"Hey bar owners, or those interested in being bar owners, check out this great article on tracking inventory..." - Larry
Tracking Inventory: A Profit Paper Trail
Nightclub & Bar (www.nightclub.com)
August 15, 2011
By: Robert Plotkin
To be financially successful, you need to know what inventory you have, how much you paid for it and exactly where it is at any point in time. Tracking products throughout your operation doesn't necessitate purchasing high-priced software. Instead, it requires implementing a series of overlapping internal systems that in concert track every product through the inventory cycle. In bookkeeping jargon, it's referred to as "cradle-to-grave" accounting. While uncomplicated, they key to the system is ensuring that all of the components are in place and being used properly.
To read the full article... click here.
Showing posts with label owning a business. Show all posts
Showing posts with label owning a business. Show all posts
Thursday, August 18, 2011
Monday, February 1, 2010
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.
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.
Monday, January 4, 2010
The Other Shoe is Dropping
I sometimes think that business brokers are like the canaries in a coal mine as we are often one of the first to "smell" trouble. It appears that we are now in round 2 of business closings. Many of the marginal businesses closed within months of the downturn in the economy as most did not have the resources to survive any drop off of business. Round 2 appears to be effecting the more stable and substantial businesses who have exhausted their resources to fund operational losses and are electing to go dark rather than continue in business. This trend has been accelerated by the drawback of bank credit and the inability of many to secure "normal" lines of credit. Many pundits have suggested that the banks are "hoarding" money to ride out the potential collapse of the commercial real estate market. It appears that there is a strong element of "self fulfilling prophesy " to this strategy as the banks are contributing to the demise of the very tenants which are the lifeblood of the commercial market. For those with nerve, this may be a real buying opportunity.
Friday, December 4, 2009
Money Saving Secrets
Entrepreneurs' Best Money-Saving Secrets
By CHARLOTTE JENSEN, AOL SMALL BUSINESS
Even before belt-tightening became de rigueur, entrepreneurs were building businesses while quietly finding ways to cut costs. So who better to ask in a recession for their smartest, savviest cost-cutting tips? Here are 17 creative, easy and unexpected ways entrepreneurs are slashing hundreds -- and sometimes even thousands -- of dollars from their budgets.
1. When business travel is a must, optimize it. "Drive where possible, use travel as an opportunity to pack in as many meetings as possible, buy your hotels on Priceline, use last-minute flight discounts or take connectors to lower airfare."
-- Aynsley Deluce, partner, Parkingspots.com
2. Examine your balance sheet carefully. "By carefully looking beyond the totals to the details, we cut out $30,000 of expenses without any pain. We cut $10,000 in unnecessary bank fees, $1,800 in paper cups and plates, and $350 in credit card annual fees."
-- Julie Sue Auslander, president, cSubs
3. Think ahead. "We conduct a weekly shipping supplies inventory checklist to track usage. That lets us place larger shipping supply orders about every six to eight weeks, and we save about $1,000/year in freight costs compared to when we placed orders every two to four weeks."
-- Eric Mindel, director, PeppyParents.com Inc.
4. Question everything. "Never, ever be afraid to get four to five different opinions, estimates, thoughts, etc. In my business, I learned a long time ago no price is the final price, so when searching for products or suppliers, I have always asked, 'Can you do better on the price?' I've saved thousands of dollars across the board just by asking."
-- Christian Beebe, owner/founder, Worldwide Graphics & Sign Co.
5. Put an end to unnecessary upgrades. "Technolust can be very expensive--speaking from experience. As long as our existing technology equipment is adequate, we make do. This is a recent change for Geektime and has saved us over $20,000 annually for the last two years."
-- Alexander E. Fowler, president and senior consultant, Geektime Design Studios
6. Give e-learning a try. "For a couple hundred bucks, or sometimes no money at all, we can get schooled on new techniques without leaving our desks for professional development. We saved thousands last year."
-- Colleen Troy, owner, Touchpoint Communications
7. Team up for big savings. "We have substantially cut down on our overhead costs by office sharing with a structural engineering firm that has, like everyone else, had to cut down on staff. It is a win-win for both of us. We get the benefits of a large, fully functioning office, and they get income. We are also co-marketing on several projects since our firms' work is synergistic."
-- Virginia McAllister, principal, Iron Horse Architects
8. Get your green on. "Reduce paper consumption -- it is both green and economical. By changing what we print, we were able to reduce our consumption of paper by 90 percent. That translated to several hundreds dollars a year."
-- Orit Pennington, owner/CFO, TPGTEX Label Solutions Inc.
9. Give new life to items you would otherwise discard. "We save money by using pre-used boxes, newspapers and other scraps for all our packaging."
-- Adrien Edwards, co-founder, TheNakedHippie
10. Hire a college intern. "They will work for experience, are excited to be a part of a startup and will provide insight into their demographic. Give them the opportunity to own their work and see how quickly your company will grow as a result and for nothing more than time, appreciation and a killer recommendation."
-- Colleen Leader, owner, Loose Thread Stitchers
11. Shop around to secure the best deals. "I have begun to use different sites for any travel we do. For example, in the past I might call Avis directly to rent a car. Nowadays I go on RentACarNow.com, which is a marketplace of all vendors, and compare rates. This way I find the cheapest rate for my travel. I also use Hotels.com for hotel booking. It's incredible how much I have saved -- over 40 percent on my travel budget for the year. No longer can we rely on one vendor."
-- Robert Tuchman, founder, TSE Sports & Entertainment
12. Try an alternative compensation structure. "Hire commission-only sales reps and consider giving a sizable commission -- [it's] still cheaper than paying a salary."
-- Bradi Nathan, co-founder, MyWorkButterfly.com
13. Volunteer. "In addition to helping a great cause and gaining a personal sense of fulfillment, you often have the opportunity to meet/network with people who may have an important impact on your business -- including successful business leaders, angel investors, political leaders and members of the media -- that you would likely not have had access to in any other venue, regardless of how much you spend on marketing and PR."
-- Sarah M. Place, CEO, Place Trade Financial
14. Find cheaper ways to network. "A luncheon can easily cost $30 to $45, but you might get away with $5 to $10 to attend a happy hour. You can meet just as many people, if not more, when attending a cheaper event."
-- Ansley Meredith, owner, ENERGIZED Media Relations
15. Create buzz (for free) with social media. "We have developed a loyal following on Twitter and Facebook and have seen traffic to our website continue to grow. We've learned that directly connecting with people in their preferred mode of social communication not only enhances our valuable customer relationships, it doesn't cost a penny."
-- Jeff Avallon, co-founder, IdeaPaint
16. When possible, work virtually. "Maintaining a home office eliminates the costs associated with having office space."
-- Adil Lalani, founder and CTO, TwitVid
17. Keep employees happy (read: prevent turnover). "The costs [associated with] being a person short, running ads, time spent interviewing and the downtime while someone gets trained are huge. And then there are the indirect costs -- a dip in client confidence, burned-out staff because they're picking up the extra load and potential loss of clients. It all adds up to a huge number--a number most small businesses cannot afford to pay." -- Drew McLellan, president, McLellan Marketing Group
By CHARLOTTE JENSEN, AOL SMALL BUSINESS
Even before belt-tightening became de rigueur, entrepreneurs were building businesses while quietly finding ways to cut costs. So who better to ask in a recession for their smartest, savviest cost-cutting tips? Here are 17 creative, easy and unexpected ways entrepreneurs are slashing hundreds -- and sometimes even thousands -- of dollars from their budgets.
1. When business travel is a must, optimize it. "Drive where possible, use travel as an opportunity to pack in as many meetings as possible, buy your hotels on Priceline, use last-minute flight discounts or take connectors to lower airfare."
-- Aynsley Deluce, partner, Parkingspots.com
2. Examine your balance sheet carefully. "By carefully looking beyond the totals to the details, we cut out $30,000 of expenses without any pain. We cut $10,000 in unnecessary bank fees, $1,800 in paper cups and plates, and $350 in credit card annual fees."
-- Julie Sue Auslander, president, cSubs
3. Think ahead. "We conduct a weekly shipping supplies inventory checklist to track usage. That lets us place larger shipping supply orders about every six to eight weeks, and we save about $1,000/year in freight costs compared to when we placed orders every two to four weeks."
-- Eric Mindel, director, PeppyParents.com Inc.
4. Question everything. "Never, ever be afraid to get four to five different opinions, estimates, thoughts, etc. In my business, I learned a long time ago no price is the final price, so when searching for products or suppliers, I have always asked, 'Can you do better on the price?' I've saved thousands of dollars across the board just by asking."
-- Christian Beebe, owner/founder, Worldwide Graphics & Sign Co.
5. Put an end to unnecessary upgrades. "Technolust can be very expensive--speaking from experience. As long as our existing technology equipment is adequate, we make do. This is a recent change for Geektime and has saved us over $20,000 annually for the last two years."
-- Alexander E. Fowler, president and senior consultant, Geektime Design Studios
6. Give e-learning a try. "For a couple hundred bucks, or sometimes no money at all, we can get schooled on new techniques without leaving our desks for professional development. We saved thousands last year."
-- Colleen Troy, owner, Touchpoint Communications
7. Team up for big savings. "We have substantially cut down on our overhead costs by office sharing with a structural engineering firm that has, like everyone else, had to cut down on staff. It is a win-win for both of us. We get the benefits of a large, fully functioning office, and they get income. We are also co-marketing on several projects since our firms' work is synergistic."
-- Virginia McAllister, principal, Iron Horse Architects
8. Get your green on. "Reduce paper consumption -- it is both green and economical. By changing what we print, we were able to reduce our consumption of paper by 90 percent. That translated to several hundreds dollars a year."
-- Orit Pennington, owner/CFO, TPGTEX Label Solutions Inc.
9. Give new life to items you would otherwise discard. "We save money by using pre-used boxes, newspapers and other scraps for all our packaging."
-- Adrien Edwards, co-founder, TheNakedHippie
10. Hire a college intern. "They will work for experience, are excited to be a part of a startup and will provide insight into their demographic. Give them the opportunity to own their work and see how quickly your company will grow as a result and for nothing more than time, appreciation and a killer recommendation."
-- Colleen Leader, owner, Loose Thread Stitchers
11. Shop around to secure the best deals. "I have begun to use different sites for any travel we do. For example, in the past I might call Avis directly to rent a car. Nowadays I go on RentACarNow.com, which is a marketplace of all vendors, and compare rates. This way I find the cheapest rate for my travel. I also use Hotels.com for hotel booking. It's incredible how much I have saved -- over 40 percent on my travel budget for the year. No longer can we rely on one vendor."
-- Robert Tuchman, founder, TSE Sports & Entertainment
12. Try an alternative compensation structure. "Hire commission-only sales reps and consider giving a sizable commission -- [it's] still cheaper than paying a salary."
-- Bradi Nathan, co-founder, MyWorkButterfly.com
13. Volunteer. "In addition to helping a great cause and gaining a personal sense of fulfillment, you often have the opportunity to meet/network with people who may have an important impact on your business -- including successful business leaders, angel investors, political leaders and members of the media -- that you would likely not have had access to in any other venue, regardless of how much you spend on marketing and PR."
-- Sarah M. Place, CEO, Place Trade Financial
14. Find cheaper ways to network. "A luncheon can easily cost $30 to $45, but you might get away with $5 to $10 to attend a happy hour. You can meet just as many people, if not more, when attending a cheaper event."
-- Ansley Meredith, owner, ENERGIZED Media Relations
15. Create buzz (for free) with social media. "We have developed a loyal following on Twitter and Facebook and have seen traffic to our website continue to grow. We've learned that directly connecting with people in their preferred mode of social communication not only enhances our valuable customer relationships, it doesn't cost a penny."
-- Jeff Avallon, co-founder, IdeaPaint
16. When possible, work virtually. "Maintaining a home office eliminates the costs associated with having office space."
-- Adil Lalani, founder and CTO, TwitVid
17. Keep employees happy (read: prevent turnover). "The costs [associated with] being a person short, running ads, time spent interviewing and the downtime while someone gets trained are huge. And then there are the indirect costs -- a dip in client confidence, burned-out staff because they're picking up the extra load and potential loss of clients. It all adds up to a huge number--a number most small businesses cannot afford to pay." -- Drew McLellan, president, McLellan Marketing Group
Thursday, December 3, 2009
Article: For SBA Loans, Stimulus Well Runs Dry
The Wall Street Journal
http://www.wsj.com/
For SBA Loans, Stimulus Well Runs Dry
By EMILY MALTBY
Two popular stimulus provisions that drew hundreds of banks back to the small-business lending arena ran out of funding Monday, setting the stage for a potential new credit squeeze for business owners.
The two provisions, passed as part of the Recovery Act, raised the maximum guarantee on Small Business Administration loans to 90% from 75%, and temporarily reduced or eliminated fees associated with the loans. The measures are widely credited with getting millions of dollars into the hands of small-business owners and making it more attractive for banks to lend during the downturn.
The SBA had anticipated that funding for the provisions, totaling $375 million, would run dry ahead of the provisions' scheduled 2010 expiration dates. Last week, the agency alerted lenders that, as of Monday, the guarantee would be lowered to pre-stimulus levels and the fees would be reinstated, according to SBA spokesman Jonathan Swain.
That created a mini-rush, prompting lenders to issue – over the course of the last week – more than $1 billion in SBA loans, he said. That amount exceeds monthly lending volumes in each of the first six months of the government's fiscal year. As of Monday's cut-off date, there were 282 applications still pending for stimulus loans, totaling $128.7 million. Those applications will be put on a waiting list, and will move forward if borrowers and lenders cancel previously approved loans, he said.
Meanwhile, lending experts anticipate a drop in SBA loan volume unless Congress moves quickly to allocate more funds to renew the stimulus provisions. Last month, the House voted to continue the measures until September 2011, although the legislation has not moved forward in the Senate.
"We absolutely need to extend it, as it has been the driver of loan volume," says Tony Wilkinson, president of the National Association of Government Guaranteed Lenders in Stillwater, Okla. "It is proven, it has worked, and we have gotten credit in hands of small businesses. If it's not extended, we fully expect to see a substantial decline in loan volume."
The SBA has pushed Congress for an extension of the stimulus provisions, and as a first goal wants them to remain in place until mid-February. That was when the 90% guarantee was originally slated to expire, had funding been sufficient. The lower fees were scheduled to expire next September.
"We have been having positive discussions with folks on the Hill and in the administration," Mr. Swain said. "We're hopeful they will understand that these programs are effective."
In a forum on small business lending last week, lenders, government administrators, and business owners discussed the best means of getting credit to small businesses. One proposal which is actively supported by President Obama, is to raise the cap on SBA loans. Cynthia Blankenship, past chairman of the Independent Community Bankers of America, noted during one of the discussion forums that raising the loan cap "is a good idea, but you'd have to raise guarantees" in order for it to be effective. That statement resonated with many of the lenders in attendance.
http://www.wsj.com/
For SBA Loans, Stimulus Well Runs Dry
By EMILY MALTBY
Two popular stimulus provisions that drew hundreds of banks back to the small-business lending arena ran out of funding Monday, setting the stage for a potential new credit squeeze for business owners.
The two provisions, passed as part of the Recovery Act, raised the maximum guarantee on Small Business Administration loans to 90% from 75%, and temporarily reduced or eliminated fees associated with the loans. The measures are widely credited with getting millions of dollars into the hands of small-business owners and making it more attractive for banks to lend during the downturn.
The SBA had anticipated that funding for the provisions, totaling $375 million, would run dry ahead of the provisions' scheduled 2010 expiration dates. Last week, the agency alerted lenders that, as of Monday, the guarantee would be lowered to pre-stimulus levels and the fees would be reinstated, according to SBA spokesman Jonathan Swain.
That created a mini-rush, prompting lenders to issue – over the course of the last week – more than $1 billion in SBA loans, he said. That amount exceeds monthly lending volumes in each of the first six months of the government's fiscal year. As of Monday's cut-off date, there were 282 applications still pending for stimulus loans, totaling $128.7 million. Those applications will be put on a waiting list, and will move forward if borrowers and lenders cancel previously approved loans, he said.
Meanwhile, lending experts anticipate a drop in SBA loan volume unless Congress moves quickly to allocate more funds to renew the stimulus provisions. Last month, the House voted to continue the measures until September 2011, although the legislation has not moved forward in the Senate.
"We absolutely need to extend it, as it has been the driver of loan volume," says Tony Wilkinson, president of the National Association of Government Guaranteed Lenders in Stillwater, Okla. "It is proven, it has worked, and we have gotten credit in hands of small businesses. If it's not extended, we fully expect to see a substantial decline in loan volume."
The SBA has pushed Congress for an extension of the stimulus provisions, and as a first goal wants them to remain in place until mid-February. That was when the 90% guarantee was originally slated to expire, had funding been sufficient. The lower fees were scheduled to expire next September.
"We have been having positive discussions with folks on the Hill and in the administration," Mr. Swain said. "We're hopeful they will understand that these programs are effective."
In a forum on small business lending last week, lenders, government administrators, and business owners discussed the best means of getting credit to small businesses. One proposal which is actively supported by President Obama, is to raise the cap on SBA loans. Cynthia Blankenship, past chairman of the Independent Community Bankers of America, noted during one of the discussion forums that raising the loan cap "is a good idea, but you'd have to raise guarantees" in order for it to be effective. That statement resonated with many of the lenders in attendance.
Tuesday, November 24, 2009
Article: Raising the Bar, One Employee at a Time
Raising the Bar, One Employee at a Time
Geoff Williams, AOL Small Business, AOL
Wendy Buckley has a hint for job seekers: When filling out an application, if there’s a question about what makes good customer service, don’t plagiarize a website that has an article about customer service and claim it as your own. Your employer probably has Google, too.
Buckley has been in the hiring process for a couple months now, employing three full-time managers back in September for the Screwtop Wine Bar and now is finishing up interviews as she puts together a part-time staff of 12 servers, gift shop and kitchen workers. But it was that plagiarizer that really stands out in her mind as something that didn’t impress her.
Wow, this sounds really professional, thought Buckley upon first reading the essay answer. But then she suddenly had a sinking feeling, started Googling, and found the incriminating text, word-for-word. Obviously, the applicant didn’t get an interview.
Of course, she was also not thrilled when she set up interviews for her managerial positions and had four no-shows. “Four,” says Buckley. “Four people agreed to interview and didn’t show up. I thought, ‘Are you serious? Don’t people need a job?’”
Still, Buckley managed to find three people to manage the bar, the gift shop and the kitchen--three people she is very pleased with. One applicant, in particular, seemed to be a standout. Buckley had asked her for an example of when she had been able to make a customer’s day, and the interviewee told her how a terminally ill mother and her daughter came into a Cheesecake Factory in Maryland. The mother had left a hospice, with the mission of having a chocolate godiva cheesecake, and the server, now seeking employment with Buckley, had the unpleasant task of telling this sick woman that they were all out. The daughter whispered to bring some other chocolate cheesecake, because her mother wouldn’t know the difference.
And so the server brought out the cheesecake but then decided she had to tell the truth. The woman had her cheesecake, apparently leaving without complaint, but the server naturally felt distressed and called other Cheescake Factories around Maryland, found a place that had it in stock, and then she soon personally delivered an entire chocolate godiva cheesecake to the dying patient.
Buckley listened to the tale, mesmerized. So did she hire her? “I couldn’t afford her,” sighs Buckley. “But what a great story.”
Other challenges
Throughout September and October, most of Buckley’s attention was focused on getting a builder’s permit from her county, which she says took about three weeks, and then overseeing the construction, which is still going on. She plans to open the ScrewTop Wine Bar on December 15.
In the meantime, starting up the business has been predictably screwy.
For instance, the oven arrived a month before it was due. This was a problem, because it’s a 500-pound oven, and with no builder’s permit and no construction started, Buckley had nowhere to put it. She managed to reach someone in customer service from the restaurant supply company and was told, “Refuse the oven.”
“How?” demanded Buckley, literally on her cell phone and racing after a departing UPS truck. “I’ve already accepted it!”
The UPS truck took it back, fortunately, but then two days before it was due, delivered it again. Buckley enlisted her husband, David, and some of the construction crew and managed to find equipment to move the mammoth oven into her wine bar’s kitchen, but the giant deli case was another matter. The next day, a semi-truck delivered the rest of the appliances, refrigerators and dishwashers, filling the sidewalk, and those, too, were moved into the kitchen without too many problems. But not the giant deli case.
“We’ve had architects and engineers measure everything,” says Buckley, “but the deli case, where we keep the cheese, was half an inch too wide for the door.”
Buckley says the company furnishing her doors has an agreement with her that if any other professional touches those doors, they’re no longer under warranty. So she had to hire the company—at $200 an hour—to come and remove the front door and the door frame, in order to haul the deli case into the restaurant. “It’s never coming out of there again,” she vows of the deli case.
Hire education
Then about a week ago, Buckley put out an ad on Craigslist for part-time help. The ad, in its entirety, read:
DO YOU LOVE WINE, CHEESE & CRAFT BEER?
Then come be a part of something very special here in Clarendon.
WE OFFER
*great employee discounts,
*flexible hours, (Day, Evening, Weekend)
*training and
*fun atmosphere where you are surrounded by fellow foodies and wine lovers.
*METRO ACCESSIBLE: We are just a short 2 block stroll from the Clarendon Metro on the Orange line.
WHAT IS SCREWTOP?
Screwtop wine bar is so much more than just a wine bar. It’s a café, a wine boutique, and a gourmet cheese shop as well. We are the neighborhood gathering spot, where all customers are treated like regulars, even if it’s just their first time in.
We are opening in DECEMBER and INTERVIEWING NOW for the following Positions:
*Please email us at the address below, telling us
1. why you’d like to work for screwtop,
2. how many hours you’d like to work and
3. what you are interested in making$
Having been burned by no-shows, Buckley emailed all her aspiring applicants this time, reminding them of the interviews and even offering a map on how to get to her place. “I probably shouldn’t have done that,” concedes Buckley. After all, if someone is a no-show to an interview, that’s a great clue that they aren’t going to be a good worker.
But, says Buckley, “as I’ve gotten further along in this process, I have so little time and so many things to get done, and I’m a very organized person. But every day, I’ll have a list of 20 things to do, and even if I finish them all, the next day, there will be 20 more things to do. I’m sure there will be a long list of things I have to do once I’m open and running, too, of course, but it astonishes me how fast these days are going by. I’ll look up at the clock, and it’ll be 8 p.m., and then I’ll be on the computer until midnight. I couldn’t sleep last night, and so I was up at 3, working on figuring out the schedules.”
The schedules, that is, of the people she hasn’t hired yet. “I have more people to interview tomorrow,” says Buckley. “Part of this not being to sleep, of course, is just this exhilarating excitement going on. There’s so much going on in mind and so many things we have to get done before we open.”
But at least she has her oven.
Geoff Williams, AOL Small Business, AOL
Wendy Buckley has a hint for job seekers: When filling out an application, if there’s a question about what makes good customer service, don’t plagiarize a website that has an article about customer service and claim it as your own. Your employer probably has Google, too.
Buckley has been in the hiring process for a couple months now, employing three full-time managers back in September for the Screwtop Wine Bar and now is finishing up interviews as she puts together a part-time staff of 12 servers, gift shop and kitchen workers. But it was that plagiarizer that really stands out in her mind as something that didn’t impress her.
Wow, this sounds really professional, thought Buckley upon first reading the essay answer. But then she suddenly had a sinking feeling, started Googling, and found the incriminating text, word-for-word. Obviously, the applicant didn’t get an interview.
Of course, she was also not thrilled when she set up interviews for her managerial positions and had four no-shows. “Four,” says Buckley. “Four people agreed to interview and didn’t show up. I thought, ‘Are you serious? Don’t people need a job?’”
Still, Buckley managed to find three people to manage the bar, the gift shop and the kitchen--three people she is very pleased with. One applicant, in particular, seemed to be a standout. Buckley had asked her for an example of when she had been able to make a customer’s day, and the interviewee told her how a terminally ill mother and her daughter came into a Cheesecake Factory in Maryland. The mother had left a hospice, with the mission of having a chocolate godiva cheesecake, and the server, now seeking employment with Buckley, had the unpleasant task of telling this sick woman that they were all out. The daughter whispered to bring some other chocolate cheesecake, because her mother wouldn’t know the difference.
And so the server brought out the cheesecake but then decided she had to tell the truth. The woman had her cheesecake, apparently leaving without complaint, but the server naturally felt distressed and called other Cheescake Factories around Maryland, found a place that had it in stock, and then she soon personally delivered an entire chocolate godiva cheesecake to the dying patient.
Buckley listened to the tale, mesmerized. So did she hire her? “I couldn’t afford her,” sighs Buckley. “But what a great story.”
Other challenges
Throughout September and October, most of Buckley’s attention was focused on getting a builder’s permit from her county, which she says took about three weeks, and then overseeing the construction, which is still going on. She plans to open the ScrewTop Wine Bar on December 15.
In the meantime, starting up the business has been predictably screwy.
For instance, the oven arrived a month before it was due. This was a problem, because it’s a 500-pound oven, and with no builder’s permit and no construction started, Buckley had nowhere to put it. She managed to reach someone in customer service from the restaurant supply company and was told, “Refuse the oven.”
“How?” demanded Buckley, literally on her cell phone and racing after a departing UPS truck. “I’ve already accepted it!”
The UPS truck took it back, fortunately, but then two days before it was due, delivered it again. Buckley enlisted her husband, David, and some of the construction crew and managed to find equipment to move the mammoth oven into her wine bar’s kitchen, but the giant deli case was another matter. The next day, a semi-truck delivered the rest of the appliances, refrigerators and dishwashers, filling the sidewalk, and those, too, were moved into the kitchen without too many problems. But not the giant deli case.
“We’ve had architects and engineers measure everything,” says Buckley, “but the deli case, where we keep the cheese, was half an inch too wide for the door.”
Buckley says the company furnishing her doors has an agreement with her that if any other professional touches those doors, they’re no longer under warranty. So she had to hire the company—at $200 an hour—to come and remove the front door and the door frame, in order to haul the deli case into the restaurant. “It’s never coming out of there again,” she vows of the deli case.
Hire education
Then about a week ago, Buckley put out an ad on Craigslist for part-time help. The ad, in its entirety, read:
DO YOU LOVE WINE, CHEESE & CRAFT BEER?
Then come be a part of something very special here in Clarendon.
WE OFFER
*great employee discounts,
*flexible hours, (Day, Evening, Weekend)
*training and
*fun atmosphere where you are surrounded by fellow foodies and wine lovers.
*METRO ACCESSIBLE: We are just a short 2 block stroll from the Clarendon Metro on the Orange line.
WHAT IS SCREWTOP?
Screwtop wine bar is so much more than just a wine bar. It’s a café, a wine boutique, and a gourmet cheese shop as well. We are the neighborhood gathering spot, where all customers are treated like regulars, even if it’s just their first time in.
We are opening in DECEMBER and INTERVIEWING NOW for the following Positions:
*Please email us at the address below, telling us
1. why you’d like to work for screwtop,
2. how many hours you’d like to work and
3. what you are interested in making$
Having been burned by no-shows, Buckley emailed all her aspiring applicants this time, reminding them of the interviews and even offering a map on how to get to her place. “I probably shouldn’t have done that,” concedes Buckley. After all, if someone is a no-show to an interview, that’s a great clue that they aren’t going to be a good worker.
But, says Buckley, “as I’ve gotten further along in this process, I have so little time and so many things to get done, and I’m a very organized person. But every day, I’ll have a list of 20 things to do, and even if I finish them all, the next day, there will be 20 more things to do. I’m sure there will be a long list of things I have to do once I’m open and running, too, of course, but it astonishes me how fast these days are going by. I’ll look up at the clock, and it’ll be 8 p.m., and then I’ll be on the computer until midnight. I couldn’t sleep last night, and so I was up at 3, working on figuring out the schedules.”
The schedules, that is, of the people she hasn’t hired yet. “I have more people to interview tomorrow,” says Buckley. “Part of this not being to sleep, of course, is just this exhilarating excitement going on. There’s so much going on in mind and so many things we have to get done before we open.”
But at least she has her oven.
Monday, November 23, 2009
Article: Local SBA lending dropped 17 percent in 2009
IBJ.com
Local SBA lending dropped 17 percent in 2009
Mason KingNovember 20, 2009
Some of the city’s most generous participants in the Small Business Administration loan program barely cracked the doors to their vaults in the past year.
SBA lending in the Indianapolis area plunged by an astonishing 64 percent for three of the city’s four largest banks during 2009, while overall lending in the program slipped 17 percent in the Indianapolis area.
Among the most active participants in the SBA’s popular 7(a) program in 2008, the trio of Huntington National Bank, National City Bank and Chase originated a combined total of $11.2 million such loans during the agency’s 2009 fiscal year, which ended Sept. 30. That was down from $31.1 million in 2008.
The total value of SBA-backed loans originated by Huntington dropped from about $15.3 million in 2008 to $4.9 million, according to agency figures. Chase’s total sank from $8.1 million to $1.9 million, and National City’s lending sagged from $7.6 to $4.4 million.
The declines may not come as a surprise given the horrific year suffered by the financial industry, triggered in large part by imprudent lending. And many small businesses, staggered by the recession, were in no position to plan pricey moves that would require more capital.
“The biggest reason for the decline was that demand was soft,” said Jean Wojtowicz, executive director of the Indiana Statewide Certified Development Corp., a lender in another SBA program for financing fixed assets like buildings and equipment.
The 7(a) program helps small businesses obtain financing when they might not be eligible for loans through normal channels. The SBA does not make loans; instead, it guarantees most of the value of loans made through commercial lenders.
“Businesses were a little bit apprehensive,” Wojtowicz said. “Some of them were not interested in expanding; they were interested in surviving. And banks respond to what businesses are asking for. They don’t peddle loans to people who don’t want them.”
Credit crunch
However, small-business lending by Huntington, National City and Chase declined much more steeply than that of many of their peers. In 2008, the trio accounted for 34 percent of the $91.3 million in total lending for the 7(a) program in the nine-county Indianapolis area. In 2009, their combined lending skidded to only 15 percent of the $75.8 million in loans issued through the program.
“The obvious thing is that we’re in the middle of a credit crunch,” said Marianne Markowitz, Midwestern regional administrator for the SBA.
Markowitz hesitated to draw any conclusions about individual banks. “Every bank is affected differently depending on their loan portfolio,” she said. “Of course they have to be conservative. They got here by not being conservative. They need to be diligent in their underwriting process.”
New York-based Chase, Cleveland-based National City and Columbus, Ohio-based Huntington were the city’s first-, second- and fourth-largest banks in the Indianapolis area, respectively, in 2008, according to IBJ’s most recent list of the region’s largest banks and thrifts. The banks were ranked by number of local full-time employees.
Local Huntington and Chase officials maintain that they haven’t significantly changed their strategies or credit standards for SBA lending. Instead, they point to decreased demand for small-business loans. In addition, some potential clients found themselves in more dire financial straits in 2009, said Mike Newbold, regional president of Huntington Bank in Indiana.
“They may have been credit-worthy 12 months ago, but if they were unable to adjust to the downturn, they may not qualify even under the same underwriting guidelines,” Newbold said.
Tim Oliver, senior vice president and central Indiana market manager for Chase Business Banking, noted that Chase looks at many lending vehicles for its clients, and that, in 2009, SBA loans “weren’t the ideal solution in as many cases [as in 2008].”
Chase recently announced plans to increase small business lending system-wide by $4 billion in 2010, and to hire 325 additional small-business bankers. “We expect demand to pick up,” said Chase spokeswoman Nancy Norris.
The circumstances for National City Bank were slightly different than those of its two compatriots. National City was acquired by Pittsburgh-based PNC Financial Services Group Inc. on Dec. 31. (The 77 Indianapolis-area branches still carrying the National City name are expected to be rebranded in 2010.)
Prior to the Dec. 31 purchase and then as a division of PNC, National City originated 23 SBA 7(a) loans worth about $4.4 million for businesses in the Indianapolis area during the 2009 fiscal year—a 43 percent drop in value from 2008.
PNC spokesman Fred Solomon declined to speculate on the reasons behind the reduction in local 7(a) lending from 2008 or PNC’s level of participation in the program going forward.
“PNC will continue to be an active lender to small businesses,” Solomon said, noting that the bank as a whole originated more than $900 million in small-business loans, including SBA lending, in the third quarter of 2009.
Recovery Act assistance
Like much of the financial industry in late 2008 and early 2009, SBA lending sank in the muck of the recession and spun its wheels. However, it found better traction after the American Recovery and Reinvestment Act went into effect in March.
Portions of the act were designed to make SBA lending more attractive, including eliminating fees for borrowers and raising the agency’s guarantee from 75 percent to 90 percent.
Lending rebounded in a big way—to an average of $8.6 million a month from April to September, compared to $4 million per month from October 2008 to March 2009.
Smaller banks led the way nationwide, SBA’s Markowitz said.
“We’ve seen instant traction at the smaller community banks,” she said. “They have been able to pivot and grab onto these programs more quickly. … In this particular economy, the small banks are the strength of the network.”
Local standouts included Indiana Business Bank, which leaped from $490,000 on four loans in 2008 to $2 million on nine loans in 2009; Bank of Indiana NA, originating $2.9 million on four loans in 2009 after $830,000 on two loans in 2008; and Community First Bank of Indiana, which furnished four loans worth $2 million in 2009 after no activity in the Indianapolis area in 2008.
The federal funding that makes the Recovery Act provisions possible is expected to last through December, Markowitz said.
Central Indiana’s small-business community appeared to fare better than the rest of the country during the SBA’s 2009 fiscal year. The 7(a) program’s total dollar volume nationwide dropped from $12.7 billion in 2008 to $9.3 billion in 2009, a reduction of 27 percent. Indianapolis recorded a 17-percent drop, from $91.3 million to $75.8 million.
'We just gave up'
One local small-business owner who recently sought an SBA loan said his reception from banks was less than welcoming.
“It’s been very hard to get loans,” said Travis Sealls, co-owner of the Pita Pit franchise at 1 N. Pennsylvania St., which opened in March. “We just gave up on the whole thing.”
Looking for a loan to get the business off the ground, Sealls and a silent partner contacted about a dozen banks in mid-2008 to talk about lending opportunities. Only a handful returned their calls, and most said that their terms had become more restrictive. The only serious offer that they received demanded that they deposit $300,000—the full value of the loan—at the bank as collateral, Sealls said.
“It used to be that the worst-case scenario is that you’d only have to put down 30 percent,” he said. The partners had the capital to fulfill the requirement, but decided against taking the loan.
Going ahead with plans to open the eatery, they hired a broker to look for borrowing opportunities. They again received a single offer—an $185,000 loan through Old National Bank in April. Again, they decided to pass.
“We were like, ‘We really don’t need it now,’” Sealls said. “We weren’t in a cash crunch. We were up and running.”•
Local SBA lending dropped 17 percent in 2009
Mason KingNovember 20, 2009
Some of the city’s most generous participants in the Small Business Administration loan program barely cracked the doors to their vaults in the past year.
SBA lending in the Indianapolis area plunged by an astonishing 64 percent for three of the city’s four largest banks during 2009, while overall lending in the program slipped 17 percent in the Indianapolis area.
Among the most active participants in the SBA’s popular 7(a) program in 2008, the trio of Huntington National Bank, National City Bank and Chase originated a combined total of $11.2 million such loans during the agency’s 2009 fiscal year, which ended Sept. 30. That was down from $31.1 million in 2008.
The total value of SBA-backed loans originated by Huntington dropped from about $15.3 million in 2008 to $4.9 million, according to agency figures. Chase’s total sank from $8.1 million to $1.9 million, and National City’s lending sagged from $7.6 to $4.4 million.
The declines may not come as a surprise given the horrific year suffered by the financial industry, triggered in large part by imprudent lending. And many small businesses, staggered by the recession, were in no position to plan pricey moves that would require more capital.
“The biggest reason for the decline was that demand was soft,” said Jean Wojtowicz, executive director of the Indiana Statewide Certified Development Corp., a lender in another SBA program for financing fixed assets like buildings and equipment.
The 7(a) program helps small businesses obtain financing when they might not be eligible for loans through normal channels. The SBA does not make loans; instead, it guarantees most of the value of loans made through commercial lenders.
“Businesses were a little bit apprehensive,” Wojtowicz said. “Some of them were not interested in expanding; they were interested in surviving. And banks respond to what businesses are asking for. They don’t peddle loans to people who don’t want them.”
Credit crunch
However, small-business lending by Huntington, National City and Chase declined much more steeply than that of many of their peers. In 2008, the trio accounted for 34 percent of the $91.3 million in total lending for the 7(a) program in the nine-county Indianapolis area. In 2009, their combined lending skidded to only 15 percent of the $75.8 million in loans issued through the program.
“The obvious thing is that we’re in the middle of a credit crunch,” said Marianne Markowitz, Midwestern regional administrator for the SBA.
Markowitz hesitated to draw any conclusions about individual banks. “Every bank is affected differently depending on their loan portfolio,” she said. “Of course they have to be conservative. They got here by not being conservative. They need to be diligent in their underwriting process.”
New York-based Chase, Cleveland-based National City and Columbus, Ohio-based Huntington were the city’s first-, second- and fourth-largest banks in the Indianapolis area, respectively, in 2008, according to IBJ’s most recent list of the region’s largest banks and thrifts. The banks were ranked by number of local full-time employees.
Local Huntington and Chase officials maintain that they haven’t significantly changed their strategies or credit standards for SBA lending. Instead, they point to decreased demand for small-business loans. In addition, some potential clients found themselves in more dire financial straits in 2009, said Mike Newbold, regional president of Huntington Bank in Indiana.
“They may have been credit-worthy 12 months ago, but if they were unable to adjust to the downturn, they may not qualify even under the same underwriting guidelines,” Newbold said.
Tim Oliver, senior vice president and central Indiana market manager for Chase Business Banking, noted that Chase looks at many lending vehicles for its clients, and that, in 2009, SBA loans “weren’t the ideal solution in as many cases [as in 2008].”
Chase recently announced plans to increase small business lending system-wide by $4 billion in 2010, and to hire 325 additional small-business bankers. “We expect demand to pick up,” said Chase spokeswoman Nancy Norris.
The circumstances for National City Bank were slightly different than those of its two compatriots. National City was acquired by Pittsburgh-based PNC Financial Services Group Inc. on Dec. 31. (The 77 Indianapolis-area branches still carrying the National City name are expected to be rebranded in 2010.)
Prior to the Dec. 31 purchase and then as a division of PNC, National City originated 23 SBA 7(a) loans worth about $4.4 million for businesses in the Indianapolis area during the 2009 fiscal year—a 43 percent drop in value from 2008.
PNC spokesman Fred Solomon declined to speculate on the reasons behind the reduction in local 7(a) lending from 2008 or PNC’s level of participation in the program going forward.
“PNC will continue to be an active lender to small businesses,” Solomon said, noting that the bank as a whole originated more than $900 million in small-business loans, including SBA lending, in the third quarter of 2009.
Recovery Act assistance
Like much of the financial industry in late 2008 and early 2009, SBA lending sank in the muck of the recession and spun its wheels. However, it found better traction after the American Recovery and Reinvestment Act went into effect in March.
Portions of the act were designed to make SBA lending more attractive, including eliminating fees for borrowers and raising the agency’s guarantee from 75 percent to 90 percent.
Lending rebounded in a big way—to an average of $8.6 million a month from April to September, compared to $4 million per month from October 2008 to March 2009.
Smaller banks led the way nationwide, SBA’s Markowitz said.
“We’ve seen instant traction at the smaller community banks,” she said. “They have been able to pivot and grab onto these programs more quickly. … In this particular economy, the small banks are the strength of the network.”
Local standouts included Indiana Business Bank, which leaped from $490,000 on four loans in 2008 to $2 million on nine loans in 2009; Bank of Indiana NA, originating $2.9 million on four loans in 2009 after $830,000 on two loans in 2008; and Community First Bank of Indiana, which furnished four loans worth $2 million in 2009 after no activity in the Indianapolis area in 2008.
The federal funding that makes the Recovery Act provisions possible is expected to last through December, Markowitz said.
Central Indiana’s small-business community appeared to fare better than the rest of the country during the SBA’s 2009 fiscal year. The 7(a) program’s total dollar volume nationwide dropped from $12.7 billion in 2008 to $9.3 billion in 2009, a reduction of 27 percent. Indianapolis recorded a 17-percent drop, from $91.3 million to $75.8 million.
'We just gave up'
One local small-business owner who recently sought an SBA loan said his reception from banks was less than welcoming.
“It’s been very hard to get loans,” said Travis Sealls, co-owner of the Pita Pit franchise at 1 N. Pennsylvania St., which opened in March. “We just gave up on the whole thing.”
Looking for a loan to get the business off the ground, Sealls and a silent partner contacted about a dozen banks in mid-2008 to talk about lending opportunities. Only a handful returned their calls, and most said that their terms had become more restrictive. The only serious offer that they received demanded that they deposit $300,000—the full value of the loan—at the bank as collateral, Sealls said.
“It used to be that the worst-case scenario is that you’d only have to put down 30 percent,” he said. The partners had the capital to fulfill the requirement, but decided against taking the loan.
Going ahead with plans to open the eatery, they hired a broker to look for borrowing opportunities. They again received a single offer—an $185,000 loan through Old National Bank in April. Again, they decided to pass.
“We were like, ‘We really don’t need it now,’” Sealls said. “We weren’t in a cash crunch. We were up and running.”•
Thursday, November 12, 2009
Article: The Accidental Hero
BusinessWeek
The Accidental Hero
Subway's $5 footlong, the brainchild of an obscure Miami franchisee, is the fast-food success story of the recession
By Matthew Boyle
Stuart Frankel isn't what you'd call a power player in the world of franchising. Five years ago he owned two small Subway sandwich shops at either end of Miami's Jackson Memorial Hospital. After noticing that sales sagged on weekends, he came up with an idea: He would offer every footlong sandwich (the chain also sells 6-inch versions) on Saturday and Sunday for $5, about a buck less than the usual price. "I like round numbers," says Frankel, a brusque New Yorker who moved to Miami in 1972 and owned a drugstore before opening his first Subway outlet in 1988.
Customers liked his round number, too. Instead of dealing with idle employees and weak sales, Frankel suddenly had lines out the door. Sales rose by double digits. Nobody, least of all Frankel, knew it at the time, but he had stumbled on a concept that has unexpectedly morphed from a short-term gimmick into a national phenomenon that has turbocharged Subway's performance. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, president of restaurant consultancy Sandelman & Associates. "It's huge."
In fact, the $3.8 billion in sales generated nationwide by the $5 footlong alone placed it among the top 10 fast-food brands in the U.S. for the year ended in August, according to NPD Group. That puts the $5 menu's success just a notch behind KFC (YUM) and ahead of Arby's and Domino's Pizza (DPZ). It helped privately held Subway, of Milford, Conn., lift U.S. sales 17% last year at a time when most restaurant chains, save for industry leader McDonald's (MCD), struggled. Actually, make that soon-to-be-former industry leader McDonald's. Subway's low-cost franchising model and mainstream appeal have allowed it to add 9,500 locations in the past five years, for a total of about 32,000 outlets. At its current growth rate of 40 new stores a week, Subway is poised to surpass McDonald's in worldwide locations sometime early next year. (Measured by total sales, McDonald's $30 billion still dwarfs Subway's $9.6 billion, although Subway has now supplanted both Wendy's (WEN) and Burger King (BKC) in market share.)
...cont.
Click on title above, or HERE to view the entire article and video online.
The Accidental Hero
Subway's $5 footlong, the brainchild of an obscure Miami franchisee, is the fast-food success story of the recession
By Matthew Boyle
Stuart Frankel isn't what you'd call a power player in the world of franchising. Five years ago he owned two small Subway sandwich shops at either end of Miami's Jackson Memorial Hospital. After noticing that sales sagged on weekends, he came up with an idea: He would offer every footlong sandwich (the chain also sells 6-inch versions) on Saturday and Sunday for $5, about a buck less than the usual price. "I like round numbers," says Frankel, a brusque New Yorker who moved to Miami in 1972 and owned a drugstore before opening his first Subway outlet in 1988.
Customers liked his round number, too. Instead of dealing with idle employees and weak sales, Frankel suddenly had lines out the door. Sales rose by double digits. Nobody, least of all Frankel, knew it at the time, but he had stumbled on a concept that has unexpectedly morphed from a short-term gimmick into a national phenomenon that has turbocharged Subway's performance. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, president of restaurant consultancy Sandelman & Associates. "It's huge."
In fact, the $3.8 billion in sales generated nationwide by the $5 footlong alone placed it among the top 10 fast-food brands in the U.S. for the year ended in August, according to NPD Group. That puts the $5 menu's success just a notch behind KFC (YUM) and ahead of Arby's and Domino's Pizza (DPZ). It helped privately held Subway, of Milford, Conn., lift U.S. sales 17% last year at a time when most restaurant chains, save for industry leader McDonald's (MCD), struggled. Actually, make that soon-to-be-former industry leader McDonald's. Subway's low-cost franchising model and mainstream appeal have allowed it to add 9,500 locations in the past five years, for a total of about 32,000 outlets. At its current growth rate of 40 new stores a week, Subway is poised to surpass McDonald's in worldwide locations sometime early next year. (Measured by total sales, McDonald's $30 billion still dwarfs Subway's $9.6 billion, although Subway has now supplanted both Wendy's (WEN) and Burger King (BKC) in market share.)
...cont.
Click on title above, or HERE to view the entire article and video online.
Tuesday, November 10, 2009
Article: Political Uncertainty Puts Freeze on Small Businesses
Wall Street Journal (www.wsj.com)
SMALL BUSINESS OCTOBER 28, 2009
Political Uncertainty Puts Freeze on Small Businesses
By GARY FIELDS
W. Michael Brown has scaled back hiring plans in his Virginia auto-parts stores. Carl Redman halted an expansion project at his Oregon contracting business. Bill Hammack is preparing layoffs at his road-construction company in Georgia.
The economy remains unsteady 22 months after the recession began, with banks restricting credit and consumers hunkering down. For these small businesses, and many others across the country, there's an additional dark cloud: uncertainty created by Washington's bid to reorganize a wide swath of the U.S. economy.
The economic contraction is of course the prime force driving companies to lay off workers. But a health-care overhaul grinding through Congress could bring unknown new obligations to insure employees. Bush-era tax cuts are set to end next year, and their fate is unclear. Legislation aimed at tackling climate change might raise businesses' energy costs. Meanwhile, a bill aimed at increasing transportation spending is stalled.
Many companies say they have responded by freezing hiring, cutting benefits and delaying expansion plans. With at least 60% of job growth historically coming out of the small-business sector, according to the government's Small Business Administration, that kind of inertia could impede an economic recovery.
Already, 7.2 million jobs have been lost during the recession, and forecasts show little or no job growth expected for the rest of the year.
Mr. Brown wants to expand Olympus Imported Auto Parts, his 32-year-old business, by adding two stores to his four in northern Virginia. But instead of staffing his new stores with the same number of employees as the older ones -- which would mean 40 new jobs -- he's expecting to hire only 15 people. He'll likely transfer some current workers to new stores.
His business, selling auto parts, has been fine during the recession, he said. "Historically we've been a recession-proof industry," he said, since people are more likely to repair vehicles than buy new ones in tough economic times.
He cut overtime for many of his 150 employees in anticipation of facing fresh health-care costs. He's worried about getting hit by higher taxes next year, which would cut into income to pay for expansion, raises, bonuses, new product lines and delivery trucks.
Company owners have passionate positions on each of these issues, but mostly they say they want more certainty about future costs.
"There's so much trepidation out there," said Mr. Brown. "The thing I'm struggling with is how the potential government takeover of health care coupled with impending taxes will impact my company."
One likely health-care proposal suggests imposing a per-employee fee on companies that have more than 50 workers and don't provide coverage. Mr. Brown currently provides Blue Cross coverage for his employees. He pays 75% of the premium for single employees and 50% for family coverage. With a fight expected over the bill that just passed the Senate Finance Committee, it is unclear how he will be affected.
Employment data released this month showed worse-than-expected job losses. According to a National Federation of Independent Business survey, 16% of small business owners said they plan to cut staff or not fill vacancies, a three-percentage-point increase over August. Only 7% said they planned to create new jobs.
The survey concludes that more business owners are planning to contract than expand. In August, businesses were split equally.
There is little reliable data explaining why companies are retrenching despite signs of life in the economy, including recent increases in production in some industries and rises in housing prices and new home sales. However, a variety of organizations that monitor business behavior, including the NFIB, the Associated General Contractors of America and the National Small Business Association, say political uncertainty is a substantial factor, alongside other more typical problems, such as availability of credit.
"No question, this is a tough issue for a lot of these companies," said David Wyss, chief economist at ratings firm Standard & Poor's. "It's all anecdotal, and it affects everybody differently, but the one common factor is people postpone decisions, and I'm afraid that's going to slow us down coming out of the recession."
Mr. Wyss said the resulting lack of hiring is one reason he's forecasting just 1.5% growth in the economy for 2010. "It's better than going down but it's not going to be fun."
Academic economists have long noted a link between economic growth and the political environment. Fed Chairman Ben Bernanke, in his 1979 Ph.D. thesis, wrote that "increased uncertainty provides an incentive to defer...investments in order to wait for new information."
Wharton School of Business Professor Raffi Amit cites the Obama administration's pending overhaul of banking regulations as another drag. He said it will likely require banks to hold more money in reserve, potentially reducing the pool of funds available to make loans.
That combines with uncertainty about other issues, he said. "Obviously people are worried about what health-care costs are going to be. Nobody knows. Taxes, who knows?"
Rep. Mike Coffman (R., Colo.), a member of the House Small Business Committee, said he hears most often from small-business owners about the financial obligations they will face because of taxes and health care. The transportation appropriations bill is another issue, he said.
"I think there is a lot of cash on the sidelines that isn't going to come until Washington" makes some decisions, he said.
Rep. Nydia Velazquez (D. N.Y.), chairwoman of the House Small Business Committee, said Congress has endeavored to take into account small businesses as it works on health care, climate change and financial regulation. She acknowledged the need for certainty in a recent hearing about the pending expiration of a tax break for first-time homeowners.
"Small firms want to see these matters addressed so they know what the rules are, can make informed decisions and plan for the future," she said in a written statement.
The White House referred calls to the Small Business Administration. SBA spokesman Jonathan Swain said officials there "haven't heard the specific concern" over uncertainty out of Washington. "Of course, we do know it's not been an easy year for small business." He said the agency has been working to help small businesses, which are key to the economic recovery, since they employ more than half of the workers in the U.S. Last week, the Obama administration said it would try to shift its bailout funds towards local banks that would in turn provide financing for small businesses.
Small businesses are generally defined as companies with fewer than 500 employees. However, the designation varies in different sectors and industries, with the number of employees and revenue factored in.
Mr. Redman, vice president of Bear Electric Inc. of Donald, Ore., said he'd rather be expanding his operation during a recession, with prices for things such as land, equipment and construction likely more affordable. He's also thought about adding to his 90-person staff.
"We'd love to step out on the limb and hire more people just to get more folks working, but things are so frightening, and number one on that list is health care," he said. "Second is taxes."
In past downturns, Mr. Redman said, he tried to expand his electrical-contracting business. This time, his company had plans drawn up by a local architect for a 10,000-square-foot addition to the warehouse where it maintains its inventory. Having more inventory on hand means he could handle more jobs quickly without waiting for supplies to come in.
The design had been approved by the city. A contract and construction were next.
"We pulled the plug," he said. "I made the decision based on all the unknowns. I didn't think it would be wise to make the expenditure because I don't know if I will need the money to pay for something else."
Mr. Redman also shelved trying to use the federal "cash for clunkers" program to buy new vehicles, in part because the health-care debate was at full boil. "In a recession, you want to spend cash to get out of the recession. But with this sword hanging over my head, I'm afraid to use my resources to buy more equipment or hire more people."
Often lost in the furor over health care is a transportation-appropriations law that was set to expire last month, leaving in limbo a six-year, $450 billion spending plan for highway construction, mass transit and other projects, as well as an additional $50 billion for high-speed rail. At the last minute, Congress extended the bill for one more month.
But without a reauthorization bill to replace the existing law, transportation funding remains at current levels for an indefinite period. That has made states and companies reluctant to start new, long-term projects until they know how much the future funding will be.
Mr. Hammack, president of C.W. Matthews Contracting Co., one of the largest road-construction companies in Georgia, said the ripple effect of the delay has already reached firms like his. His company had already laid off 700 of its 2,000 employees since 2007 because of the recession.
Now the delay in passage of the transportation-bill reauthorization and the dearth of state contracts means he's planning to lay off as many as 200 more employees by the end of the year.
"You can't proceed under business as normal when there's no clear direction out there," he said. "It's too dangerous to bet on the future and put your company in financial jeopardy."
He said the Obama administration's $787 billion stimulus package, while a positive shot, hasn't provided long-term help for heavy-construction companies such as his. "The stimulus package, at least as it relates to Georgia, isn't putting the heavy equipment to work that moves dirt," he said. "It's been asphalt work. It's not a sustainable cure for what ails the transportation industry."
Paul Campbell, executive vice president of Wheeler Machinery Co., a Caterpillar dealer in Salt Lake City, said Utah's contract work has ground to a standstill as well. "There's a trickledown when you mess with infrastructure," he said. "It has a freezing effect on everything." At his firm, this has meant 221 layoffs. He is considering more among the 629 employees left.
"There's very little private money going into any kind of construction," Mr. Campbell said. "You take the federal contracts out of that and it gets a whole lot worse really quick."
Sandy Abalos, of Abalos & Associates PLLC in Phoenix, is cutting benefits at her certified public accountant firm. She still pays 100% of health-care coverage for her 16 employees, but stopped making 401k contributions. She also stopped profit-sharing, a recent step to hold some cash in reserve in case health-care costs and taxes rise. She is trying to maintain staffing levels and leave salaries alone.
"These are people who have worked with me for 15 years. They're like family," she said. "I've told everybody there will not be bonuses, so they can plan their own financial life. Everybody has had to pull back."
SMALL BUSINESS OCTOBER 28, 2009
Political Uncertainty Puts Freeze on Small Businesses
By GARY FIELDS
W. Michael Brown has scaled back hiring plans in his Virginia auto-parts stores. Carl Redman halted an expansion project at his Oregon contracting business. Bill Hammack is preparing layoffs at his road-construction company in Georgia.
The economy remains unsteady 22 months after the recession began, with banks restricting credit and consumers hunkering down. For these small businesses, and many others across the country, there's an additional dark cloud: uncertainty created by Washington's bid to reorganize a wide swath of the U.S. economy.
The economic contraction is of course the prime force driving companies to lay off workers. But a health-care overhaul grinding through Congress could bring unknown new obligations to insure employees. Bush-era tax cuts are set to end next year, and their fate is unclear. Legislation aimed at tackling climate change might raise businesses' energy costs. Meanwhile, a bill aimed at increasing transportation spending is stalled.
Many companies say they have responded by freezing hiring, cutting benefits and delaying expansion plans. With at least 60% of job growth historically coming out of the small-business sector, according to the government's Small Business Administration, that kind of inertia could impede an economic recovery.
Already, 7.2 million jobs have been lost during the recession, and forecasts show little or no job growth expected for the rest of the year.
Mr. Brown wants to expand Olympus Imported Auto Parts, his 32-year-old business, by adding two stores to his four in northern Virginia. But instead of staffing his new stores with the same number of employees as the older ones -- which would mean 40 new jobs -- he's expecting to hire only 15 people. He'll likely transfer some current workers to new stores.
His business, selling auto parts, has been fine during the recession, he said. "Historically we've been a recession-proof industry," he said, since people are more likely to repair vehicles than buy new ones in tough economic times.
He cut overtime for many of his 150 employees in anticipation of facing fresh health-care costs. He's worried about getting hit by higher taxes next year, which would cut into income to pay for expansion, raises, bonuses, new product lines and delivery trucks.
Company owners have passionate positions on each of these issues, but mostly they say they want more certainty about future costs.
"There's so much trepidation out there," said Mr. Brown. "The thing I'm struggling with is how the potential government takeover of health care coupled with impending taxes will impact my company."
One likely health-care proposal suggests imposing a per-employee fee on companies that have more than 50 workers and don't provide coverage. Mr. Brown currently provides Blue Cross coverage for his employees. He pays 75% of the premium for single employees and 50% for family coverage. With a fight expected over the bill that just passed the Senate Finance Committee, it is unclear how he will be affected.
Employment data released this month showed worse-than-expected job losses. According to a National Federation of Independent Business survey, 16% of small business owners said they plan to cut staff or not fill vacancies, a three-percentage-point increase over August. Only 7% said they planned to create new jobs.
The survey concludes that more business owners are planning to contract than expand. In August, businesses were split equally.
There is little reliable data explaining why companies are retrenching despite signs of life in the economy, including recent increases in production in some industries and rises in housing prices and new home sales. However, a variety of organizations that monitor business behavior, including the NFIB, the Associated General Contractors of America and the National Small Business Association, say political uncertainty is a substantial factor, alongside other more typical problems, such as availability of credit.
"No question, this is a tough issue for a lot of these companies," said David Wyss, chief economist at ratings firm Standard & Poor's. "It's all anecdotal, and it affects everybody differently, but the one common factor is people postpone decisions, and I'm afraid that's going to slow us down coming out of the recession."
Mr. Wyss said the resulting lack of hiring is one reason he's forecasting just 1.5% growth in the economy for 2010. "It's better than going down but it's not going to be fun."
Academic economists have long noted a link between economic growth and the political environment. Fed Chairman Ben Bernanke, in his 1979 Ph.D. thesis, wrote that "increased uncertainty provides an incentive to defer...investments in order to wait for new information."
Wharton School of Business Professor Raffi Amit cites the Obama administration's pending overhaul of banking regulations as another drag. He said it will likely require banks to hold more money in reserve, potentially reducing the pool of funds available to make loans.
That combines with uncertainty about other issues, he said. "Obviously people are worried about what health-care costs are going to be. Nobody knows. Taxes, who knows?"
Rep. Mike Coffman (R., Colo.), a member of the House Small Business Committee, said he hears most often from small-business owners about the financial obligations they will face because of taxes and health care. The transportation appropriations bill is another issue, he said.
"I think there is a lot of cash on the sidelines that isn't going to come until Washington" makes some decisions, he said.
Rep. Nydia Velazquez (D. N.Y.), chairwoman of the House Small Business Committee, said Congress has endeavored to take into account small businesses as it works on health care, climate change and financial regulation. She acknowledged the need for certainty in a recent hearing about the pending expiration of a tax break for first-time homeowners.
"Small firms want to see these matters addressed so they know what the rules are, can make informed decisions and plan for the future," she said in a written statement.
The White House referred calls to the Small Business Administration. SBA spokesman Jonathan Swain said officials there "haven't heard the specific concern" over uncertainty out of Washington. "Of course, we do know it's not been an easy year for small business." He said the agency has been working to help small businesses, which are key to the economic recovery, since they employ more than half of the workers in the U.S. Last week, the Obama administration said it would try to shift its bailout funds towards local banks that would in turn provide financing for small businesses.
Small businesses are generally defined as companies with fewer than 500 employees. However, the designation varies in different sectors and industries, with the number of employees and revenue factored in.
Mr. Redman, vice president of Bear Electric Inc. of Donald, Ore., said he'd rather be expanding his operation during a recession, with prices for things such as land, equipment and construction likely more affordable. He's also thought about adding to his 90-person staff.
"We'd love to step out on the limb and hire more people just to get more folks working, but things are so frightening, and number one on that list is health care," he said. "Second is taxes."
In past downturns, Mr. Redman said, he tried to expand his electrical-contracting business. This time, his company had plans drawn up by a local architect for a 10,000-square-foot addition to the warehouse where it maintains its inventory. Having more inventory on hand means he could handle more jobs quickly without waiting for supplies to come in.
The design had been approved by the city. A contract and construction were next.
"We pulled the plug," he said. "I made the decision based on all the unknowns. I didn't think it would be wise to make the expenditure because I don't know if I will need the money to pay for something else."
Mr. Redman also shelved trying to use the federal "cash for clunkers" program to buy new vehicles, in part because the health-care debate was at full boil. "In a recession, you want to spend cash to get out of the recession. But with this sword hanging over my head, I'm afraid to use my resources to buy more equipment or hire more people."
Often lost in the furor over health care is a transportation-appropriations law that was set to expire last month, leaving in limbo a six-year, $450 billion spending plan for highway construction, mass transit and other projects, as well as an additional $50 billion for high-speed rail. At the last minute, Congress extended the bill for one more month.
But without a reauthorization bill to replace the existing law, transportation funding remains at current levels for an indefinite period. That has made states and companies reluctant to start new, long-term projects until they know how much the future funding will be.
Mr. Hammack, president of C.W. Matthews Contracting Co., one of the largest road-construction companies in Georgia, said the ripple effect of the delay has already reached firms like his. His company had already laid off 700 of its 2,000 employees since 2007 because of the recession.
Now the delay in passage of the transportation-bill reauthorization and the dearth of state contracts means he's planning to lay off as many as 200 more employees by the end of the year.
"You can't proceed under business as normal when there's no clear direction out there," he said. "It's too dangerous to bet on the future and put your company in financial jeopardy."
He said the Obama administration's $787 billion stimulus package, while a positive shot, hasn't provided long-term help for heavy-construction companies such as his. "The stimulus package, at least as it relates to Georgia, isn't putting the heavy equipment to work that moves dirt," he said. "It's been asphalt work. It's not a sustainable cure for what ails the transportation industry."
Paul Campbell, executive vice president of Wheeler Machinery Co., a Caterpillar dealer in Salt Lake City, said Utah's contract work has ground to a standstill as well. "There's a trickledown when you mess with infrastructure," he said. "It has a freezing effect on everything." At his firm, this has meant 221 layoffs. He is considering more among the 629 employees left.
"There's very little private money going into any kind of construction," Mr. Campbell said. "You take the federal contracts out of that and it gets a whole lot worse really quick."
Sandy Abalos, of Abalos & Associates PLLC in Phoenix, is cutting benefits at her certified public accountant firm. She still pays 100% of health-care coverage for her 16 employees, but stopped making 401k contributions. She also stopped profit-sharing, a recent step to hold some cash in reserve in case health-care costs and taxes rise. She is trying to maintain staffing levels and leave salaries alone.
"These are people who have worked with me for 15 years. They're like family," she said. "I've told everybody there will not be bonuses, so they can plan their own financial life. Everybody has had to pull back."
Thursday, October 22, 2009
Local lenders support small-biz loan initiative
IBJ.com
October 22, 2009
Scott Olson
Click HERE to view the article online
Small business lenders in Indianapolis are supporting a proposal announced by President Obama Wednesday that would increase the size of government-backed loans.
Small-business lenders in Indiana are supporting a proposal announced by President Obama that would increase the size of government-backed loans.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
October 22, 2009
Scott Olson
Click HERE to view the article online
Small business lenders in Indianapolis are supporting a proposal announced by President Obama Wednesday that would increase the size of government-backed loans.
Small-business lenders in Indiana are supporting a proposal announced by President Obama that would increase the size of government-backed loans.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
Thursday, October 15, 2009
Article: Crafty Ways Restaurants Cut Costs
The Wall Street Journal - www.wsj.com
SMALL BUSINESS
OCTOBER 9, 2009
Crafty Ways Restaurants Cut Costs
By NEIL PARMAR
When it comes to dining out, Kevin Moll is the kind of frugal patron restaurant owners would love to see more of. The father of two from Denver always passes on the cream and sugar. He never pours a blob of ketchup next to his fries. Even better, after enjoying a plate of barbecued ribs, he usually prefers to wipe his saucy fingers with a cloth napkin, since the cleanup job would require at least three of the paper variety. And don't even get him started on carbonated beverages. This is a guy who prefers cola a little watered down.
With hard times still taking a bite out of restaurant profits, more Kevin Molls are turning up at their tables — not as patrons but as professional nitpickers. The 50-year-old CEO of National Restaurant Consultants is one of a burgeoning wave of efficiency experts who focus on restaurants, checking for unused half-and-half and testing the syrup level in fountain drinks. While no one tracks the number of these professionals in the restaurant field, the Labor Department says there are now some 678,000 efficiency gurus working to cut waste and maximize profits across a wide range of industries, double that from a decade ago. Moll and his food-service brethren do it by carefully pricing out a kitchen's every move — like making ranch dressing every three days instead of daily, which can shave prep time by 15 to 18 minutes. They help fine-tune recipes to economize on ingredients. (Taking olive oil out of the marinara sauce saved one chain $17,000 a year.) And they "engineer" menus to spotlight the highest-margin offerings. Forget soda; iced tea costs a restaurant as little as a nickel a glass.
The $566 billion restaurant industry is anxious to save as many shekels as it can — preferably without diners noticing a difference. Even with the uptick in some sectors of the economy, the dining-out industry is lagging, as it tends to do in bad times. According to surveys from the National Restaurant Association, 59 percent of the country's restaurant owners, on average, have reported a drop in same-store sales every month for the past year. Industry veterans like Lloyd Gordon, who has been consulting for the past 46 years, say times have never been tougher. Restaurant sales typically dropped 20 percent during past recessions, he says, but they've plunged as much as 50 percent in some parts of the country today. "A lot of restaurants are bleeding," says Dean Small of Synergy Restaurant Consultants in Laguna Niguel, Calif. "In some cases, they're hemorrhaging."
And so they turn to Moll and his ilk, whose secret sauce of savings tactics can be traced back decades. The modern-day efficiency movement, largely thought to have originated in Japanese car factories after World War II, took off on these shores after American giants like Motorola and General Electric began famously boosting profits with similar practices in the 1980s and '90s. Other industries took note—and a growing cadre of consultants followed. If you've traveled in the past few months, you've probably noticed their handiwork: disappearing mini shampoo bottles in the hotel bathroom, fewer complimentary magazines in the airline seat back. Such ideas might seem like small potatoes to some, but Moll and his team of experts have come up with enough tips and tricks to fill a 175-page bible on how to run a profitable eatery. For his clients, the often-tiny cuts add up, generating savings or revenue-boosting ideas that goose margins, on average, by 15 percent. "Operating a restaurant," reads one passage of the guide, "is a game of pennies."
Moll learned, when running his own bar and grill two decades ago, that managing an eatery is like navigating "a boat full of holes." And the trim, java-fueled consultant — running on four to five cups daily — is nothing if not a time-is-money, tight-ship kind of guy. He records any passing work inspiration ("note to self") on his cell phone, even while walking his dog. In his clutter-free office, the only papers visible are arranged in a compact stack, perfectly parallel to the edge of the desk. And while driving his pristine white Cadillac between tightly scheduled appointments, he admits that he's called the city's 311 hotline more than once to report street garbage that needs removal. Clearly, no detail is too small.
It's an attitude that comes in handy in his work, like when Moll and his firm recently helped launch Organixx, a casual, quick-service eatery in downtown Denver. To project an eco-friendly vibe, it features not only the requisite recycled napkins but also bamboo tabletops, a hardwood floor made from recycled furniture scraps, and compostable straws and utensils. (Deliveries are often made via skateboard.) Diners have more than two dozen menu items to choose from, but many end up ordering the Asian stir-fry salad, a mix of veggies, crunchy noodles and tofu, chicken or beef, drizzled with toasted-sesame vinaigrette. The most popular salad on the menu, it's also one of the most profitable. "It doesn't happen like that by accident," says Moll.
Remember the old home-buying adage "location, location, location"? Relying on studies that track "eye flow" across menu pages in elaborate arrow-filled diagrams, Moll counsels his clients to spotlight higher-margin items in prime menu real estate. The Asian stir-fry, with ingredients that cost as little as 24 percent of the menu price, holds pride of place at the top right corner, while the grilled salmon burger (cost of ingredients, $2.78; price, $9) is intentionally buried at left center, the menu equivalent of Siberia. "The menu drives everything," says Moll—from an eatery's decor to the length of time it takes to execute a single dish. In fact, some potential recipes at Organixx have been vetoed just because they couldn't be put together by a cook standing in a single spot, with all the ingredients within arm's reach.
Indeed, the biggest cost cutting usually happens behind the swinging doors. To help keep food costs within a healthy 24 to 35 percent of overall expenses, Moll brought in an on-site drill sergeant. Mary Putman, who paces the kitchen prep area, pokes at plates to make sure bread crusts are intact and salad mounds don't lean too far to one side. When red peppers triple in price, she buys more zucchini to sub into the stir-fry and salads. If a line cook takes more than six minutes to prepare an order, she points sternly at her watch. Most important, she makes sure they're measuring every ounce of food instead of just eyeballing ingredients. Constantly nagging them to "quit heaping the scoop," Putman says a big part of her job "is pulling food off the line."
Which may leave some diners, well, a little hungrier than others. While all of Organixx's sandwiches cost $9, some are a little less generously proportioned. Eyeing the egg salad? You'll get an eight-ounce scoop. But order the rock shrimp salad and your filling weighs only five. (The reason? Moll's firm suggests that each dish cost between 22 to 30 percent of what it ends up selling for—and eggs are cheaper than shrimp.) Erwin Chang, the owner of Organixx, acknowledges "it's a very delicate decision" to change the portions, but it's not hard to see his point of view as he describes the challenges of running a restaurant in this economic climate — especially when all those organic ingredients and other green touches come at a premium.
And hey, at least he's not holding back on the water. That's a strategy Moll recommended to another of his clients, Mici Handcrafted Italian, a cheerful, contemporary joint half a mile down the road from Organixx. Eager to expand to a second location, this family-owned pasta and pizza eatery hired National Restaurant Consultants to help shave operating costs. But Mici's owners were loath to change or cut back on menu items like its famed hand-rolled meatballs, so Moll had to turn to the eatery's beverage lineup to find savings.
In addition to tweaking Mici's wine list, Moll came up with a 10-point game plan for fountain drinks. Selling some 13,000 units a year, sodas still weren't delivering any profit, according to co-owner Michael Miceli — even though they typically cost the restaurant only a dime a glass. Some of the most effective moves Moll recommended include cutting out the middleman syrup supplier and offering only one size drink instead of three. Goodbye, costly cups.
But one tip comes with a spritz of controversy: Don't automatically serve patrons water, so they're more likely to order soda, beer or wine. Helen Rosner, who blogs about the restaurant industry at MenuPages.com, calls the practice "one of the craftiest I've heard of"—and says she's seeing more eateries do it. Victor Gielisse of Culinary Institute of America, on the other hand, calls it "the socially responsible thing to do given our environment today." For his part, Miceli simply says, "We ask them what they want to drink. If they want water, we give water." It certainly hasn't hurt the bottom line; implementing this and other tips from Moll's 32-page "operations analysis" has goosed revenue by 50 percent a week. In the world of kitchen cost cutting, that's more than a few pennies.
SMALL BUSINESS
OCTOBER 9, 2009
Crafty Ways Restaurants Cut Costs
By NEIL PARMAR
When it comes to dining out, Kevin Moll is the kind of frugal patron restaurant owners would love to see more of. The father of two from Denver always passes on the cream and sugar. He never pours a blob of ketchup next to his fries. Even better, after enjoying a plate of barbecued ribs, he usually prefers to wipe his saucy fingers with a cloth napkin, since the cleanup job would require at least three of the paper variety. And don't even get him started on carbonated beverages. This is a guy who prefers cola a little watered down.
With hard times still taking a bite out of restaurant profits, more Kevin Molls are turning up at their tables — not as patrons but as professional nitpickers. The 50-year-old CEO of National Restaurant Consultants is one of a burgeoning wave of efficiency experts who focus on restaurants, checking for unused half-and-half and testing the syrup level in fountain drinks. While no one tracks the number of these professionals in the restaurant field, the Labor Department says there are now some 678,000 efficiency gurus working to cut waste and maximize profits across a wide range of industries, double that from a decade ago. Moll and his food-service brethren do it by carefully pricing out a kitchen's every move — like making ranch dressing every three days instead of daily, which can shave prep time by 15 to 18 minutes. They help fine-tune recipes to economize on ingredients. (Taking olive oil out of the marinara sauce saved one chain $17,000 a year.) And they "engineer" menus to spotlight the highest-margin offerings. Forget soda; iced tea costs a restaurant as little as a nickel a glass.
The $566 billion restaurant industry is anxious to save as many shekels as it can — preferably without diners noticing a difference. Even with the uptick in some sectors of the economy, the dining-out industry is lagging, as it tends to do in bad times. According to surveys from the National Restaurant Association, 59 percent of the country's restaurant owners, on average, have reported a drop in same-store sales every month for the past year. Industry veterans like Lloyd Gordon, who has been consulting for the past 46 years, say times have never been tougher. Restaurant sales typically dropped 20 percent during past recessions, he says, but they've plunged as much as 50 percent in some parts of the country today. "A lot of restaurants are bleeding," says Dean Small of Synergy Restaurant Consultants in Laguna Niguel, Calif. "In some cases, they're hemorrhaging."
And so they turn to Moll and his ilk, whose secret sauce of savings tactics can be traced back decades. The modern-day efficiency movement, largely thought to have originated in Japanese car factories after World War II, took off on these shores after American giants like Motorola and General Electric began famously boosting profits with similar practices in the 1980s and '90s. Other industries took note—and a growing cadre of consultants followed. If you've traveled in the past few months, you've probably noticed their handiwork: disappearing mini shampoo bottles in the hotel bathroom, fewer complimentary magazines in the airline seat back. Such ideas might seem like small potatoes to some, but Moll and his team of experts have come up with enough tips and tricks to fill a 175-page bible on how to run a profitable eatery. For his clients, the often-tiny cuts add up, generating savings or revenue-boosting ideas that goose margins, on average, by 15 percent. "Operating a restaurant," reads one passage of the guide, "is a game of pennies."
Moll learned, when running his own bar and grill two decades ago, that managing an eatery is like navigating "a boat full of holes." And the trim, java-fueled consultant — running on four to five cups daily — is nothing if not a time-is-money, tight-ship kind of guy. He records any passing work inspiration ("note to self") on his cell phone, even while walking his dog. In his clutter-free office, the only papers visible are arranged in a compact stack, perfectly parallel to the edge of the desk. And while driving his pristine white Cadillac between tightly scheduled appointments, he admits that he's called the city's 311 hotline more than once to report street garbage that needs removal. Clearly, no detail is too small.
It's an attitude that comes in handy in his work, like when Moll and his firm recently helped launch Organixx, a casual, quick-service eatery in downtown Denver. To project an eco-friendly vibe, it features not only the requisite recycled napkins but also bamboo tabletops, a hardwood floor made from recycled furniture scraps, and compostable straws and utensils. (Deliveries are often made via skateboard.) Diners have more than two dozen menu items to choose from, but many end up ordering the Asian stir-fry salad, a mix of veggies, crunchy noodles and tofu, chicken or beef, drizzled with toasted-sesame vinaigrette. The most popular salad on the menu, it's also one of the most profitable. "It doesn't happen like that by accident," says Moll.
Remember the old home-buying adage "location, location, location"? Relying on studies that track "eye flow" across menu pages in elaborate arrow-filled diagrams, Moll counsels his clients to spotlight higher-margin items in prime menu real estate. The Asian stir-fry, with ingredients that cost as little as 24 percent of the menu price, holds pride of place at the top right corner, while the grilled salmon burger (cost of ingredients, $2.78; price, $9) is intentionally buried at left center, the menu equivalent of Siberia. "The menu drives everything," says Moll—from an eatery's decor to the length of time it takes to execute a single dish. In fact, some potential recipes at Organixx have been vetoed just because they couldn't be put together by a cook standing in a single spot, with all the ingredients within arm's reach.
Indeed, the biggest cost cutting usually happens behind the swinging doors. To help keep food costs within a healthy 24 to 35 percent of overall expenses, Moll brought in an on-site drill sergeant. Mary Putman, who paces the kitchen prep area, pokes at plates to make sure bread crusts are intact and salad mounds don't lean too far to one side. When red peppers triple in price, she buys more zucchini to sub into the stir-fry and salads. If a line cook takes more than six minutes to prepare an order, she points sternly at her watch. Most important, she makes sure they're measuring every ounce of food instead of just eyeballing ingredients. Constantly nagging them to "quit heaping the scoop," Putman says a big part of her job "is pulling food off the line."
Which may leave some diners, well, a little hungrier than others. While all of Organixx's sandwiches cost $9, some are a little less generously proportioned. Eyeing the egg salad? You'll get an eight-ounce scoop. But order the rock shrimp salad and your filling weighs only five. (The reason? Moll's firm suggests that each dish cost between 22 to 30 percent of what it ends up selling for—and eggs are cheaper than shrimp.) Erwin Chang, the owner of Organixx, acknowledges "it's a very delicate decision" to change the portions, but it's not hard to see his point of view as he describes the challenges of running a restaurant in this economic climate — especially when all those organic ingredients and other green touches come at a premium.
And hey, at least he's not holding back on the water. That's a strategy Moll recommended to another of his clients, Mici Handcrafted Italian, a cheerful, contemporary joint half a mile down the road from Organixx. Eager to expand to a second location, this family-owned pasta and pizza eatery hired National Restaurant Consultants to help shave operating costs. But Mici's owners were loath to change or cut back on menu items like its famed hand-rolled meatballs, so Moll had to turn to the eatery's beverage lineup to find savings.
In addition to tweaking Mici's wine list, Moll came up with a 10-point game plan for fountain drinks. Selling some 13,000 units a year, sodas still weren't delivering any profit, according to co-owner Michael Miceli — even though they typically cost the restaurant only a dime a glass. Some of the most effective moves Moll recommended include cutting out the middleman syrup supplier and offering only one size drink instead of three. Goodbye, costly cups.
But one tip comes with a spritz of controversy: Don't automatically serve patrons water, so they're more likely to order soda, beer or wine. Helen Rosner, who blogs about the restaurant industry at MenuPages.com, calls the practice "one of the craftiest I've heard of"—and says she's seeing more eateries do it. Victor Gielisse of Culinary Institute of America, on the other hand, calls it "the socially responsible thing to do given our environment today." For his part, Miceli simply says, "We ask them what they want to drink. If they want water, we give water." It certainly hasn't hurt the bottom line; implementing this and other tips from Moll's 32-page "operations analysis" has goosed revenue by 50 percent a week. In the world of kitchen cost cutting, that's more than a few pennies.
Thursday, October 8, 2009
How to Calculate Start-Up Costs
The Wall Street Journal - wsj.com
OCTOBER 5, 2009, 10:10 A.M. ET
How to Calculate Start-Up Costs
By COLLEEN DEBAISE
Adapted from the upcoming book THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press, Dec. 29, 2009).
Got a pen handy? To best estimate your start-up costs, you'll need to make a list— and the more detailed the better. A smart way to start is to brainstorm everything you'll need, from tangible goods (such as inventory, equipment and fixtures) to professional services (such as remodeling, advertising and legal work). Then, start calculating how much you'll need to pay for all those goods and services.
Some of the expenses incurred during the start-up phase will be one-time costs, such as the fee for printing up your brochures, creating your LLC or acquiring a permit, while others will be ongoing, such as rent, insurance or employees' salaries. In general, it's best to use a two-step process. First, come up with an estimate of one-time costs needed to get your doors open, and then develop an operating budget for the first six months or even the first year of the business. Check out the Better Business Bureau's sample worksheet here.
The categories listed below will aid you in completing your list of costs for opening and operating a small business:
Location. Think about how much you'll need to pay for rent, to make improvements to the space or for full-scale renovations.
Inventory. Figure out the cost of raw materials, plus any production costs, or the wholesale prices of products you'll be selling. Calculate shipping and packaging costs, sales commissions and other costs related to the sale of your product.
Equipment. Add up how much it costs to buy or lease computers, copiers, telephones, heavy-duty machinery or other fixtures.
Employees. Calculate salaries and wages, plus benefits you would offer, and don't forget payroll-related taxes, overtime pay and workers' compensation.
Marketing. Figure out how much you'll pay for new stationery, marketing materials, advertising campaigns, the sign above your door and meals or entertainment with clients.
Administrative and operational costs. Keep track of how much you'll need to pay for insurance (to protect against property damage, business interruption and floods) and office supplies. Don't forget utilities, a commonly overlooked expense, and other charges, such as phone and Internet service, cleaning and property maintenance.
Professional fees and permits. Add up how much you'll pay for your attorney, accountant or other advisor or consultant. Factor in what you'll need to pay for permits or licenses related to your business.
If you're still having trouble figuring out how much money you need, do research on other companies in your industry and region of the country. Talk to other business owners about how they figured out start-up costs— and ask specifically about expenses they forgot. The SBA offers free counseling through its Small Business Development Centers and its affiliate, SCORE. You can also seek advice from an accountant or attorney accustomed to dealing with small businesses.
When in doubt about your projections, you should always err on the side of overestimating your up-front investment cost and underestimating sales. Eric van Merkensteijn, a University of Pennsylvania business professor who left academia in the late 1990s to open a restaurant in Philadelphia, offers this advice: Figure out your start-up costs, then double that number. Then double it again. Only then will you have a realistic number, says the professor, who closed the business in 2004 and returned to campus.
OCTOBER 5, 2009, 10:10 A.M. ET
How to Calculate Start-Up Costs
By COLLEEN DEBAISE
Adapted from the upcoming book THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press, Dec. 29, 2009).
Got a pen handy? To best estimate your start-up costs, you'll need to make a list— and the more detailed the better. A smart way to start is to brainstorm everything you'll need, from tangible goods (such as inventory, equipment and fixtures) to professional services (such as remodeling, advertising and legal work). Then, start calculating how much you'll need to pay for all those goods and services.
Some of the expenses incurred during the start-up phase will be one-time costs, such as the fee for printing up your brochures, creating your LLC or acquiring a permit, while others will be ongoing, such as rent, insurance or employees' salaries. In general, it's best to use a two-step process. First, come up with an estimate of one-time costs needed to get your doors open, and then develop an operating budget for the first six months or even the first year of the business. Check out the Better Business Bureau's sample worksheet here.
The categories listed below will aid you in completing your list of costs for opening and operating a small business:
Location. Think about how much you'll need to pay for rent, to make improvements to the space or for full-scale renovations.
Inventory. Figure out the cost of raw materials, plus any production costs, or the wholesale prices of products you'll be selling. Calculate shipping and packaging costs, sales commissions and other costs related to the sale of your product.
Equipment. Add up how much it costs to buy or lease computers, copiers, telephones, heavy-duty machinery or other fixtures.
Employees. Calculate salaries and wages, plus benefits you would offer, and don't forget payroll-related taxes, overtime pay and workers' compensation.
Marketing. Figure out how much you'll pay for new stationery, marketing materials, advertising campaigns, the sign above your door and meals or entertainment with clients.
Administrative and operational costs. Keep track of how much you'll need to pay for insurance (to protect against property damage, business interruption and floods) and office supplies. Don't forget utilities, a commonly overlooked expense, and other charges, such as phone and Internet service, cleaning and property maintenance.
Professional fees and permits. Add up how much you'll pay for your attorney, accountant or other advisor or consultant. Factor in what you'll need to pay for permits or licenses related to your business.
If you're still having trouble figuring out how much money you need, do research on other companies in your industry and region of the country. Talk to other business owners about how they figured out start-up costs— and ask specifically about expenses they forgot. The SBA offers free counseling through its Small Business Development Centers and its affiliate, SCORE. You can also seek advice from an accountant or attorney accustomed to dealing with small businesses.
When in doubt about your projections, you should always err on the side of overestimating your up-front investment cost and underestimating sales. Eric van Merkensteijn, a University of Pennsylvania business professor who left academia in the late 1990s to open a restaurant in Philadelphia, offers this advice: Figure out your start-up costs, then double that number. Then double it again. Only then will you have a realistic number, says the professor, who closed the business in 2004 and returned to campus.
Tuesday, October 6, 2009
Sour Year for SBA Loans Ends With Uptick
Sour Year for SBA Loans Ends With Uptick
By EMILY MALTBY
The Small Business Administration ended its 2009 fiscal year on Wednesday, marking the close of a tumultuous year of lending initiatives to keep banks' doors open. Despite the efforts to revive the credit market, the SBA approved less than 45,000 loans, down 36% compared to last year and 56% from 2007.
The loan volume reflects all the small business loans approved by lenders that are guaranteed by the government under the SBA's flagship 7(a) lending program. In addition to the drop in number of loans that were approved to small businesses, the total dollar amount also fell drastically to $9.3 billion total, falling short of last year's total by about $3.4 billion.
Lending, however, appeared to rebound in the later part of the year, which the agency attributes to stimulus-related efforts. "We had a big finish to the fiscal year," says SBA spokesman Michael Stamler. "Dollar volume for the [7(a) loans] in September was the highest recorded since August 2007."
Broken down, the 2009 quarterly loan numbers (see interactive chart, at bottom) reveal the complete story of the year following September 2008, when Lehman Brothers filed for bankruptcy. The secondary market, where banks had typically sold their SBA loans to investors in order to initiate new loans, came to a standstill. According to the January 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices, about 70% of banks had tightened their standards on small business loans. As a result, the SBA backed 57% fewer loans in the first quarter of the year.
In February – six months into the fiscal year - the Recovery Act passed. The stimulus legislation dropped fees associated with the loans and raised the maximum guarantee on the loans to 90%, meaning that if the borrower defaulted, the government would reimburse the bank up to 90% of the loss.
Lending remained down in the third quarter of the year, the first full quarter following the stimulus. Top-tier lenders, including CIT and J.P. Morgan Chase, had reduced their small business lending considerably.
Small Business Loan Lenders On Way to Recovery?3:22Loans to small businesses came to a standstill after the collapse of Lehman Brothers last September, but due to some government stimulus programs a recovery was sparked in the latter part of the year. WSJ's Emily Maltby discusses with Kelsey Hubbard.
However, crediting the stimulus measures, the SBA reported that lending activity had started to pick up and that hundreds of lenders who hadn't made a 7(a) loan in months had jumped back into the game.
"We saw many more banks increasing their SBA loans," says Paul Merski, chief economist at the Independent Community Bankers of America in Washington, D.C. "The stimulus provisions helped jump-start the interest in SBA lending."
Fast forward to the last quarter of the year, ended this week, where more than 15,000 loans totaling $3.3 billion were approved in the last three months - up 18% from the year prior and nearly hitting 2007's quarterly levels.
"The real turning point was the Recovery Act," says SBA spokesman Jonathan Swain. "When you look at the data since February, I think we can say that the Recovery Act hit the mark when it comes to SBA lending."
The lending volume boost in the second half of the year was also due to the revival of the secondary market, which was supported by a program called the Term Asset-Backed Securities Loan Facility, or TALF.
The TALF initiative, which kicked off in March, allowed secondary-market investors to take out loans from the government to start purchasing asset-backed securities, such as SBA loans. Although investors have taken only a small amount of money from TALF to buy SBA loans, the program restored confidence in the market, which has since recovered.
"The TALF program had a very small but positive effect on the secondary market," says Paul Merski, chief economist at the Independent Community Bankers of America in Washington, D.C. "[The market] largely corrected itself and credit started flowing more."
Scott E. Harris Scott Harris and his wife, Becky, secured an SBA loan to launch their distilling company. The loan process took four months.
That means more SBA loans are available for new business to get off the ground and for existing businesses to grow. Take Scott Harris, for example, who owns Catoctin Creek Distilling Company LLC in Purcellville, Va. with his wife, Becky. On Wednesday, the last day of the fiscal year, they signed on the dotted line for a 7(a) loan that will help them start their spirits business.
"We started looking at the banks in June," says Mr. Harris, who credits the couple's ability to secure a loan to a solid business plan, robust credit score and a significant amount in personal savings invested in the the business. The four-month waiting game has been "exciting and terrifying," he says.
The couple procured the loan, which Mr. Harris says was for more than $100,000, with their local BB&T branch. The money will be split between startup purchases such as equipment, and working capital to grow the business.
Still, a jump in the year-over-year numbers doesn't necessarily mean the trend will continue on an upward trajectory. While conditions are better today, the July 2009 Senior Loan Officer Opinion Survey shows that 36% of banks reported tightening credit standards for small firms in the last three months. Only 2% reported standards easing somewhat.
Furthermore, many lenders who historically have been stalwarts in the SBA lending arena remain hesitant to make small business loans. CIT, the top lender in 2008, has fallen to number 13 and is still teetering on the brink of bankruptcy.
"Where we are today compared to February is encouraging but no one in the administration will say we should declare victory," says the SBA's Mr. Swain. "Going forward one of the things we are doing with real urgency is looking at what is needed in marketplace today in terms of access to capital. The main focus is what we can do to keep moving in a positive direction."
One measure that may help, says Mr. Merski, is pushing the end date for the stimulus programs. While the no-fee and 90% guarantee provisions are set to expire on September 30, 2010, the SBA estimates that funding is expected to run out by December, cutting the end date short. "[Lenders are] 100% behind extending the date as we're turning the corner," he says. "If they are pulled back in, we could have a dip in lending. I think that's going to be a huge factor as to whether this strong uptick in the final quarter of 2009 will continue."
By EMILY MALTBY
The Small Business Administration ended its 2009 fiscal year on Wednesday, marking the close of a tumultuous year of lending initiatives to keep banks' doors open. Despite the efforts to revive the credit market, the SBA approved less than 45,000 loans, down 36% compared to last year and 56% from 2007.
The loan volume reflects all the small business loans approved by lenders that are guaranteed by the government under the SBA's flagship 7(a) lending program. In addition to the drop in number of loans that were approved to small businesses, the total dollar amount also fell drastically to $9.3 billion total, falling short of last year's total by about $3.4 billion.
Lending, however, appeared to rebound in the later part of the year, which the agency attributes to stimulus-related efforts. "We had a big finish to the fiscal year," says SBA spokesman Michael Stamler. "Dollar volume for the [7(a) loans] in September was the highest recorded since August 2007."
Broken down, the 2009 quarterly loan numbers (see interactive chart, at bottom) reveal the complete story of the year following September 2008, when Lehman Brothers filed for bankruptcy. The secondary market, where banks had typically sold their SBA loans to investors in order to initiate new loans, came to a standstill. According to the January 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices, about 70% of banks had tightened their standards on small business loans. As a result, the SBA backed 57% fewer loans in the first quarter of the year.
In February – six months into the fiscal year - the Recovery Act passed. The stimulus legislation dropped fees associated with the loans and raised the maximum guarantee on the loans to 90%, meaning that if the borrower defaulted, the government would reimburse the bank up to 90% of the loss.
Lending remained down in the third quarter of the year, the first full quarter following the stimulus. Top-tier lenders, including CIT and J.P. Morgan Chase, had reduced their small business lending considerably.
Small Business Loan Lenders On Way to Recovery?3:22Loans to small businesses came to a standstill after the collapse of Lehman Brothers last September, but due to some government stimulus programs a recovery was sparked in the latter part of the year. WSJ's Emily Maltby discusses with Kelsey Hubbard.
However, crediting the stimulus measures, the SBA reported that lending activity had started to pick up and that hundreds of lenders who hadn't made a 7(a) loan in months had jumped back into the game.
"We saw many more banks increasing their SBA loans," says Paul Merski, chief economist at the Independent Community Bankers of America in Washington, D.C. "The stimulus provisions helped jump-start the interest in SBA lending."
Fast forward to the last quarter of the year, ended this week, where more than 15,000 loans totaling $3.3 billion were approved in the last three months - up 18% from the year prior and nearly hitting 2007's quarterly levels.
"The real turning point was the Recovery Act," says SBA spokesman Jonathan Swain. "When you look at the data since February, I think we can say that the Recovery Act hit the mark when it comes to SBA lending."
The lending volume boost in the second half of the year was also due to the revival of the secondary market, which was supported by a program called the Term Asset-Backed Securities Loan Facility, or TALF.
The TALF initiative, which kicked off in March, allowed secondary-market investors to take out loans from the government to start purchasing asset-backed securities, such as SBA loans. Although investors have taken only a small amount of money from TALF to buy SBA loans, the program restored confidence in the market, which has since recovered.
"The TALF program had a very small but positive effect on the secondary market," says Paul Merski, chief economist at the Independent Community Bankers of America in Washington, D.C. "[The market] largely corrected itself and credit started flowing more."
Scott E. Harris Scott Harris and his wife, Becky, secured an SBA loan to launch their distilling company. The loan process took four months.
That means more SBA loans are available for new business to get off the ground and for existing businesses to grow. Take Scott Harris, for example, who owns Catoctin Creek Distilling Company LLC in Purcellville, Va. with his wife, Becky. On Wednesday, the last day of the fiscal year, they signed on the dotted line for a 7(a) loan that will help them start their spirits business.
"We started looking at the banks in June," says Mr. Harris, who credits the couple's ability to secure a loan to a solid business plan, robust credit score and a significant amount in personal savings invested in the the business. The four-month waiting game has been "exciting and terrifying," he says.
The couple procured the loan, which Mr. Harris says was for more than $100,000, with their local BB&T branch. The money will be split between startup purchases such as equipment, and working capital to grow the business.
Still, a jump in the year-over-year numbers doesn't necessarily mean the trend will continue on an upward trajectory. While conditions are better today, the July 2009 Senior Loan Officer Opinion Survey shows that 36% of banks reported tightening credit standards for small firms in the last three months. Only 2% reported standards easing somewhat.
Furthermore, many lenders who historically have been stalwarts in the SBA lending arena remain hesitant to make small business loans. CIT, the top lender in 2008, has fallen to number 13 and is still teetering on the brink of bankruptcy.
"Where we are today compared to February is encouraging but no one in the administration will say we should declare victory," says the SBA's Mr. Swain. "Going forward one of the things we are doing with real urgency is looking at what is needed in marketplace today in terms of access to capital. The main focus is what we can do to keep moving in a positive direction."
One measure that may help, says Mr. Merski, is pushing the end date for the stimulus programs. While the no-fee and 90% guarantee provisions are set to expire on September 30, 2010, the SBA estimates that funding is expected to run out by December, cutting the end date short. "[Lenders are] 100% behind extending the date as we're turning the corner," he says. "If they are pulled back in, we could have a dip in lending. I think that's going to be a huge factor as to whether this strong uptick in the final quarter of 2009 will continue."
Monday, October 5, 2009
Article: Recession Relapse??
Forbes.com
Digital Rules
Recession Relapse?
10.19.09, 12:00 AM ET
If our apparent third-quarter economic recovery proves weak and relapses into a second recession, the causes will be:
--Small businesses, constrained by lack of expansion capital and fearful of possible regulatory changes in health care, energy and union membership, sit on their hands and don't hire.
--Unemployment creeps above 10% and stubbornly stays there.
--Because small businesses can't or won't expand, commercial real estate values sink more than expected.
--Regional banks with lots of commercial real estate paper on their balance sheets fail by the hundreds.
In other words, a second leg of recession will occur if America's small-business sector doesn't expand. It's about the small-business economy, stupid.
Recoveries from recession in the U.S. are typically led by small businesses. We now have reached the inflection point--i.e., the recession is ending, but the recovery is embryonic--when small businesses historically jump to the lead and pull the American economy along. It is precisely at this time that small businesses ought to be emerging from their bunkers to lease or buy cheap commercial property as they start gearing up for growth. Six months from now unemployment should be back down to 8%--and headed toward 5%--and Americans should be toasting small businesses for creating four out of five new jobs.
Small-Business Recovery Is Lagging
But small businesses aren't hiring yet. We should be asking why not. Somebody high up in the Obama Administration must make the health of small business a top priority; otherwise the recovery will die, and unemployment will persist at 10%. If that happens the President can say good-bye to his large majorities in Congress 13 months from now.
Last month I gave a speech at an industry conference for restaurant owners and fast-food franchisees--typical American small-business owners. Recovery skeptics filled the room, even though some of the franchises represented, such as McDonald's, had weathered the recession fine and others, such as Panera Bread and Green Mountain Coffee, were growing impressively.
Their chief worries are those I described in the first paragraph. One is the difficulty of obtaining working capital. Restaurants need and use credit lines just to operate. Another is the set of cost concerns around President Obama's big plans for health care, energy and union labor. Another is the uncertainty of inflation and commodity prices that determine the cost of food production. Together, these worries are enough to dampen the spirits of small-business owners in the food-delivery industry. True, food delivery is just one industry, but it's a big one.
When the Blue State Obama Administration thinks of small business, it undoubtedly dreams of promising startups churning out solar panels for office buildings or turbine blades for windmills. If its dreams are serious, the Administration should get behind a crackling good idea proposed by entrepreneur Paul Graham. It's called the Founder Visa, and the idea is to make it easy for the world's entrepreneurs to come to the U.S. As Paul Kedrosky describes it on the Web site Growthology: "The particulars are still getting worked through, but it has to do with getting a modicum of [private] funding ($250,000) and approval from an independent board that this represents a real startup deal, not some back-room finagling for a visa, and that's it: You're in the country and you're off and running."
This is a heck of a good long-term idea, and let's hope the Obama Administration embraces it. But for the short and medium term, high-tech startups alone will never return America to 5% unemployment and defuse the commercial-property bomb. Most existing small businesses don't need assistance from the government. What they need is across-the-board relief on taxes. They need benign legislation (or no change) on health care, energy and unions. A wish list, in other words, that runs counter to everything the Obama Administration is currently trying to pass.
Small businesses have always infuriated some liberals. Sinclair Lewis was awarded the Nobel Prize in Literature for Babbitt--the story of a small-minded Realtor in the 1920s. The word "Babbittry" soon became synonymous with "philistine." Liberal writer Michael Lind argues on Salon.com for sacrificing small business at the altar of corporatism in order to pass Obamacare:
"The solution may be corporatism or corporate paternalism--by which I mean the mandatory universalization of private-employer benefits. If the politics of ethnic diversity makes movement in a universalist, social democratic direction impossible in the U.S., then the alternative might be to mandate that all employers provide certain benefits to all employees, with no exceptions. The costs of such unfunded mandates might drive some small businesses out of existence. But small-business owners are the most vocal opponents of wage and benefit reform in the U.S. The replacement of Scrooge & Marley by a smaller number of bigger private and public employers who treat Bob Cratchit and Tiny Tim better would not necessarily be a tragedy."
There you have it: small business as Scrooge! If Obama defender Lind represents the thinking of President Obama and congressional Democrats, then our small businesses are in for a long siege. Hunkered down, they will not expand, hire or defuse the commercial-property bomb. That's a formula for a second recession.
Digital Rules
Recession Relapse?
10.19.09, 12:00 AM ET
If our apparent third-quarter economic recovery proves weak and relapses into a second recession, the causes will be:
--Small businesses, constrained by lack of expansion capital and fearful of possible regulatory changes in health care, energy and union membership, sit on their hands and don't hire.
--Unemployment creeps above 10% and stubbornly stays there.
--Because small businesses can't or won't expand, commercial real estate values sink more than expected.
--Regional banks with lots of commercial real estate paper on their balance sheets fail by the hundreds.
In other words, a second leg of recession will occur if America's small-business sector doesn't expand. It's about the small-business economy, stupid.
Recoveries from recession in the U.S. are typically led by small businesses. We now have reached the inflection point--i.e., the recession is ending, but the recovery is embryonic--when small businesses historically jump to the lead and pull the American economy along. It is precisely at this time that small businesses ought to be emerging from their bunkers to lease or buy cheap commercial property as they start gearing up for growth. Six months from now unemployment should be back down to 8%--and headed toward 5%--and Americans should be toasting small businesses for creating four out of five new jobs.
Small-Business Recovery Is Lagging
But small businesses aren't hiring yet. We should be asking why not. Somebody high up in the Obama Administration must make the health of small business a top priority; otherwise the recovery will die, and unemployment will persist at 10%. If that happens the President can say good-bye to his large majorities in Congress 13 months from now.
Last month I gave a speech at an industry conference for restaurant owners and fast-food franchisees--typical American small-business owners. Recovery skeptics filled the room, even though some of the franchises represented, such as McDonald's, had weathered the recession fine and others, such as Panera Bread and Green Mountain Coffee, were growing impressively.
Their chief worries are those I described in the first paragraph. One is the difficulty of obtaining working capital. Restaurants need and use credit lines just to operate. Another is the set of cost concerns around President Obama's big plans for health care, energy and union labor. Another is the uncertainty of inflation and commodity prices that determine the cost of food production. Together, these worries are enough to dampen the spirits of small-business owners in the food-delivery industry. True, food delivery is just one industry, but it's a big one.
When the Blue State Obama Administration thinks of small business, it undoubtedly dreams of promising startups churning out solar panels for office buildings or turbine blades for windmills. If its dreams are serious, the Administration should get behind a crackling good idea proposed by entrepreneur Paul Graham. It's called the Founder Visa, and the idea is to make it easy for the world's entrepreneurs to come to the U.S. As Paul Kedrosky describes it on the Web site Growthology: "The particulars are still getting worked through, but it has to do with getting a modicum of [private] funding ($250,000) and approval from an independent board that this represents a real startup deal, not some back-room finagling for a visa, and that's it: You're in the country and you're off and running."
This is a heck of a good long-term idea, and let's hope the Obama Administration embraces it. But for the short and medium term, high-tech startups alone will never return America to 5% unemployment and defuse the commercial-property bomb. Most existing small businesses don't need assistance from the government. What they need is across-the-board relief on taxes. They need benign legislation (or no change) on health care, energy and unions. A wish list, in other words, that runs counter to everything the Obama Administration is currently trying to pass.
Small businesses have always infuriated some liberals. Sinclair Lewis was awarded the Nobel Prize in Literature for Babbitt--the story of a small-minded Realtor in the 1920s. The word "Babbittry" soon became synonymous with "philistine." Liberal writer Michael Lind argues on Salon.com for sacrificing small business at the altar of corporatism in order to pass Obamacare:
"The solution may be corporatism or corporate paternalism--by which I mean the mandatory universalization of private-employer benefits. If the politics of ethnic diversity makes movement in a universalist, social democratic direction impossible in the U.S., then the alternative might be to mandate that all employers provide certain benefits to all employees, with no exceptions. The costs of such unfunded mandates might drive some small businesses out of existence. But small-business owners are the most vocal opponents of wage and benefit reform in the U.S. The replacement of Scrooge & Marley by a smaller number of bigger private and public employers who treat Bob Cratchit and Tiny Tim better would not necessarily be a tragedy."
There you have it: small business as Scrooge! If Obama defender Lind represents the thinking of President Obama and congressional Democrats, then our small businesses are in for a long siege. Hunkered down, they will not expand, hire or defuse the commercial-property bomb. That's a formula for a second recession.
Thursday, October 1, 2009
SBA Announces Maximum Fixed Rate
SBA Announces Maximum Fixed Rate
by Ethan W. Smith, Esq.
September 30, 2009
Historically, SBA has been permitted to publish a maximum allowable fixed rate for its guaranteed loans in the Federal Register, see 13 CFR 120.213(a). However, up to this point, the Agency has not done so. Lenders have been reluctant to make fixed rate loans under the 7a program because they have been restricted to a maximum rate equal to the Prime Rate (or LIBOR Base Rate) plus the maximum rate spreads identified in 13 CFR 120.214 (d) and (e) and 13 CFR 120.215. Currently, this results in a maximum rate of approximately 6.00%, which is not a rate most lenders are willing (or able) to lock in at for a long-term loan.
Yesterday, the SBA published in the Federal Register, its guidelines for calculating fixed rates for long term 7a loans, effective October 1, 2009.
The new guidance establishes a calculation for a "Fixed Base Rate" which is equal to the LIBOR Base Rate plus the average of the 5-year and 10-year LIBOR SWAP Rate (each as established on the first calendar day of the month). The maximum allowable fixed rate for 7(a) loans (excluding SBA Express and Export Express) will be calculated using the Fixed Base Rate plus the same spreads available on variable rate 7a loans, typically between 2.25% and 2.75%. See 13 CFR 120.214 (d) and (e) and 13 CFR 120.215.
Accordingly, the maximum fixed rate for loans with a maturity greater than seven years would be 9.17% using the September, 2009 LIBOR Base Rate (3.26), plus the average 5 and 10 year LIBOR Swap Rates (3.16), plus the maximum spread (2.75).
"This is good news for lenders and borrowers" says Bob Stephan of Coastal Securities, "Borrowers want to take advantage of this low interest rate environment to lock in a fixed rate, but lenders need a rate higher than what was previously allowed, in order to make offering a fixed rate feasible." Additionally, Stephan says that lenders can sell the guaranteed portion of their fixed-rate loans for a premium in the 4 point range and can still retain a 1% servicing fee, thereby reducing their exposure to these fixed rate loans.
The new maximum fixed rate policy is effective for loans submitted on or after October 1, 2009.
by Ethan W. Smith, Esq.
September 30, 2009
Historically, SBA has been permitted to publish a maximum allowable fixed rate for its guaranteed loans in the Federal Register, see 13 CFR 120.213(a). However, up to this point, the Agency has not done so. Lenders have been reluctant to make fixed rate loans under the 7a program because they have been restricted to a maximum rate equal to the Prime Rate (or LIBOR Base Rate) plus the maximum rate spreads identified in 13 CFR 120.214 (d) and (e) and 13 CFR 120.215. Currently, this results in a maximum rate of approximately 6.00%, which is not a rate most lenders are willing (or able) to lock in at for a long-term loan.
Yesterday, the SBA published in the Federal Register, its guidelines for calculating fixed rates for long term 7a loans, effective October 1, 2009.
The new guidance establishes a calculation for a "Fixed Base Rate" which is equal to the LIBOR Base Rate plus the average of the 5-year and 10-year LIBOR SWAP Rate (each as established on the first calendar day of the month). The maximum allowable fixed rate for 7(a) loans (excluding SBA Express and Export Express) will be calculated using the Fixed Base Rate plus the same spreads available on variable rate 7a loans, typically between 2.25% and 2.75%. See 13 CFR 120.214 (d) and (e) and 13 CFR 120.215.
Accordingly, the maximum fixed rate for loans with a maturity greater than seven years would be 9.17% using the September, 2009 LIBOR Base Rate (3.26), plus the average 5 and 10 year LIBOR Swap Rates (3.16), plus the maximum spread (2.75).
"This is good news for lenders and borrowers" says Bob Stephan of Coastal Securities, "Borrowers want to take advantage of this low interest rate environment to lock in a fixed rate, but lenders need a rate higher than what was previously allowed, in order to make offering a fixed rate feasible." Additionally, Stephan says that lenders can sell the guaranteed portion of their fixed-rate loans for a premium in the 4 point range and can still retain a 1% servicing fee, thereby reducing their exposure to these fixed rate loans.
The new maximum fixed rate policy is effective for loans submitted on or after October 1, 2009.
Monday, September 28, 2009
Status Report: Small-Business
Status Report: Small-Business Lending
September 17, 2009
By Diana Ransom
SMALL-BUSINESS LOANS are up at many of the nation’s lenders, but business isn’t exactly humming, and growing apprehension about commercial lending could leave a substantial number of firms without a source of capital.
The recent increase in lending has been clear. JPMorgan Chase (JPM), the parent company of Chase Bank and Washington Mutual, said it issued about $1.5 billion in loans to 4,177 small businesses with revenues up to $10 million during the second quarter, up 32% over the first quarter. Over the same period, Regions Financial (RF) said it issued or renewed $2 billion in loan commitments to small-business clients, a 31% hike over the first quarter.
Further, the country’s top 22 banks receiving capital injections from the U.S. government collectively reported more of the same. Although the total outstanding balance of small-business loans fell 1% in June, the total number of small-business loan originations surged 26% over a month earlier, according to the Treasury’s latest monthly bank lending survey.
Some lenders are newly bullish about issuing loans to small businesses because of a slight uptick in demand and the apparent success of the Small Business Administration’s move to lift its flagship 7(a) loan guarantee to 90%, up from 75% or 85%.
“The SBA programs help you out with newer businesses or businesses that don’t have a lot of collateral,” says Maria C. Coyne, executive vice president of KeyBank (KEY) who also noted an increase in demand for loans.
Still, lending isn’t what it used to be. “In terms of our [current] lending pipeline, what we’re seeing now in lending demand is 60% of what we’d expect in a normal lending environment,” says John Asbury, the executive vice president of business services at Regions Financial. That’s up from loan levels of less than 50%, which the bank logged in December of last year. But it’s hardly back to normal, he says.
Firms holding their expansion plans in check may have a good reason, says Bob Coleman, a small business banking analyst in La Canada, Calif. “We’re still in a recession,” he says. “We’re not talking Armageddon here, but it will [likely] remain tough for businesses to get loans,” says Coleman.
The root of the problem is a lack of solid private backing for small-business loans. One example is the disparate markets for the two components of 504 loans, which business owners use to purchase real estate and equipment. Although the secondary market for 504 debentures (the 40% stake of each of these loans that is guaranteed by the government) is flowing relatively freely, there is no secondary market for 504 first mortgages (the 50% stake made by private lenders), Coleman says. In the American Recovery and Reinvestment Act (ARRA), the SBA was instructed to take steps that would establish a secondary market for these first mortgages, says Jonathan Swain, a SBA spokesman. “We are currently in the process of finalizing the regulations for that piece of the Recovery Act,” he says.
Still, Coleman insists that the SBA is dragging its feet. Through the program, the Treasury would purchase mortgages if no other buyers step forward. Assurance of a buyer might drive banks to continue issuing 504 loans. Without that guarantee, banks could remain wary about issuing such loans, as many analysts expect the market for commercial loans to be the next shoe to drop, he says. Already, there are about $135 billion in defaulted commercial mortgages, a figure that has more than doubled since the beginning of the year, according to Real Capital Analytics, a firm that tracks commercial property sales.
Small-business advocates also worry about what will happen once the $375 million set aside by the SBA to temporarily eliminate loan fees and increase the agency’s loan guarantee to 90% for 7(a) and 504 loan programs runs out. SBA-backed loans are expected to revert to their pre-Recovery Act status by the end of November or December, according to the SBA.
In addition, lending terms are still tight. According to the Federal Reserve’s latest Senior Loan Officer Opinion Survey, 35% of domestic banks said they tightened credit for small firms in July, down slightly from more than 40% in April. And as many business owners have seen their credit scores slide, they’ve lost some of their ability to qualify for loans.
The steady stream of regional bank failures isn’t helping either. Since last September, 108 banks have shuttered, according to the Federal Deposit Insurance Corporation. Many other banks have been bought out. For borrowers, industry consolidation means that there are fewer lenders to approach for loans, which can limit a company’s ability to attract funding.
When PNC Financial Services Group (PNC) acquired National City Corp. last December, John Snyder, a senior business consultant at Gannon University’s Small Business Development Center in Erie, Pa., said his clients were left with few alternatives. “National City was always the biggest SBA lender in the area,” he says. “Now that they’ve mostly been absorbed by PNC, they aren’t [necessarily] willing to do SBA loans for start-ups,” Snyder says. (According to PNC spokeswoman Meghan Cole, the bank does lend to start-ups — under the right circumstances, such as to those with an experienced manager or owner.)
September 17, 2009
By Diana Ransom
SMALL-BUSINESS LOANS are up at many of the nation’s lenders, but business isn’t exactly humming, and growing apprehension about commercial lending could leave a substantial number of firms without a source of capital.
The recent increase in lending has been clear. JPMorgan Chase (JPM), the parent company of Chase Bank and Washington Mutual, said it issued about $1.5 billion in loans to 4,177 small businesses with revenues up to $10 million during the second quarter, up 32% over the first quarter. Over the same period, Regions Financial (RF) said it issued or renewed $2 billion in loan commitments to small-business clients, a 31% hike over the first quarter.
Further, the country’s top 22 banks receiving capital injections from the U.S. government collectively reported more of the same. Although the total outstanding balance of small-business loans fell 1% in June, the total number of small-business loan originations surged 26% over a month earlier, according to the Treasury’s latest monthly bank lending survey.
Some lenders are newly bullish about issuing loans to small businesses because of a slight uptick in demand and the apparent success of the Small Business Administration’s move to lift its flagship 7(a) loan guarantee to 90%, up from 75% or 85%.
“The SBA programs help you out with newer businesses or businesses that don’t have a lot of collateral,” says Maria C. Coyne, executive vice president of KeyBank (KEY) who also noted an increase in demand for loans.
Still, lending isn’t what it used to be. “In terms of our [current] lending pipeline, what we’re seeing now in lending demand is 60% of what we’d expect in a normal lending environment,” says John Asbury, the executive vice president of business services at Regions Financial. That’s up from loan levels of less than 50%, which the bank logged in December of last year. But it’s hardly back to normal, he says.
Firms holding their expansion plans in check may have a good reason, says Bob Coleman, a small business banking analyst in La Canada, Calif. “We’re still in a recession,” he says. “We’re not talking Armageddon here, but it will [likely] remain tough for businesses to get loans,” says Coleman.
The root of the problem is a lack of solid private backing for small-business loans. One example is the disparate markets for the two components of 504 loans, which business owners use to purchase real estate and equipment. Although the secondary market for 504 debentures (the 40% stake of each of these loans that is guaranteed by the government) is flowing relatively freely, there is no secondary market for 504 first mortgages (the 50% stake made by private lenders), Coleman says. In the American Recovery and Reinvestment Act (ARRA), the SBA was instructed to take steps that would establish a secondary market for these first mortgages, says Jonathan Swain, a SBA spokesman. “We are currently in the process of finalizing the regulations for that piece of the Recovery Act,” he says.
Still, Coleman insists that the SBA is dragging its feet. Through the program, the Treasury would purchase mortgages if no other buyers step forward. Assurance of a buyer might drive banks to continue issuing 504 loans. Without that guarantee, banks could remain wary about issuing such loans, as many analysts expect the market for commercial loans to be the next shoe to drop, he says. Already, there are about $135 billion in defaulted commercial mortgages, a figure that has more than doubled since the beginning of the year, according to Real Capital Analytics, a firm that tracks commercial property sales.
Small-business advocates also worry about what will happen once the $375 million set aside by the SBA to temporarily eliminate loan fees and increase the agency’s loan guarantee to 90% for 7(a) and 504 loan programs runs out. SBA-backed loans are expected to revert to their pre-Recovery Act status by the end of November or December, according to the SBA.
In addition, lending terms are still tight. According to the Federal Reserve’s latest Senior Loan Officer Opinion Survey, 35% of domestic banks said they tightened credit for small firms in July, down slightly from more than 40% in April. And as many business owners have seen their credit scores slide, they’ve lost some of their ability to qualify for loans.
The steady stream of regional bank failures isn’t helping either. Since last September, 108 banks have shuttered, according to the Federal Deposit Insurance Corporation. Many other banks have been bought out. For borrowers, industry consolidation means that there are fewer lenders to approach for loans, which can limit a company’s ability to attract funding.
When PNC Financial Services Group (PNC) acquired National City Corp. last December, John Snyder, a senior business consultant at Gannon University’s Small Business Development Center in Erie, Pa., said his clients were left with few alternatives. “National City was always the biggest SBA lender in the area,” he says. “Now that they’ve mostly been absorbed by PNC, they aren’t [necessarily] willing to do SBA loans for start-ups,” Snyder says. (According to PNC spokeswoman Meghan Cole, the bank does lend to start-ups — under the right circumstances, such as to those with an experienced manager or owner.)
Tuesday, September 22, 2009
How to Decide if Entrepreneurship is Right for You
How to Decide if Entrepreneurship is Right for You
By COLLEEN DEBAISE
Adapted from the upcoming book THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press, Dec. 29, 2009).
Starting a business is a lot like becoming a parent. Not only do you have to prepare for your start-up emotionally and financially, but you have to be committed to its constant needs until it's mature enough to hum along on its own. And even then (much like a child) it will always need you in some capacity, no matter how old it gets.
Here are five questions to ask before you start your own business:
1. Am I passionate about my product or service? Let's face it: the start-up phase is stressful. You will find yourself questioning whether you've made the right decision, especially when the hours are long and the initial profits (if any) are lean. As the business owner, you're also chief salesperson for your company. Your enthusiasm for your product or service— whether it's hand-knit sweaters or top-notch tax preparation— is often the difference that hooks customers, lands deals and attracts investors. It's unwise to start down the path of entrepreneurship unless you've got a zeal that will get you through rough patches and keep you interested long after the initial enthusiasm has faded.
2. What is my tolerance for risk? Whether it's quitting your day job or signing a lease on a new space, nothing about starting a business is for the faint of heart. Just ask Ina Garten, who bought a specialty-foods store called The Barefoot Contessa in East Hampton, New York, in 1978 and has since branched out into cookbooks, television and a line of products. Garten tells aspiring entrepreneurs that you have to "be willing to jump off the cliff and figure out how to fly on the way down." Even with enough passion to launch a thousand ventures, you could find any number of circumstances hastening your failure: a location that turns out to be less than ideal, a problem with city or state zoning boards or a kink in the supply chain that can't easily be ironed out. There's no guarantee of success, or even a steady paycheck. If you're risk-averse, entrepreneurship probably isn't the right path for you.
3. Am I good at making decisions? No one else is going to make them for you when you own your own business. Consider how you might handle these early decisions: Do I work from home or do I lease office space? Do I hire employees? Do I pursue high-end clients or sell to the masses? Do I incorporate? Do I advertise? Do I borrow money from friends or family? Do I use my entire savings? Keep in mind that the decision-making process only gets more complicated as time goes on, once you have employees or clients depending on you. The choices you make can lead to success or downfall, so you must feel confident in your ability to make the right call.
4. Am I willing to take on numerous responsibilities? While a corporate employee focuses on a special skill or role within the larger corporation, a business owner must contribute everything to the business. Solo entrepreneurs in particular must be versatile and play a number of roles, from chief salesperson and bookkeeper to head marketer and bill collector. If juggling many roles doesn't suit you, entrepreneurship probably won't, either. The recent economic downturn has made it more important than ever for business owners to have a good working knowledge of their companies' finances. While you will undoubtedly learn much on this topic from getting your hands dirty, the more knowledge you have in advance, the better prepared you'll be.
5. Will I be able to avoid burnout? Working seven days a week, losing touch with friends, abandoning old hobbies and interests and not making time for loved ones can quickly lead to burnout in the midst of starting up— and ultimately to business failure. That's what happened to James Zimbardi, an entrepreneur in Orlando, Florida, who says he didn't know any better when he started his first company in 1997 and worked as hard as possible, for as long as possible, until his creativity, enthusiasm and energy were sapped. By 2002, he was a broken man— the business took a downturn, and so did his personal life. Now Zimbardi is at work on his second company, Allgen Financial Services, and sticking to better habits to maintain work/life balance, such as not working on Sundays, making time for hobbies such as sailing and salsa dancing, and building close ties with other business owners through a faith-based support network.
Take some time to mull over these questions, do some soul-searching, and then if you think you have what it takes, go for it.
By COLLEEN DEBAISE
Adapted from the upcoming book THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press, Dec. 29, 2009).
Starting a business is a lot like becoming a parent. Not only do you have to prepare for your start-up emotionally and financially, but you have to be committed to its constant needs until it's mature enough to hum along on its own. And even then (much like a child) it will always need you in some capacity, no matter how old it gets.
Here are five questions to ask before you start your own business:
1. Am I passionate about my product or service? Let's face it: the start-up phase is stressful. You will find yourself questioning whether you've made the right decision, especially when the hours are long and the initial profits (if any) are lean. As the business owner, you're also chief salesperson for your company. Your enthusiasm for your product or service— whether it's hand-knit sweaters or top-notch tax preparation— is often the difference that hooks customers, lands deals and attracts investors. It's unwise to start down the path of entrepreneurship unless you've got a zeal that will get you through rough patches and keep you interested long after the initial enthusiasm has faded.
2. What is my tolerance for risk? Whether it's quitting your day job or signing a lease on a new space, nothing about starting a business is for the faint of heart. Just ask Ina Garten, who bought a specialty-foods store called The Barefoot Contessa in East Hampton, New York, in 1978 and has since branched out into cookbooks, television and a line of products. Garten tells aspiring entrepreneurs that you have to "be willing to jump off the cliff and figure out how to fly on the way down." Even with enough passion to launch a thousand ventures, you could find any number of circumstances hastening your failure: a location that turns out to be less than ideal, a problem with city or state zoning boards or a kink in the supply chain that can't easily be ironed out. There's no guarantee of success, or even a steady paycheck. If you're risk-averse, entrepreneurship probably isn't the right path for you.
3. Am I good at making decisions? No one else is going to make them for you when you own your own business. Consider how you might handle these early decisions: Do I work from home or do I lease office space? Do I hire employees? Do I pursue high-end clients or sell to the masses? Do I incorporate? Do I advertise? Do I borrow money from friends or family? Do I use my entire savings? Keep in mind that the decision-making process only gets more complicated as time goes on, once you have employees or clients depending on you. The choices you make can lead to success or downfall, so you must feel confident in your ability to make the right call.
4. Am I willing to take on numerous responsibilities? While a corporate employee focuses on a special skill or role within the larger corporation, a business owner must contribute everything to the business. Solo entrepreneurs in particular must be versatile and play a number of roles, from chief salesperson and bookkeeper to head marketer and bill collector. If juggling many roles doesn't suit you, entrepreneurship probably won't, either. The recent economic downturn has made it more important than ever for business owners to have a good working knowledge of their companies' finances. While you will undoubtedly learn much on this topic from getting your hands dirty, the more knowledge you have in advance, the better prepared you'll be.
5. Will I be able to avoid burnout? Working seven days a week, losing touch with friends, abandoning old hobbies and interests and not making time for loved ones can quickly lead to burnout in the midst of starting up— and ultimately to business failure. That's what happened to James Zimbardi, an entrepreneur in Orlando, Florida, who says he didn't know any better when he started his first company in 1997 and worked as hard as possible, for as long as possible, until his creativity, enthusiasm and energy were sapped. By 2002, he was a broken man— the business took a downturn, and so did his personal life. Now Zimbardi is at work on his second company, Allgen Financial Services, and sticking to better habits to maintain work/life balance, such as not working on Sundays, making time for hobbies such as sailing and salsa dancing, and building close ties with other business owners through a faith-based support network.
Take some time to mull over these questions, do some soul-searching, and then if you think you have what it takes, go for it.
How to Decide if Entrepreneurship is Right for You
By COLLEEN DEBAISE
Adapted from the upcoming book THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press, Dec. 29, 2009).
Starting a business is a lot like becoming a parent. Not only do you have to prepare for your start-up emotionally and financially, but you have to be committed to its constant needs until it's mature enough to hum along on its own. And even then (much like a child) it will always need you in some capacity, no matter how old it gets.
Here are five questions to ask before you start your own business:
1. Am I passionate about my product or service? Let's face it: the start-up phase is stressful. You will find yourself questioning whether you've made the right decision, especially when the hours are long and the initial profits (if any) are lean. As the business owner, you're also chief salesperson for your company. Your enthusiasm for your product or service— whether it's hand-knit sweaters or top-notch tax preparation— is often the difference that hooks customers, lands deals and attracts investors. It's unwise to start down the path of entrepreneurship unless you've got a zeal that will get you through rough patches and keep you interested long after the initial enthusiasm has faded.
2. What is my tolerance for risk? Whether it's quitting your day job or signing a lease on a new space, nothing about starting a business is for the faint of heart. Just ask Ina Garten, who bought a specialty-foods store called The Barefoot Contessa in East Hampton, New York, in 1978 and has since branched out into cookbooks, television and a line of products. Garten tells aspiring entrepreneurs that you have to "be willing to jump off the cliff and figure out how to fly on the way down." Even with enough passion to launch a thousand ventures, you could find any number of circumstances hastening your failure: a location that turns out to be less than ideal, a problem with city or state zoning boards or a kink in the supply chain that can't easily be ironed out. There's no guarantee of success, or even a steady paycheck. If you're risk-averse, entrepreneurship probably isn't the right path for you.
3. Am I good at making decisions? No one else is going to make them for you when you own your own business. Consider how you might handle these early decisions: Do I work from home or do I lease office space? Do I hire employees? Do I pursue high-end clients or sell to the masses? Do I incorporate? Do I advertise? Do I borrow money from friends or family? Do I use my entire savings? Keep in mind that the decision-making process only gets more complicated as time goes on, once you have employees or clients depending on you. The choices you make can lead to success or downfall, so you must feel confident in your ability to make the right call.
4. Am I willing to take on numerous responsibilities? While a corporate employee focuses on a special skill or role within the larger corporation, a business owner must contribute everything to the business. Solo entrepreneurs in particular must be versatile and play a number of roles, from chief salesperson and bookkeeper to head marketer and bill collector. If juggling many roles doesn't suit you, entrepreneurship probably won't, either. The recent economic downturn has made it more important than ever for business owners to have a good working knowledge of their companies' finances. While you will undoubtedly learn much on this topic from getting your hands dirty, the more knowledge you have in advance, the better prepared you'll be.
5. Will I be able to avoid burnout? Working seven days a week, losing touch with friends, abandoning old hobbies and interests and not making time for loved ones can quickly lead to burnout in the midst of starting up— and ultimately to business failure. That's what happened to James Zimbardi, an entrepreneur in Orlando, Florida, who says he didn't know any better when he started his first company in 1997 and worked as hard as possible, for as long as possible, until his creativity, enthusiasm and energy were sapped. By 2002, he was a broken man— the business took a downturn, and so did his personal life. Now Zimbardi is at work on his second company, Allgen Financial Services, and sticking to better habits to maintain work/life balance, such as not working on Sundays, making time for hobbies such as sailing and salsa dancing, and building close ties with other business owners through a faith-based support network.
Take some time to mull over these questions, do some soul-searching, and then if you think you have what it takes, go for it.
Adapted from the upcoming book THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press, Dec. 29, 2009).
Starting a business is a lot like becoming a parent. Not only do you have to prepare for your start-up emotionally and financially, but you have to be committed to its constant needs until it's mature enough to hum along on its own. And even then (much like a child) it will always need you in some capacity, no matter how old it gets.
Here are five questions to ask before you start your own business:
1. Am I passionate about my product or service? Let's face it: the start-up phase is stressful. You will find yourself questioning whether you've made the right decision, especially when the hours are long and the initial profits (if any) are lean. As the business owner, you're also chief salesperson for your company. Your enthusiasm for your product or service— whether it's hand-knit sweaters or top-notch tax preparation— is often the difference that hooks customers, lands deals and attracts investors. It's unwise to start down the path of entrepreneurship unless you've got a zeal that will get you through rough patches and keep you interested long after the initial enthusiasm has faded.
2. What is my tolerance for risk? Whether it's quitting your day job or signing a lease on a new space, nothing about starting a business is for the faint of heart. Just ask Ina Garten, who bought a specialty-foods store called The Barefoot Contessa in East Hampton, New York, in 1978 and has since branched out into cookbooks, television and a line of products. Garten tells aspiring entrepreneurs that you have to "be willing to jump off the cliff and figure out how to fly on the way down." Even with enough passion to launch a thousand ventures, you could find any number of circumstances hastening your failure: a location that turns out to be less than ideal, a problem with city or state zoning boards or a kink in the supply chain that can't easily be ironed out. There's no guarantee of success, or even a steady paycheck. If you're risk-averse, entrepreneurship probably isn't the right path for you.
3. Am I good at making decisions? No one else is going to make them for you when you own your own business. Consider how you might handle these early decisions: Do I work from home or do I lease office space? Do I hire employees? Do I pursue high-end clients or sell to the masses? Do I incorporate? Do I advertise? Do I borrow money from friends or family? Do I use my entire savings? Keep in mind that the decision-making process only gets more complicated as time goes on, once you have employees or clients depending on you. The choices you make can lead to success or downfall, so you must feel confident in your ability to make the right call.
4. Am I willing to take on numerous responsibilities? While a corporate employee focuses on a special skill or role within the larger corporation, a business owner must contribute everything to the business. Solo entrepreneurs in particular must be versatile and play a number of roles, from chief salesperson and bookkeeper to head marketer and bill collector. If juggling many roles doesn't suit you, entrepreneurship probably won't, either. The recent economic downturn has made it more important than ever for business owners to have a good working knowledge of their companies' finances. While you will undoubtedly learn much on this topic from getting your hands dirty, the more knowledge you have in advance, the better prepared you'll be.
5. Will I be able to avoid burnout? Working seven days a week, losing touch with friends, abandoning old hobbies and interests and not making time for loved ones can quickly lead to burnout in the midst of starting up— and ultimately to business failure. That's what happened to James Zimbardi, an entrepreneur in Orlando, Florida, who says he didn't know any better when he started his first company in 1997 and worked as hard as possible, for as long as possible, until his creativity, enthusiasm and energy were sapped. By 2002, he was a broken man— the business took a downturn, and so did his personal life. Now Zimbardi is at work on his second company, Allgen Financial Services, and sticking to better habits to maintain work/life balance, such as not working on Sundays, making time for hobbies such as sailing and salsa dancing, and building close ties with other business owners through a faith-based support network.
Take some time to mull over these questions, do some soul-searching, and then if you think you have what it takes, go for it.
Thursday, September 17, 2009
How to Start an Adventure Travel Company
How to Start an Adventure Travel Company
Check every hotel personally, says Brian Morgan of Adventure Life. Same goes for the zip lines.
By Leigh Buchanan Jul 1, 2009
Company Dashboard: Adventure Life
Founder Brian Morgan, 35
Location Missoula, Montana
2008 Revenue $11 million
Employees 16
Start-up Year 1998
Start-up Costs $3,000 for two brochures and a laptop
Breakeven One year out on sales of $125,000
Biggest Expenses $11,500 on advertising in 1999 and $33,500 in 2000. The biggest bite was print ads in magazines such as Outside and National Geographic Adventure.
Qualifications Fluency in Spanish. Relationships with trusted locals and longtime expats on the ground
Red Tape Regulatory burdens fall on lodges and providers of transportation and other services in countries visited, rather than on the tour operator.
In 1998, Brian Morgan traveled to Ecuador to learn Spanish and because someone he met in college once told him it was beautiful. There he trekked in the shadow of a volcano and rafted through the rain forest to a soundtrack of monkey chatter and birdsong. It would have been easy to put down roots in South America: Morgan envisioned building a life there as a consultant. But heart and home were in his native Montana. So, after some last-hurrah backpacking around Bolivia and Peru, Morgan flew back to Missoula. He hoped to land a job that would support regular visits south of the equator.
Then Morgan had an idea. "I thought I could put a group of people together a few times a year and take them to Ecuador -- show them the things that I found most spectacular," he says. His nascent business, Adventure Life, would lead travelers off the beaten path toward encounters with the land and culture. On some nights, clients would luxuriate in hot baths at a charming hotel. On others, they would rough it in a villager's plumbing-less home.
Morgan had just a couple thousand dollars in savings, though, so he accepted a software job and relegated start-up work to evenings and weekends. He printed 200 brochures advertising a single excursion and deposited them in coffee shops and sporting-goods stores near universities. No one called. Travel agencies waved him away. Concluding that travelers wanted more than one option, Morgan created a second brochure offering three itineraries with six departure dates. He also built a website, which looked like the work of an Amazonian howler monkey. Fortunately, a graphic design student redesigned the site a few weeks later. Drawn by the brochure and the site, 100 people booked the first year.
Morgan had expected young backpackers to flock to the tours and assumed rudimentary accommodations and transportation would suffice. In fact, many clients were as old as 65. In addition, Morgan based his fees on data harvested from European company sites, which were plentiful. But because Americans take fewer vacations than Europeans, they are willing to spend more on shorter trips. "I lost money on my first group in Peru," says Morgan. "Once I got there, I was like, 'Oh, my God; we cannot stay at this hotel.' I had to spend an extra $100 per person to upgrade." Morgan began booking rooms in classier hotels and switched from bus travel to car services. That first year, prices rose 25 percent to 30 percent.
Morgan had also assumed he would maintain a staff of expat tour leaders in the countries in which he did business. Those guides would take over in challenging terrain and run tours themselves as the company grew. But on his first tour, Morgan observed that local guides were far better versed in the flora, fauna, and culture than their North American counterparts. Many spoke indigenous tongues as well as Spanish and English. And though local guides charged about twice as much per day as Americans, they were generally willing to sign on per tour rather than be hired as staff. So Morgan began recruiting locals, e-mailing people he had met on his travels for referrals.
Not surprisingly, the first few years required a lot of time in the (steamy verdant) field. Morgan spent a third of 1999 in Ecuador, Costa Rica, and Peru leading tours and inspecting hotels -- sometimes as many as 12 a day -- for cleanliness and character. "You lift the covers and check the sheets and mattresses; check the bathrooms for mold," says Morgan. He also personally auditioned activities offered to clients. "In Costa Rica, I rappelled down all these waterfalls," he says. "When I was done, I turned to my outfitter and said, 'My travelers can never do this.' "
With its founder abroad, Adventure Life needed a presence in the U.S.; at first, that presence was Morgan's mother. After 10 months, he hired an administrative assistant to help create new brochures and assist clients preparing for trips.
Over the years, Adventure Life's business has waxed along with interest in the environment and indigenous cultures. Today, 40 percent of sales derive from customer referrals and coverage in guidebooks and travel magazines.
Morgan warns that running a company like his may wear down even the most wanderlustful entrepreneurs. "I went through major burnout a few years ago and almost left the industry," he says. "I lost all the original things I loved about travel." To keep going, Morgan began mentally framing his trips as opportunities to see old friends and explore places he will never take clients. "It was totally unexpected that sharing my passion with others ended up dampening that passion," he says.
Check every hotel personally, says Brian Morgan of Adventure Life. Same goes for the zip lines.
By Leigh Buchanan Jul 1, 2009
Company Dashboard: Adventure Life
Founder Brian Morgan, 35
Location Missoula, Montana
2008 Revenue $11 million
Employees 16
Start-up Year 1998
Start-up Costs $3,000 for two brochures and a laptop
Breakeven One year out on sales of $125,000
Biggest Expenses $11,500 on advertising in 1999 and $33,500 in 2000. The biggest bite was print ads in magazines such as Outside and National Geographic Adventure.
Qualifications Fluency in Spanish. Relationships with trusted locals and longtime expats on the ground
Red Tape Regulatory burdens fall on lodges and providers of transportation and other services in countries visited, rather than on the tour operator.
In 1998, Brian Morgan traveled to Ecuador to learn Spanish and because someone he met in college once told him it was beautiful. There he trekked in the shadow of a volcano and rafted through the rain forest to a soundtrack of monkey chatter and birdsong. It would have been easy to put down roots in South America: Morgan envisioned building a life there as a consultant. But heart and home were in his native Montana. So, after some last-hurrah backpacking around Bolivia and Peru, Morgan flew back to Missoula. He hoped to land a job that would support regular visits south of the equator.
Then Morgan had an idea. "I thought I could put a group of people together a few times a year and take them to Ecuador -- show them the things that I found most spectacular," he says. His nascent business, Adventure Life, would lead travelers off the beaten path toward encounters with the land and culture. On some nights, clients would luxuriate in hot baths at a charming hotel. On others, they would rough it in a villager's plumbing-less home.
Morgan had just a couple thousand dollars in savings, though, so he accepted a software job and relegated start-up work to evenings and weekends. He printed 200 brochures advertising a single excursion and deposited them in coffee shops and sporting-goods stores near universities. No one called. Travel agencies waved him away. Concluding that travelers wanted more than one option, Morgan created a second brochure offering three itineraries with six departure dates. He also built a website, which looked like the work of an Amazonian howler monkey. Fortunately, a graphic design student redesigned the site a few weeks later. Drawn by the brochure and the site, 100 people booked the first year.
Morgan had expected young backpackers to flock to the tours and assumed rudimentary accommodations and transportation would suffice. In fact, many clients were as old as 65. In addition, Morgan based his fees on data harvested from European company sites, which were plentiful. But because Americans take fewer vacations than Europeans, they are willing to spend more on shorter trips. "I lost money on my first group in Peru," says Morgan. "Once I got there, I was like, 'Oh, my God; we cannot stay at this hotel.' I had to spend an extra $100 per person to upgrade." Morgan began booking rooms in classier hotels and switched from bus travel to car services. That first year, prices rose 25 percent to 30 percent.
Morgan had also assumed he would maintain a staff of expat tour leaders in the countries in which he did business. Those guides would take over in challenging terrain and run tours themselves as the company grew. But on his first tour, Morgan observed that local guides were far better versed in the flora, fauna, and culture than their North American counterparts. Many spoke indigenous tongues as well as Spanish and English. And though local guides charged about twice as much per day as Americans, they were generally willing to sign on per tour rather than be hired as staff. So Morgan began recruiting locals, e-mailing people he had met on his travels for referrals.
Not surprisingly, the first few years required a lot of time in the (steamy verdant) field. Morgan spent a third of 1999 in Ecuador, Costa Rica, and Peru leading tours and inspecting hotels -- sometimes as many as 12 a day -- for cleanliness and character. "You lift the covers and check the sheets and mattresses; check the bathrooms for mold," says Morgan. He also personally auditioned activities offered to clients. "In Costa Rica, I rappelled down all these waterfalls," he says. "When I was done, I turned to my outfitter and said, 'My travelers can never do this.' "
With its founder abroad, Adventure Life needed a presence in the U.S.; at first, that presence was Morgan's mother. After 10 months, he hired an administrative assistant to help create new brochures and assist clients preparing for trips.
Over the years, Adventure Life's business has waxed along with interest in the environment and indigenous cultures. Today, 40 percent of sales derive from customer referrals and coverage in guidebooks and travel magazines.
Morgan warns that running a company like his may wear down even the most wanderlustful entrepreneurs. "I went through major burnout a few years ago and almost left the industry," he says. "I lost all the original things I loved about travel." To keep going, Morgan began mentally framing his trips as opportunities to see old friends and explore places he will never take clients. "It was totally unexpected that sharing my passion with others ended up dampening that passion," he says.
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