cities (including Philadelphia,  Kansas City, Missouri and Baton Rouge, Louisiana) directly engaging with 2500 small business owners (employers only). Ninety-five percent of these business owners feel the administration’s stimulus plan and program has badly mistreated small businesses compared to Wall Street and Detroit.

On October 21st, President Obama announced a second stimulus for small business. His new plan must have been a political speech since it lacked specifics as to how many businesses would be helped, how much money would be allocated and distributed, and when the money would actually start flowing.

Recently, the House passed a bill that purports to offer $40 billion to small businesses. The banks, having left billions of dollars on the table, astoundingly were selected again as the prime source of lending.

The bill mentions authorizing the SBA as a lender of “last resort” if certain loans are not funded by the banks, with a complicated process yet to be determined. No amount of authorization is mentioned and the process to achieve “last resort” status has no definition or timeframe. Much of the lending purported in the $40 billion will be achieved by raising the limit on certain types of loans; this way more money can be loaned to fewer businesses providing political cover for Congress and the president.

Here’s a program the president should mandate.

Create a $50 billion pool for direct loans. Mandate that it should be working within 60 days. Make sure everyone understands that you need to go down the “risk curve” just as the administration did for Wall Street and Detroit.

Select a George Patton-like leader to organize a 24-7 program starting now.

Let’s move small business from the “kid’s table” to the Cabinet. Create a full Cabinet post for small business and entrepreneurship.

Let’s get some real accountability on the success of these programs into the public domain. Your administration should publish a weekly report with the number of loans made, the banks providing the loans, the amounts of those loans and where the banks are located. It’s time to hold the bureaucrats’ feet to the fire.

Energize the SBA’s current outreach and guarantee program. The SBA Administrator should be on the road 5 days a week promoting the “Get-A-Loan” program across the country with the SBA’s public relations operatives to promote it. SBA employee and office hours should be reconfigured to include after hours and Saturday hours when small business owner have the time to apply and discuss lending. Make sure the participating banks are present. Telemarketing centers should be set up to contact small businesses directly to discuss new lending programs since most are simply not aware. A large number of SBA employees should be put on cold calling programs to introduce lending programs to small businesses. Have “Get-A-Loan” days twice a week with open houses. Forget direct mail, fancy brochures, and ill-attended conferences that usually write only a few loans if that. Forget websites directed toward emergency preparedness and focus on more immediate loan priorities.  Make sure that calls looking for help do not disappear into voicemail hell.

On October 10, 2008, you stated, “Main Street needs relief and you need it now.” It’s time to stop sending breadcrumbs and deliver the beef.

15 comments

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Also, stop taxing small business working capital. Exempt from income tax an amoumt equal to some multiple of total payroll — say 24 months. That would allow small businesses to maintain working capital and would encourage more hiring.

Currently, if a small business earns $500K one year, the entire amount is taxed at either the corporate rate (for C corps) or the individual owner’s rate (for S corps). To the extent the $ are not distributed to owners, some amount based on a payroll multiple should be exempt from income tax.

Posted by Paco | Report as abusive

President Obama campaigned on the promise of SBA “EIDLs” (Economic Injury Disaster Loans) as a method for small business recovery. EIDLs do not need new procedures or processes. They already work for natural disasters (check it out at SBA’s website). These loans come direct from SBA, are rapid, amortized over 30 years and low interest. Generally, SBA sets up in shopping malls, etc. Low paperwork, quick funding. This is what is needed ASAP. Requires funding authorization from Congress.

Posted by Gail | Report as abusive

Mr Obama has not just failed small business. He has failed everyone except his fat cat sponsors. Time to move on America, Mr Obama is still recieving funds from big business. Time to stop the kickbacks, isn’t that what they all say before getting into office!

Posted by gd | Report as abusive

Congress is to busy bailing out the health insurance companies and banks to be thinking about the real people.
Farmers and small business are being left out to collapse and as that happens our country is going into depression.
We are repeating the run up to the depression of the early 20th century. Farmers go bust (drought in the west)(crop failures due to bad weather in the mid west),small businesses go bust and bingo,depression.

Posted by James | Report as abusive

I cannot agree the President failed to consider small business; he simply has not gone far enough. Also no President has control over the means to the end which is the larger part of the problem in a booming economy or recessionary period. Small businesses should be taxed less, not more is a reality at both the federal and state level. Mandates could kill many small businesses as long as the health care model demands employer provided health care; that treating small business like big business. Small business is not taken as seriously by any administration because it is private and not publicly controlled. Access to stimulus dollars is controlled by banks where less would be made available even if the means to the end could be controlled. Remember small business loans are based upon personal credit reports; it is harder now for small business to maintain good credit scores in an economic recession. The mantra remains “borrow money when you least or don’t need it”. That’s the the plight of small business today; they are more at risk which makes small business a higher risk overall. The entire strategy to get money to small businesses needs to be rethought.

Posted by Michele | Report as abusive

I agree, what we forget is that democracy shifted power to the polls. This is a worldwide challenge: small business generates jobs, rents, leases, housing, food, manages water, distributes and uses energy and IT which should ultimately lead to quality exports.

Tax multipliers that are generated through actuarial sliding scales should however be eliminated. Large and super corporates, including mines and banks seem to have incremental and effective tax breaks, so small businesses, general taxes and the 20/80% rule of thumb makes up the rest.

Posted by Casper | Report as abusive

Virtually all of the Stimulus funds have flowed into the economy through state governments who have used the funds to prop up their own budgets. Very few investments in public capital goods are even being produced, yet operational projects are well funded. What do we do next year.

Congress and the President had a perfect opportunity to ease the liquidity crisis in the banking sector while also aiding small employetr based businesses.

Unlike state government’s, the private sector probably had numerous “shovel ready” projects that wound up sitting idle for lack of funds. What if instead of pouring 750 billion into the capital structure of the nation’s largest banks we took those funds to re-capitalize U.S. enterprises that had solid plans for growth and investment. Theoretically, we could have capitalized 750,000 SME’s at $1,000,000 each. That’s 15,000 enterprises per state. Now if we further assume that this $1 million in new capital is the the typical equity position required by lenders then lenders could lend an additional 4 million per firm. Thus, we would have 750,000 firms investing a total of 3.75 trillion in new property, plant and equipment.

Why would they invest when consumption spending is down? Because not all sectors are stagnant and the infusion of capital lowers the cost of capital in this case by 20%, making existing investment opportunities more viable.

So if this were to take place, 3.75 trillion in new gross private domestic investment would be multiplied by at least a factor of two as a result of the new incomes that were created yeilding 7.5 trillion in increased GDP. If that new income was taxed at the lowest rate of 15% then the tax revenue stream for the initial investment would have been 1.125 trillion or an ROI of 50%. Even the most risk averse VC or angel investor would like that return.

I have been a proud business owner for 20 years.
Not this year. It is like being bullied everyday, again
and again.

Posted by charlotte | Report as abusive

Even if he pledges a few billion dollars, he has to make it easy for small businesses to get loan. There is no point putting so many barriers to strike fear in the small businesses’ owners.
Maybe the government can change the strategy of helping small businesses, such as offer to buy 20% equity of the small businesses, and provide networking opportunities, financial support, set up a team of legal and finance experts as shared services to help the small businesses.

From my perspective as a citizen of South Africa and having spent a long time in Europe, I have watched the US for a number of years and for the first time have bhothered to post. I mean this positively and sincerely: until you folks understand that you are incredibly self-destuctive and impatient, you will not emerge from any challenge; this is simply because you never stay around long enough to see the solution through. Everything must be done today, and exactly as the more than 300 million of you with your diverse requirements wants it done.

Your status is slipping, but ot because of your manufacturing output, Bush or whatever eolse you want to blame it on. It’s because you think you have some diving right to go through what the rest of the world goes through – and you’re wrong

Really hope you all grow up and become the nation you could be. If Obama fails, it’ll be because you couldn’t go along with him. Sad.

Posted by Mark Peach | Report as abusive

[...] will be there as well, sitting quietly in the back of the room, taking it all in. Will the invitees vent frustration at being unable to borrow, or to lend, or will they defer to power? Will the powerful offer bold [...]

Good ideas, but we have to stop expecting everything to come down from the President. Why not put pressure on the media to start talking about this…we are in economic stalemate because everyone wants to talk the political power game and now one wants to talk what is actually needed to get things done. There is stalemate at every turn.

Posted by G Hansen | Report as abusive

Big failure. Total failure.
Even as an owner of a successful, debt-free small business I find credit conditions to be far from reasonable.
I’d like to expand my business but I can’t, and I work on a cash base only.
And by the way, all that ‘recovery’ talk is a mixture of wishful thinking and hype. It’s not happening in reality.

Posted by yr | Report as abusive

I had a sweet little nitch market, repair service from 27 years experiance in a manufacturing business. respect fome the manufacture, but I carried 50k debt. I now have no credit, will file bankrupsy. No income and no parachute. Now people are getting 99 weeks of unemployment and I have to file for welfair. I was laid off after 9/11 and recieved 26 weeks unemployment. But now The all mighty ARC program comes along fully funded and fully garenteed. Fide a bank that will offer it other than to save their own butts. I’s not going to matter for long with gold still on it’s metoric rise it won’t be long before the U.S Folds. Nice guys finish last.

Posted by marv | Report as abusive

A government can never be benevolent. They can only redistribute what they plunder and mulct first.

That being said, this crisis was a crisis of confidence. If the Obama government could have provided generous SBA loan guarantees instead of giving handouts to fraudulent institutions like Countrywide/ BOA, investment would have mushroomed, in a good way. As a small business operator/owner, I have half a dozen projects, and associated employment possibilities, waiting for good funding sources.

The ideas we hear from the likes of Thomas Friedman, Eric Holder, and Tim Geithner are bankrupt, as are the ideas from our president. I refuse to work harder for this president or its chosen administration.

2010, vote out incumbents, Rep and Dem alike.

Posted by vinfromdallas | Report as abusive

I am an African-American and operate a Small Business that provides services to the Federal Government.

During the Bush administration we were shut out of most procurement bidding opportunities, as was all small, minority and veteran-owned companies. Large companies routinely lied about their size in order to siphon work away from small businesses, and federal regulations were routinely ignored by contracting officers and continue to be ignored.

The federal agency’s Inspector Generals turned a blind eye to this practice. I naturally assumed after a strong election victory, that fixing this would be one of administrations priorities, being that positive changes here would reverberate throughout the economy.

You can only imagine my disappointment in this administration’s ‘real’ attitude when it comes to including small, veteran-owned and minority businesses in any recovery act or day-to-day federal contracting opportunties.

Posted by Jettagl | Report as abusive