Entrepreneurial

Save the pelicans and small businesses

June 29, 2010

– George A. Cloutier is the founder and CEO of American Management Services and the author of the bestselling book “Profits Aren’t Everything, They’re the Only Thing”. The opinions expressed are his own. –

For the last two months we have been inundated with photos of oil-covered pelicans and other marine animals victimized by the oil spewing forth from the ruptured BP well in the Gulf of Mexico. The spill in the Gulf is obviously disastrous, but it pales to the economic “oil spill” that has destroyed small businesses over the last two years.

Pelicans and small business owners are faced with surprisingly similar situations: they are victims of disastrous events beyond their control. They are faced with a life-threatening struggle for survival, in which many have already passed due to lack of assistance, or are facing an uncertain future with promises of government intervention.

Both groups are facing tough odds, but right now I’d rather be a pelican.

For small businesses, the Administration and Congress (both parties) have done little to mitigate the disaster; talking a lot about how much they care, but implementing only half measures and largely ineffective programs that only helped a few. Lending levels from commercial banks have seriously declined and have created a lending squeeze for small businesses at a time when they desperately need more credit.

Washington politicians passed a healthcare bill with provisions to aid small businesses in the payment of premiums, but forgot to mention, according to the Congressional Budget office, that only 11 percent of businesses with 25 or fewer employees would get some help. The eligible businesses will receive approximately a third of the total annual premiums back in the form of future tax credits. Why, as a business owner, would I add healthcare benefits for my employees when I will receive only 1/3rd of the additional costs?

The recent jobs bill allows for businesses to receive a $5,000 tax credit next year if they create a $40,000 annual job. This makes no sense. Why would a small business spend $40,000 this year to receive a possible $5,000 tax credit next year?

The Administration has provided depreciation, capital gains, and other tax credits which small businesses can only receive if they are making substantial money. They also won’t be able to receive the benefit until 2011. Such marginal bills are just another clear example of Washington’s promise-much-and-deliver-little-or-nothing approach.

Right now, the SBA (Small Business Administration) has reactivated its Recovery Loan Queue program, aka “get in line and when we have some money we might consider loaning it to you.” It’s also out of funding for its Recovery Act guaranteed loan programs. They should just put a sign up saying: “Window closed, try again tomorrow.”

Recently the House of Representatives passed a $30-billion program to increase the capital of community banks so they could make additional loans to “worthy” small businesses. This sounds good on the surface, but has not passed the Senate and probably won’t in its current form. The $30 billion allocated to community banks is supposed to encourage small business loans due to a lower interest rate on the infused capital, if the banks increase their small business lending. Unfortunately there appears to be nothing that mandates they must make loans to small business.

Another apparent jaw-dropping flaw is that the Treasury is not going to provide guarantees for small business loan defaults under this program, like they do for SBA ones. The SBA’s 90-percent guarantee program was improving banks willingness to make small business loans.

Follow the math: Community Bank Inc. takes $1 million in new capital allowing it to loan out as much as $10 million in new loans. The profit margin on these loans is in the 3-4 percent range, giving the bank an annual return of $300,000-$400,000 on its $1 million in new capital. Interest costs on the loans are as little as $10,000-$60,000, which is a small portion of the increased profitability provided by the new capital. Why would Community Bank Inc. loan to small businesses that are notoriously risky, unprofitable and have no real net worth? If the money is taken at all, much of it will simply go to less-risky loans.

President Obama states regularly small businesses have created 65 percent of all new jobs in the past decade (excluding 2008-2010). By most accounts small businesses are not creating new jobs so we pass an ineffective and patently silly jobs bill.

This year the Administration has made only 60,000 new loans, which covers just .002 percent of the 29 million small businesses. At that rate the government will save more pelicans than small businesses.

Photo credit: An oil-covered brown pelican sits in a pool of oil near Grand Isle, Louisiana June 5, 2010. REUTERS/Sean Gardner

Comments
2 comments so far | RSS Comments RSS

In answer to the authors questions; health insurance is part of a salary or compensation package for the work an employee does. You would add these benefits to be an attractive employer, not to get a tax credit. Similarly, if you created a $40,000 annual job, it would be because you need the additional labor, not to get the tax credit. The credits are just a little bit of help. If your business isn’t self sustaining, perhaps you should look for a good employer yourself.

Posted by jeweler | Report as abusive
 

I agree George. As a small business owner I’m an oily pelican and that isn’t going to change anytime soon.
The country as a whole is not on a sustainable path for solvency and growth and that hurts small business tremendously. 70% of the citizens of this country know it and that makes us anxious and apprehensive thus we don’t want to commit to anything. The remaining 30% of the citizens support the current self-destructive path we are on including the current federal administration which displays a stunning lack of leadership. Until the path is corrected, unemployment will remain very high.

Posted by PHILK | Report as abusive
 

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