Obama's stimulus aims to boost access to small-biz loans

By Peter Schnitzler, Indianapolis Business Journal

To read the full article online click here.

No incentive can make a bad deal bankable. But President Obama’s stimulus measures are spurring some promising small businesses to begin borrowing again, despite the recession. National politics will help determine whether the budding trend accelerates or stalls.“The president has announced a very exciting series of initiatives. That’s the good news,” said attorney Frank Swain, a partner in Baker and Daniels LLP’s Washington, D.C., office. “The asterisk to bear in mind is, nearly everything the president has proposed will require legislation.”

Obama has a variety of incentives on the table designed to encourage entrepreneurship. For starters, he wants to move $30 billion from the Troubled Asset Relief Program, or TARP, over to community banks that will put it to work in small businesses.

The president also aims to give the Small Business Administration authority to refinance commercial real estate loans for owner-occupied property. Obama has proposed raising the caps on a variety of SBA loans, and he wants Congress to approve a $5,000 tax credit for every net new employee a small business hires.

But at the moment, it’s unclear whether Obama will even be able to preserve the small-business banking measures he’s already added to the books. Thanks to the American Recovery and Reinvestment Act, the SBA is attempting to rekindle borrowing activity by increasing its loan guarantees up to 90 percent and waiving fees.

The SBA’s current loan incentives are scheduled to expire at the end of the month without congressional renewal. Some local entrepreneurs are taking advantage of federal stimulus incentives while they last.

Alivio Medical Center, at 21st Street and Shadeland Avenue, is exactly the type of small business President Obama is attempting to assist. Founded in 2002, it has four full-time physicians, three specialists and a staff of 30. It serves 25,000 patients, primarily Hispanic people for whom Spanish is their first language.

The business has expanded so quickly that it’s twice outgrown facilities. Last fall, Alivio borrowed $705,000 in SBA-backed money from Fifth Third Bank to buy its current building, a former pain clinic.

Dr. Alfredo Lopez-Yunez, 42, a Colombian native who’s Alivio’s owner and director, said he probably could have secured a loan without the SBA’s assistance. But because of its involvement, Alivio used funds that would have gone for fees to instead open a dental clinic and an ophthalmology clinic.

“I wouldn’t say it was a no-brainer, but it was close to that, it was so good,” he said.

McCordsville-based Grassroots LLC is another beneficiary of the SBA’s current incentives. Owner Todd Stadler distributes a variety of musical instruments from a tiny 3,000-square-foot warehouse, “but we use every bit of that room,” he said. He launched the business in October with the help of an $80,000 loan from Star Financial Bank, backed by the SBA. His motive was a common one for entrepreneurs: Stadler, 33, simply wanted to work for himself.

Grassroots has four full-time employees and two part-timers. In just a few months, it has attracted 250 customers and aspires to 2010 sales of $1 million, with a profit margin of 25 percent or better.

“I’ve worked hard for others. I knew I’d succeed if I did that for myself,” he said. “My mind-set was, I’ll do whatever I have to to make this work.”

The SBA’s changes were rooted in necessity. In 2008, wary entrepreneurs battened down their hatches. The international credit crunch trickled down locally into a 35-percent slide in both the quantity and size of SBA-backed bank loans.

The result was a partial, concentrated revival. The SBA’s Indiana District Office reports that its gross dollar totals for loans made during the last 12 months reached 86 percent of their pre-recession level. But the SBA underwrote only about half as many loans as before the downturn.

Mark Schroeder, CEO of Jasper-based German American Bancorp Inc., wants to see the SBA’s current loan incentives extended.

Just before Christmas, Schroeder was one of 12 community bankers from around the country invited to meet personally with Obama. He told the president that German American was fortunate to be well-capitalized and willing to lend. But because of the recession, he told Obama, businesses simply aren’t borrowing. For the last two years, most have concentrated on reducing their inventories and tightening their receivables, not taking on debt for expansion.

As businesses shrink, Schroeder noted, they have less collateral to offer as loan security. That increases their default risk. Until recently, the problem has been hidden by the lack of loan demand. But it will become pronounced as they begin growing, and seek new credit for working capital.

Schroeder believes the SBA’s increased guarantees ought to be extended through 2011, and perhaps beyond.

“That was my point to the president,” he said. “If you pull that SBA credit-enhancement support off the table too soon, just when this economy is ready to come back up and back out, that’s when you’re going to see the credit crunch.”

Obama’s new entrepreneurship proposals also include eliminating capital-gains taxes on investments in small businesses and accelerating tax-depreciation schedules for their equipment purchases.

Swain, the Washington, D.C., attorney, said local entrepreneurs should keep their lenders’ phone numbers handy to track the changing landscape for small-business incentives.“

Chances are that many, if not all, the changes will be made pretty quickly,” said Swain, who served as the SBA’s chief counsel for advocacy before joining Baker and Daniels. “If somebody desperately needs help today, they have to deal with current program rules. But in a month, the rules could be changed.”

"Do The Unexpected" - AOL Small Business

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By STEVE STRAUSS, AOL SMALL BUSINESS

Q: Hey Steve -- I feel like my business is in a rut. We are successful and all, but I want to try some new things. The problem is 1) what, and 2) cost. Suggestions? Thanks!

Joe

A: Let me begin to answer your question this way:

I was in New York recently on business and upon checking into my hotel, the clerk said to me: "Mr. Strauss, we are not full tonight. Would you like a free upgrade?" The next thing I knew, they handed me a goody bag of bottled water and chocolate and then took me up to a gorgeous suite. As I was not a frequent guest of this hotel or chain, I was very surprised. Will I be back? You bet!

All businesses fall into ruts. That is quite common. But the best businesses, the exceptional ones, do like the hotel in New York -- they do the unexpected.

Doing the unexpected in your business can pay tremendous dividends -- for your customers of course, but also to you. Doing something different or unexpected shakes things up. It revs up the 'ol creative juices. And that, in turn, can create a domino effect of other positives. As they say, if you keep doing what you have always done, you will keep getting what you have always gotten.

Here is what I am talking about:

Unexpected customer service: This is one area where doing the unexpected can make the biggest difference. Customers expect that you will offer a good product or service at a fair price and be pleasant in the process; that is a given. But it is when you go above and beyond and do something special that they take notice and you begin to create exceptional loyalty.

Here's an example: I recently read a story about a gentleman who took his car to the repair shop. On the way home he realized that something was still not quite right with the car. He called the repair shop from home and they offered to send someone out to pick up the car, they stayed open late to fix it right, and they delivered it back to him a few hours later. The customer was delighted at this unexpected service and the shop turned lemons into lemonade.

Unexpected marketing: You have a couple of cool marketing tricks up your sleeve. You must -- you are still in business. But the problem is that by doing the same marketing campaign again and again, year after year, the same people see it.

But by doing something new and different, you ensure that new people will become aware of your business. Maybe it's putting up some Facebook ads or starting to tweet daily specials. Maybe you start advertising on the radio. Whatever the case, unexpected marketing will yield unexpected results.

Unexpected products: I see that some airlines are starting to offer in-flight WiFi. That is new and unexpected and nice. What about Jet Blue giving everyone their own TV set on the seat in front of them? A unique product can be a difference maker. Just ask the Chia Pet people.

Unexpected policies: Nordstrom's return policy is world famous. And the diner down the street that won't let you substitute a salad for french fries is evidence of the power of the unexpected policy for the wrong reason.

Unexpected priorities: Great businesses are about more than making a profit. When he died, Joe Wilson, founder of Xerox, was found with a small blue index card he kept in his wallet. It said, in part, "To attain serenity through the leadership of a business which brings happiness to its workers, serves its customers, and brings prosperity to its owners."

"Bring happiness to its workers?" Wow.

Doing the unexpected helps you stand out from the crowded field because it is, well, unexpected.

Food Truck Entrepreneurs Start a Revolution on Wheels

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By LAURA TIFFANY, AOL SMALL BUSINESS

On a somewhat chilly Thursday evening, a group of young college students have driven 10 miles because of a tweet. Their destination: a bar in Costa Mesa. Or, to be more specific, a food truck parked outside a bar in Costa Mesa. Their goal: the nachos served by Taco Dawg, an up-and-coming food truck that specializes in a unique mix of hot dogs and tacos with a few distinct sides like fried mac 'n' cheese.

A first-time patron, also alerted by Taco Dawg's Twitter feed, drove up from Laguna Beach. Another regular customer lives in the neighborhood, and a potential Taco Dawg fan wandered out from the bar, attempting to determine if this truck was more than just a "roach coach." And, indeed, it is.

Like many new gourmet food trucks on the scene in Los Angeles, New York City, Nashville, and Austin, Texas, and other towns, this one's got foodie cred: The menu was developed by classically trained chef Todd Mosher and includes tacos with homemade salsas and hot dogs with custom baked buns. Customer favorites veer toward fusion items like the Texan, a taco that includes bacon, tex-mex sauce and crispy fried onions, and the Taco Dawg, a hot dog topped with taco staples like taco meat, sour cream and pico de gallo.

CEO James Foxall serves as the front man and marketer for Santa Ana, California-based Taco Dawg, which started just a few months ago. He jovially asks the college students to "Yelp" about their meal and hands out free branded T-shirts. "We're trying to create a destination," says Foxall. "The old model of lunch trucks is you just [park somewhere], then find business around the area. What my partners and I, and I'm sure a lot of [the other food truck operators], are trying to do with Twitter and everything is create magnets."

The Truck Trend
One name stands out among the many food trucks that have come on the scene over the past year: Kogi Korean BBQ, the Korean-Mexican fusion truck that took Los Angeles by storm in just a few short months. Launched in November 2008 by former Le Bernardin chef Roy Choy, Mark Manguera, and Caroline Shin-Manguera, Kogi lured hundreds of foodies outside nightclubs and bars with the power of Twitter, tweeting their locations. Since that time, Kogi has grown to four trucks and a brick-and-mortar location.

"The new wave of gourmet food trucks has struck a chord with consumers for three reasons," says Lisa Jennings, the West Coast bureau chief of Nation's Restaurant News. "They tend to offer good food at a low price point; the use of social media to communicate location gives people the feeling they're part of a movement or club; and people are intrigued by the cowboy entrepreneur hitting the road to sell food."

Joshua Henderson, who owns Skillet, a mobile street food business housed in two Airstream trailers in Seattle, agrees that there's a "coolness" to the trend. "It's about the kind of cult-like following and being 'in the know' -- part of something that's viral," says Henderson, who began his company in 2007, before the wave broke.

However, quality is far more important to Henderson than any viral marketing or trends. He changes his menu every few weeks because it's based on seasonal ingredients. "What people consider high-end food doesn't really need to be," says Henderson. "People should have access to good ingredients in well-executed food at a reasonable price."

Moving Forward
While the trend of food trucks is just getting started in some cities, with chefs and entrepreneurs gaining awareness among local foodies and navigating local laws to get licensed and find locations, many existing food truck operators have their sights set on a future in a brick-and-mortar location.

"Many of the food truck operators I talked to hoped to open a restaurant, but they couldn't get a loan in this economic climate," says Jennings. "Some are highly trained chefs who are victims of layoffs. Launching a truck is a more affordable way to test the waters with a food concept. It remains to be seen, however, whether truck operators will be able to successfully transfer their audience to a brick-and-mortar location."

Kogi has set up shop in the kitchen of the Alibi Room, a Culver City, California, bar, and rumor has it they're also going to open a standalone Kogi location.

Meanwhile, Henderson is bottling his bacon jam, a condiment sought after by his patrons, to sell in gourmet food stores. "The growth strategy this year is to open a Skillet diner and get our condiment out around the country," says Henderson, who parks his trailers during lunch service, but also caters many events. "We want to be a company that has somewhat of a national presence but is just physically present in the Seattle region."

Foxhall, whose truck is parked in office parks and high schools during the day and near bars at night, says he and his partners also have bigger plans. "We want to go to brick-and-mortar. We want to go to concerts and events," says Foxhall. "The truck is definitely [a stepping stone]. It's a tool to get our name and our food out there, and eventually get a following."

Monday Funny...

Al Smith visited Sing Sing prison soon after he was elected governor of New York. His verbal problem began as soon as he had toured the grounds and began to address the inmates. He was unsure how to begin, but finally he said, "My fellow citizens." Then he recalled that when one goes to prison, one is no longer a citizen. So, he the said, "My fellow convicts." This brought a roar from the inmates.

Finally, Smith blurted out: "Well, anyhow, I'm so glad to see so many of you here."

Cautionary Tale

Wall Street Journal

Small Investors Lost It All in Memphis

By LINGLING WEI

The commercial real-estate mess is clobbering lots of investors. Few of them are reeling as much as the 27 owners of 1023 Cherry Road in Memphis, Tenn.

The office complex about five miles east of downtown tumbled into foreclosure last fall because the owners couldn't refinance the $14 million loan used to buy the two glass-and-steel buildings in 2004. They also lost all $7.1 million they invested.

Cherry Road's collapse is an ominous sign for thousands of other commercial real-estate deals in which mom-and-pop investors pooled their money to get a tiny piece of the action. As unemployment and fallout from the credit crunch fuel rising vacancies and declining rents, a growing number of small investors are getting wiped out.

"We ended up all losing collectively $7 million of lifetime savings," says Lynn Rogoff, a New York artist who put $213,000 into the Cherry Road deal. Individual losses range from about $100,000 to $700,000, according to Cherry Road investors.

Many such deals were structured as so-called "tenant-in-common" ventures, known by the acronym TIC. Often, the TICs took out commercial mortgages that were packaged into commercial-mortgage-backed securities.

"Now, they're starting to experience problems on the property levels," says Marc Perusse, principal at RSS Advisors, a Denver firm that works with troubled TIC investors. "With the majority of TIC investments being syndicated from 2005 to 2007, the future of many of these assets is extremely bleak."

CMBS delinquencies climbed to about 6.5% this month, an all-time high, according to Trepp, a New York company that tracks the commercial property market. More trouble is looming for small-time property owners because much of the $223 billion of CMBS debt coming due between now and 2013 is in the form of mortgages of less than $50 million.

TICs surged in popularity after the Internal Revenue Service said in 2002 that they could be used by investors to defer capital-gains taxes from the sale of "like kind" properties. More than $14 billion in TIC equity is outstanding, according to Omni Real Estate Services, a TIC brokerage and research firm in Salt Lake City. Unlike deals where large developers overloaded acquisitions with debt, many of the mom-and-pop deals were conservatively underwritten. For example, the Cherry Road group put up a third of the purchase price in equity, and the buildings generated more than enough cash to service the debt.

If the $14 million mortgage had been held by a bank, it might have been refinanced or modified because the owners were current on their payments when it came due.

But the Cherry Road loan, made by KeyCorp, was sold off as CMBS to investors by Merrill Lynch & Co., now part of Bank of America Corp. When the loan matured in April, the owners couldn't refinance the debt, since the CMBS market has essentially been shut down for more than a year. The owners also reached out to about 40 banks, but were rejected by all of them because the property's value had declined.

One problem: The lone tenant, Harrah's Entertainment Inc., moved its back-office operations out of Cherry Road even though its two leases are in effect until 2012 and 2017 and the company has continued to pay rent. The move by the tenant has caused a significant drop in the property's value.

Cherry Road property's manager, TIC Properties Management LLC, contacted the "master servicer" about a loan extension, according to Paul Aiesi, the company's chief investment officer. But the servicer, KeyCorp, was only in charge of passing along interest payments to the CMBS investors every month. According to CMBS rules, a master servicer has no power to modify loans before they go into default. A KeyCorp representative declined to comment.

After the mortgage wasn't paid off when it came due in April 2009, it was transferred to a specialist in troubled loans.

"We put some strong proposals in front of the special servicer, but they showed very little willingness to negotiate at all and seemed content to foreclose and keep the property" in its real-estate-owned portfolio, Mr. Aiesi says.

A spokeswoman at the servicer, ING Clarion, declined to comment.

Mr. Aiesi says the servicer offered to extend the loan if the investors would contribute another $2 million in equity. He recommended against that move.

"The property is worth significantly less than the debt on it," he explains.

Cherry Road investors say they are innocent bystanders who are paying a painful price for the credit crunch.

"We're not going out to fancy dinners and we're not taking vacations or major trips," says Steve Harris, a retired television-advertising executive who lives in Valley Center, Calif. He declined to say how much he invested in the Cherry Road building.

Article: These space mission cuts will cost us our scientists

These space mission cuts will cost us our scientists
After yesterday's retreat, the US and Europe will fall behind in the space race. The next man on the moon will be Chinese


Colin Pillinger, guardian.co.uk
Monday 1 February 2010

Few people who ­remember the 1960s can fail to have been inspired by the drama and excitement of the space missions, which pitted the United States against the Soviet Union in a race to land a man on the moon. Today there is still a massively competitive space race; but yesterday the Barack Obama administration cancelled its Constellation programme, which had aimed to put astronauts back on the moon. With the US effectively out of the race to the moon, the field is now clear for India, China and Japan.

The 1960s space race was about ­military prowess. This time it's about economic and technical leadership, but in terms of our future prosperity it is just as significant.

The US says it no longer wants to spend big money on rockets and will let private industry build them. Nasa also plans to develop ways of refuelling spacecraft in space to cut the costs of taking them there. This might be the best way eventually to get humans to Mars. There will be robotic missions to explore where humans want to go. I hope this means that at last we will get a sample of Mars and the missions won't be an expensive waste of money.

The main costs of the space programme are salaries – in relative terms the components cost very little. But you can't sack everyone in Nasa, because you know that at some future point you'll need their expertise and experience. I fear that in practice Nasa's leaders will be tempted to have their scientists undertake more background studies. But we've done all the studies we need to obtain samples from Mars and know exactly what to do with them.

Why do we need such samples? For a start, it is not possible to have a manned mission to Mars until we can definitively answer the question of whether there is any life there. Without this ­information, we risk astronauts bringing back microbes to Earth which could wipe out life on our planet. I hope cancelling the moon mission will in fact accelerate humans going to Mars, not mean that something even more ­inspirational will slip back.

Under George W Bush, the US had planned a manned lunar mission by 2015; this was then pushed back to 2018; now it's gone altogether. And Europe isn't any faster when it comes to going to Mars: the European Space Agency wanted to build ExoMars – a robotic mission to Mars – by 2009. But it's already 2010: they've been going for seven years and seem to have little to show for it.

They've gone for a high-cost failsafe mission which is long in the planning; but I believe they should be doing smaller, faster, cheaper projects – those which require a limited number of ­people but can be quickly completed, and through which they can learn a lot, even if the mission "fails" – although I believe there's no such thing as failure if you learn something. I headed the Beagle2 Mars mission in 2003, and in my view it's impossible to ensure a mission has a 99.9% chance of success. It's far better to spend the money on, say, three missions that have 95% chance. Europe could have done Beagle again by 2007, but instead we are still waiting.

By contrast, in India and China things are happening quickly – these countries are not afraid of making mistakes and learning from them. They've both had recent lunar missions; they're now planning to land on the surface with a robot; and after that will come a manned mission. I believe that the next man or woman on the moon will be Chinese.

And the importance of this goes way beyond space travel, once a nation shows it has the ambition, the ingenuity and the economic strength to mount such a mission. Just as the launch of Sputnik in 1957 showed that the Soviets were a technological power to be reckoned with, so it will be with India or China. These countries recognise that dynamic economies need to create something for the nation to export – be it providing the innovation for electronic goods, or whatever. Lunar missions – and, beyond that, Mars missions – are hugely effective in bringing young ­people into science and technology.

In the west, we have now had two generations who have missed out on such inspiration. Indeed, we risk our top scientists migrating to Asia.

If you went into a British classroom and asked how many children wanted to be a scientist, on average 2% would put their hands up. In India, about 30% would say yes. That's the difference between the west and the emerging economies; and that's why, ultimately, if we don't address this situation, it could be us staffing their call centres.

From Denverpost.com...

The redlining of small businesses
Owners feeling starved of debt and equity capital, and tired of being at the bottom of the priority list.

By Henry Dubroff and John Huggins

Politicians trying to figure out why the electorate is so angry and frustrated will find answers in a simple chat with shopkeepers and small-business owners on Main Street.

When it comes to small business, the disconnect between reality on the ground and what policymakers are talking about is enormous. Even worse, the aspirations of small-business owners are being eroded not only by economic jitters but also by massive uncertainty about deficits and future government policies.

Many small-business owners feel they've been financially and politically redlined — starved of debt and equity capital, shut out of the political conversation and put at the bottom of the priority list while big companies and unions get huge financial and tax breaks.

What's at stake in this redlining of small business is enormous. Although there are only about 5.5 million small businesses in the U.S., they account for half the jobs in America and the lion's share of job growth. The "jobless recovery" is due in large part to the fact that small businesses have yet to see any advantage at all — and see much risk — in adding to payrolls.

This is a far cry from the situation less than a decade ago, when consistent small-business job growth made the American economy the world's exemplar.

This near-perfect environment for small-business job growth was put into place in the late 1980s and lasted for more than a decade. It included infrastructure in the form of cheap technology, readily available access to basic services at Kinko's and Staples, plentiful capital and a tax environment that favored entrepreneurship. Even the tight job markets of the late 1990s didn't stop the steady stream of entrepreneurial wealth creation.

However, around 2003, small-business formation and job growth began to be taken for granted as policymakers took their eye off the ball. Rising health care costs and uncertainty about individual coverage for people who struck out on their own added to the personal risks of starting new companies. Sarbanes-Oxley reforms, intended to reign in excesses at big companies, reached far into small concerns, touching closely held businesses, adding to costs, paperwork burdens and, most of all, risk.

Failure to permanently fix thorny tax problems — including the alternative minimum tax and the estate tax — added to the uncertainty. The easy money of the housing bubble era had the effect of creating a debt trap for folks starting new businesses. Once the housing market softened, those home equity loans became an albatross that could sink a fledgling company.

As we have seen, the financial sector became the dominant growth engine for the American economy. Too much of our nation's intellectual capital was devoted to trading systems, debt securitization and the creation of toxic derivatives that brought the global financial system to the edge of collapse. Comparatively little capital was spent on building small-business resources.

Once the recession hit and the financial crisis worsened, resources went right to the head of the economy (the financial sector), leaving the heart of the economy (small businesses) with no blood and no oxygen supply.

While the government provided up to $700 billion to big banks and big companies through TARP, SBA guaranteed lending fell nationally by 27 percent from nearly $18 billion to $13.1 billion. In Colorado, the results were worse: SBA-guaranteed lending plunged 41 percent, from $556 million in fiscal year 2008 to $330 million in fiscal year 2009.

The National Federation of Independent Business Small Business Optimism index, which had hovered pretty steadily around the 100 range since the end of the 1993 recession, plunged to the low 80s, well below earlier recessions. The December NFIB index remained stuck at 88, not nearly high enough to trigger job growth. Hiring plans "remain in negative territory," according to Wells Fargo Economics, which reported on the NFIB index in its January 15 economic roundup.

At a recent small-business summit hosted by Sen. Michael Bennet, business owners described the perception gap between small businesses and the financial sector. In an example of how the spiral of redlining has gotten out of control, business owners said they were interested in getting loans but perceived the banks as unwilling to lend. Lenders said they were willing to make loans but perceived borrowers were shy about taking on new risks.

Uncertainties about the true impact of health care reform, cap-and-trade legislation, estate and alternative minimum taxes and even capital gains taxes loom. The perception exists that small-business lending remains shut down. These challenges and news of gigantic bank bonuses strongly reinforce the idea that neither the financial system nor the political system are working for Main Street, especially the thousands of small-business owners who have dipped into or even exhausted their savings in order to keep their employees on the payroll.

Unless government policy begins to tilt back in favor of existing small-business owners and entrepreneurs with dreams of striking out on their own, the political and financial redlining of small business will exact a heavy toll on the economy — and on elected officials in every state.