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5 Things Small Businesses Want From Washington

August 23, 2010
By Jeanette Mulvey
Business News Daily Managing Editor

Hardly a day passes without President Obama calling on Congress to pass the small business bill in September. The legislation would free up $30 billion in loans and institute a number of tax credits for small businesses. Small business owners are skeptical about how effective the bill will be.

Business News Daily asked 50 small business owners across the country how Washington can help get their businesses back on track. Five key trends emerged.

Ease lending requirements...
Repeal 1099 reporting requirements...
Make it easier to get government contracts...
Communicate better...
Get out of the way...

"Let business do what it does best: Make stuff and provide services that meet the needs of the customers." said Paul Chase, a Pennsylvania-based real estate agent. "There is certainly a need for some regulation, but companies are being regulated to death."

To read the full article... click here.

Small Business Owners Still Doubtful about Economic Turnaround

Blog By JULIA L. ROGERS, AOL SMALL BUSINESS

Small businesses aren't quite buying the reality of economic recovery yet, reveals a survey conducted by the National Federation of Independent Business (NFIB) in March. Most have continued to be tight-budgeted, stalling hiring and expansion in the sector.

Entrepreneurs in small companies across industries are still frustrated as they watch larger companies get low-interest credit and enjoy rejuvenated businesses. Unfortunately, their pessimism and failure to take advantage of all benefits offered to them is seriously affecting the strength and speed of the recovery. Because of sour attitudes among those in the small business community, economic experts believe that President Barack Obama has his work cut out for him as he attempts to move forward with fresh policies to help smaller companies add jobs and expand. Reuters reports that issues related to employment and job opportunities are critical in this congressional election year and could make or break results...

To read the full article... click here.

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

By Peter Schnitzler, Indianapolis Business Journal

To read the full article online click here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"Do The Unexpected" - AOL Small Business

Click HERE to view the article online.

By STEVE STRAUSS, AOL SMALL BUSINESS

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

Joe

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

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

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

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

Here is what I am talking about:

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

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

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

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

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

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

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

"Bring happiness to its workers?" Wow.

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

Food Truck Entrepreneurs Start a Revolution on Wheels

Click HERE to view entire article.

By LAURA TIFFANY, AOL SMALL BUSINESS

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Tanning Industry News

Is the Tanning Industry About to Be Burned?
By GEOFF WILLIAMS, AOL SMALL BUSINESS

Even if you've been following the health care hubbub in Congress, you may have easily missed the news that a 10% tax on indoor tanning services is being considered.

The idea is that since tanning -- outdoor or in -- can lead to skin cancer, a tax on the tanning industry should be implemented, and the money, about $270 billion over the next 10 years, would help fund health insurance reform. Unless you're a regular indoor tanning customer or someone who works in the industry, the tax was probably an afterthought.

But Karen Brutsche noticed.

Brutsche is the owner of the Suntan Shop, a small chain of indoor tanning salons in Virginia, and after a conversation with her, you suddenly realize how a seemingly hastily added amendment to a government bill can really affect a business owner. Brutsche began her business in 1983 at the age of 28 after several years of managing a retail store.

"My son was a toddler, and it was hard to keep up retail management hours and a family," says Brutsche. "Around the corner from where my sister worked, a T-shirt store had added tanning. She thought it might be a good business for me to start."

That seemed to be the case. Her business flourished over the years -- not as a national household name or anything -- but when politicians praise small business owners, Brutsche seems to be the model. She managed to open not just one store, but create jobs at four locations, and she has partnered with other tanning salons in the area, so she can offer her customers who have memberships 25 places in the region to tan. When the Great Recession hit, Brutsche was hit like everyone else -- losing 30% of her business in 2009 -- but she managed to keep the company going and not lay off any employees.

"I've cut back as much as I can, but I've not let the recession hurt my staff," says Brutsche, acknowledging that she no longer can do an annual goodbye dinner to students leaving her employment for college and had to stop giving employees birthday gifts. Otherwise, "my staff has gotten their raises, I've paid my manager's health insurance, and kicked in for another staffer's health care."

But this tax could level her business in ways that the recession hasn't, says Brutsche. "If people already think your rates are high, then you add 10% ..." She trails off, then adds, "Some people will stay. They love it, and this is a lifestyle for them, but those people on the fence -- they'll be gone."

What really hurt Brutsche was the timing. She had been "sweating bullets" over a lease renewal for a year, but finally had signed with her landlord, having crunched the numbers and decided that signing the new lease would be a smart decision. That was on a Friday over the holidays; two days later, she awoke on a Sunday morning to learn about the possible indoor tanning tax.

"I was floored," says Brutsche. "I spent most of the day in tears."

Of course, you could argue that health care has to be funded, so why not tax a practice believed to be unhealthy? If that puts someone out of business like Brutsche, it's a regrettable part of the equation. But if Brutsche is right, the tax would just put a lot of tanning businesses out of business -- which would remove the funding the tax is supposed to generate. Brutsche predicts, "They will not make $270 billion from us."

She may have a point even if every tanning business managed to stay open after a 10% tax. The Big Money recently ran a story with a headline that said it all: "Projections on tanning-parlor tax appear to be far too high." If the International Smart Tan Network, a Jackson, Mississippi-based industry group, is correct, the tax "overestimates tanning revenues by 40 to 50%."

Regardless of whether the tax is successful, Brutsche is certain that if it's implemented it will be the undoing of many tanning industry owners. "67% of tanning salons are female-owned and most are small, individually owned businesses," says Brutsche, who paints a portrait of tanning bed operators as part of the American fabric: "We live in the neighborhoods, raise our children, give to local charities and events, mentor young adults in how to hold a job, manage money, market, sell, plunge a toilet and change a vacuum cleaner bag -- life skills for college and careers. Regardless of one's knowledge or perspective of indoor tanning, it seems that Congress is voting for big business over small mom and pops."

She is referring to the fact that before the tanning tax was conceived, there was going to be a "botox" tax, a proposed 5% tax on all cosmetic procedures. Lobbyists rallied, however, on the claims that it would have discriminated against women. But, of course, this tanning tax may wind up discriminating against women business owners.

"The money won," says Brutsche. "We are such a small, fragmented industry, most of us didn't even see this coming. We don't have the political power or experience to fight -- we never have. A fragmented industry like ours has no way to fight the dermatologists, plastic surgeons, cosmetic or the drug companies."

Brutsche acknowledges that not everyone is a fan of indoor tanning. "We've been punching bags for a lot of different things," she says, "and some might be legit, and some might not."

In any case, for the critics who decry the tanning industry, the tax may be a godsend: "They've got us," she says, sounding, at least for a moment, like a business owner whose sunniest days are behind her. "This will totally cause us to go under."

There's More Than One "Part" to the Elephant

I was reminded the other day about the story of the blind men describing an elephant and in how many ways it perfectly describes the process of buying a business--too many times buyers only concentrate on one "part" of the "elephant" and fail to see the whole entity.

Article: Stimulus Relief Extended for SBA Loans

Stimulus Relief Extended for SBA Loans

By EMILY MALTBY

The Senate voted this weekend to temporarily extend funding for two popular stimulus provisions that reduced fees and boosted guarantees on Small Business Administration-guaranteed loans.

The provisions, which helped bolster small-business lending over the past year, had run out of funding in late November. With the new extension, included in the Defense Appropriations bill, the government's maximum guarantee on SBA loans is restored to 90%, compared to pre-stimulus levels of 75%. Fees that the agency normally changes banks are also waived.

Small businesses have been left in limbo since the funding ran out," said Mary Landrieu (D-La.), one of the senators who requested the extension, in a statement. "[The legislation] will provide a lifeline to small businesses in need of credit."

The provisions, however, are only extended through February. Lenders and small-business advocacy groups will have to wait on another piece of legislation – the House's Jobs for Main Street Act, which passed in the chamber last week – for the provisions to be extended through next September.

Access to credit, with or without the stimulus provisions, has remained a problem for Main Street businesses. "The conventional credit market will not near normal until sometime in 2011 because the typical small business will walk in with negative trends on his financial statement," said Tony Wilkinson, president of the National Association of Government Guaranteed Lenders in Stillwater, Okla. "But that's why the SBA programs are important, because lenders can say, 'Hey, this is a survivor who will probably make it.'"

The provisions were originally enacted as part of the Recovery Act in February 2009, and have been widely credited with drawing banks back to the small-business lending arena. SBA Administrator Karen Mills called the increased guarantee and reduced fees on SBA loans "a powerful combination" that has already directed $16.5 billion to small-business owners and brought more than 1,200 lenders back to SBA loan programs.

After the SBA announced in mid-November that funding had nearly drained, lenders acted quickly to approve as many loans as possible under the stimulus provisions. In one week, the SBA received a surge of loan applications, forcing the agency to create a waiting list of 1,069 small businesses seeking $530 million in loans. The extension should move all of those businesses out of the queue, says SBA spokeswoman Hayley Matz. "As we get to the end of February, we will implement the queue again as a way of orderly winding down the process."

Next week marks the end of the SBA's first fiscal quarter. Even if the loan volume has increased for the past three months, credit is still not easy to come by, many business owners say. Earlier this month, President Obama publicly addressed how the credit crunch has impacted small businesses and pledged to institute programs, including the extension of the higher guarantees and waived fees, in order to propel lending. He has also outlined a plan to use TARP funds, though details of that program are still pending.

Janet Crenshaw Smith is skeptical that government programs will help her score a loan. Even before the stimulus funding ran out, she was having trouble at the bank.

Her company, Ivy Planning Group LLC, a 19-year-old consulting and training firm in Rockville, Md., had its $750,000 credit line cut off from Wachovia about 12 months ago. Ms. Smith depended on the line when clients failed to pay within 90 days. The bank expanded the line of credit year after year, leading her to believe that the line wasn't in jeopardy.

"I thought that would never happen to me; I thought I was special," Ms. Smith says. "I went nuts when I got the letter." She has had to scrutinize her cash flow since then, particularly after she lost some large Wall Street clients during the worst months of the recession.

Although she now feels ready to hire and launch new training products, she's hindered without the cash. The next stop, she says, is her community bank, although she's doubtful. "Their guidelines may be too tight," she says. "But this is my opportunity to capture market share because many of my competitors are long gone and won't be back."

Article: Gas Stations Fume Over Refiners' Sales

The Wall Street Journal

Gas Stations Fume Over Refiners' Sales
Smaller Dealers Complain Big Oil's Practice of Selling Retail Outlets to Third Parties Hurts Business

By RICHARD GIBSON

Big Oil is having trouble with some of its little guys.

Dozens of gas-station dealers are lodging complaints with the major petroleum refiners over changes big producers want to make in the way they do business.

Some oil companies—including ExxonMobil, BP and Royal Dutch Shell—want to stop owning and leasing their own retail outlets, which some of them have said they regard as a low-profit business. They've been selling the properties, often to fuel distributors, who are becoming the dealers' new franchisers.

A spokesman for ExxonMobil, a unit of Exxon Mobil Corp., says such ownership transfers should be "transparent" to its consumers, who will still be "able to purchase gas at Exxon and Mobil-branded stations across the U.S."

But many of the small-business dealers who run those stations are worried about their livelihoods. Under the previous business model, refiners often gave dealers allowances and rebates on fuel prices. But when the station is sold to a third party, such as a fuel distributor, the distributor may mark up the price of fuel in order to recoup costs. The station is contractually obligated to sell only their refiner's brand of fuel, so it has no choice but to buy it from the distributor who owns that brand's supply contracts—and is now frequently also his franchiser.

In New Jersey, 20 BP dealers recently went to court to stop the oil giant from ending their long-standing business relationship. As an alternative to third-party purchasers, BP Products North America Inc., a unit of BP PLC, offered to sell the stations to the dealer-operators, but the dealers allege that the company is asking inflated prices. BP said it doesn't comment on pending litigation.

The U.K.-based company has already disposed of more than 550 stations in several states, including Arizona, California, New Jersey and New York.

The individual dealers say they're at a disadvantage in bidding for their stations against distributors and other bigger entities. "There are less headaches" that refiners have in doing business with a distributor willing to buy a bundle of stations rather than dealing with scores of individual buyers, says Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops, an industry group.

A BP spokesman says the company has no preference on whether buyers are single-station dealers or multiunit operators.

Such franchise transfers—which have become a national concern among hundreds of small-business station operators—this past summer led to legislation in New Jersey giving dealers a "first right of refusal" in acquiring their stations from oil companies.

Sal Risalvato, executive director of the New Jersey Gasoline-Convenience-Automotive Association, which lobbied for the legislation, believes that the law deterred Shell Oil Co. from selling about 150 company retail outlets.

A Shell spokeswoman said the company would comply with applicable state and federal laws in transitioning from company-supplied stations.

The ExxonMobil spokesman said that while the company is evaluating its plans there, as yet no dealer-operated sites have been sold in that state.

The price they pay for fuel is among the dealers' chief concerns. Two Chicago-area gas station operators, Robert W. Juckniess and Nrupesh Desai, who bought 17 gas stations from BP in the Chicago-northern Indiana market, recently sued BP, alleging they didn't disclose before they bought the station franchises that BP might transfer their fuel-supply contracts to jobbers, or distributor middlemen, which it subsequently did.

The result, the plaintiffs allege in their federal district-court filing in Chicago, was marked-up fuel prices that made them less competitive and their profit projections unrealistic, forcing them on many days "to lose money on every gallon of gasoline sold at the pump... in order to remain reasonably competitive on the street."

The dealers' attorney, Carmen Caruso of Stahl Cowen Crowley Addis LLC in Chicago, says the lawsuit is "a matter of survival" for the station operators, who committed themselves to 20-year franchises that prevent them from changing brands.

In court papers BP denied all of the allegations but declined further comment.

ExxonMobil was named in another fuel-pricing lawsuit brought in New Jersey earlier this month. It alleges that the refiner deliberately manipulates the prices its New Jersey dealers pay for its gasoline, so as to increase revenues to the detriment of the dealers. The complaint also says that some dealers pay more for gasoline than others, depending on what part of the state they're in.

The Exxon spokesman said in an email that "ExxonMobil sets its wholesale price on a number of factors that are designed to allow our dealers to compete with competitors in their local trade area." As to the lawsuit, the spokesman's email said Exxon doesn't comment on pending litigation other than to say they'll defend themselves "vigorously."

Marc J. Gross, an attorney with Greenbaum, Rowe, Smith & Davis LLP, Roseland, N.J., who filed the lawsuit on behalf of nearly 100 Exxon franchisees-dealers, said such suits present a risk to the small-business people bringing them. Besides taking on a deep-pockets adversary able to carry on court battles for years, "it's like biting the hand that feeds you," he said.

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.”•

Small Business Loans Article

CNNMoney.com

Small business loans: $10 billion evaporates

Reports to the Treasury confirm what small business owners have known all year: Banks are cutting back on Main Street lending.

By Catherine Clifford, CNNMoney.com staff reporter
Last Updated: November 17, 2009: 10:11 AM ET

NEW YORK (CNNMoney.com) -- Eight months after President Obama began prodding the nation's banks to increase their small business lending, the loan numbers continue to move in the opposite direction.

The 22 banks that got the most help from the Treasury's bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.

Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April, when the Treasury department began requiring the biggest banks receiving Troubled Asset Relief Program (TARP) funding to report monthly on their small business lending.

Over the six months that the reporting requirement has been in effect, the banks have cut their collective small business lending by 4%. Their cumulative balance stood at $258.7 billion as of Sept. 30, according to a Treasury Department report.

The bank with the biggest lending drop was Wells Fargo (WFC, Fortune 500), which cut its loan balances by $3 billion. However, Wells Fargo also remains by far the biggest small business lender, with $73.8 billion lent out to small companies. No other bank comes close to that tally.

Some banks are unapologetic about their cutbacks. Small business defaults are soaring, and banks are under pressure to shore up their balance sheets and reduce their exposure to risky loans. Two key small business lenders, CIT Group and Advanta, filed for bankruptcy this month.
But other banks downplay their dwindling loan numbers.

JPMorgan Chase (JPM, Fortune 500) made headlines last week by announcing that it would increase its small business lending by $4 billion this year. But there's no sign of an increase so far in the reports the bank has been filing to the Treasury. JPMorgan's small business lending total has declined every month since April, falling 2.5% over the period. As of Sept. 30, the balance stood at $25.4 billion, down $664 million from six months ago.

JPMorgan spokesman Tom Kelly said the bank will ramp up its lending as the economy improves. The bank is already starting to see healthier, better-qualified applicants, he said: "Some of the businesses are better than they were six months ago."

He also pointed to JPMorgan's recent move to hire additional small business specialists. "We are going to have 325 more bankers talking to customers, so that means there is going to be more applicants for loans," Kelly said. "We have 325 more people knocking on doors."

Credit crunch: Obama administration officials, including Treasury Secretary Tim Geithner and Small Business Administration head Karen Mills, will host a forum Wednesday in Washington to discuss the lending challenges small businesses face. Bankers, members of Congress, and a selection of small business owners will participate.

While credit conditions have improved in some parts of the financial system, lending remains very tight for businesses that rely on banks for their financing, Federal Reserve Chairman Ben Bernanke acknowledged on Monday.

"Many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms," Bernanke said in a speech at the Economic Club of New York. "The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further."

Those in the field back that view. Susan Carlson is president of The International Center for Assistance, a nonprofit organization in Richmond, Va., that assists small businesses seeking capital. Lenders remain very skittish, she said.

"They will look at me and say, 'Susan, we would love to help you, but right now we can't take the risk,'" she said.

Jobs on the line: Frank and Ingrid Brown are a prime example of what happens when entrepreneurs can't get financing. The couple would like to expand their businesses in Auburn, Ala., which currently employ 20 people, but can't land the loan they'd need to do it.

The Browns own two retail art and gift shops, The Villager and AuburnArt.com, as well as a collection of online stores. First they applied at the bank for a loan targeting businesses in underutilized urban areas, but were denied because their sales exceeded the cap for the loan. So they applied with the bank for a Small Business Administration-backed 7(a) loan, but were again rejected.

Next the Browns turned to the America's Recovery Capital (ARC) loan program, a stimulus measure launched this year to get government-backed bridge loans to struggling but viable businesses. After filling out mountains of paperwork, the couple got a bank loan for $14,000 -- less than half the $35,000 they applied for.

"We couldn't get any answers for why we didn't get the full amount, but that is what they came up with. It was kind of like 'take it or leave it,'" Frank said. "By the time you get through everything, it is not even worth it."

The Browns also applied at their local bank, BBVA Compass in Birmingham, for a $50,000 credit line. They were approved for $10,000.

The frustration is taking its toll. "People like us go out and hire people," Frank said. But without the capital it needs to grow, The Villager isn't bringing on new staffers.

That's the nightmare scenario for policymakers as they try to fan the flames of the nation's fragile economic recovery. As long as bank vaults stay slammed shut, fewer startups will launch, successful businesses will have trouble expanding, and struggling businesses are more likely to fail.

"Difficulties in obtaining credit could hinder the expansion of small and medium-sized businesses and prevent the formation of new businesses," Bernanke said on Monday. "Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth."

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.

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."

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.

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.

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.

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.)

SBA, After Backlash, to Ease Limits on Loans for Buyouts

SBA, After Backlash, to Ease Limits on Loans for Buyouts

By EMILY MALTBY

The Small Business Administration, after enduring a backlash from lenders and business appraisers, plans Oct. 1 to modify a restriction it had placed on loans used to finance acquisitions of small companies.

In March, the SBA, capped the guarantee it was willing to extend on "goodwill" financing, which is the amount of a loan used to purchase an existing business's intangible assets, such as an established name, brand or customer base. The market price of a small business is based partly on its tangible assets, such as property, equipment and inventory, but often primarily on its goodwill. For some firms for sale, such as professional practices, Internet companies and service firms, the value of intangible assets can range between 55% and 95%.

For years, lenders were free to administer SBA-guaranteed loans with any amount of goodwill financing. But in March, the SBA changed its rules so that guarantees for goodwill financing would be capped at $250,000, or 50% of the loan amount, whichever was lower. The rules were designed in part to prevent sellers from inflating companies' intangible assets.

SBA-guaranteed loans are a small proportion of small-business loans. But the move didn't help in a market already taking a beating, business-acquisition specialists said. In March, closed business sales were 33% below the levels seen a year earlier, according to BizBuySell.com, an online marketplace for business acquisitions based in San Francisco.

"It was the antistimulus," said Ronald Feldman, chief executive of Siegel Financial Group, a consultancy firm for small-to-midsize business acquisitions in Bala Cynwyd, Pa.

Starting in October, the SBA is raising the cap on its guarantee of goodwill financing to $500,000. If the goodwill financing exceeds that amount, the SBA will recommend that lenders consider requiring more equity from the borrower or seller. SBA spokeswoman Hayley Matz said the agency adjusted the cap after collecting data on goodwill financing, and found that the average goodwill amount was close to $400,000. "We want to make sure they have continued access to capital," Ms. Matz said.

The National Association of Government Guaranteed Lenders, a Stillwater, Okla., group that represents lenders that make SBA loans, said the new rules are less restricting.

"Lenders really tightened up on business acquisitions after the March 1 rules took effect," said Tony Wilkinson, the group's president and chief executive. The guidelines also clarify the circumstances under which lenders may process loans. For instance, for goodwill financing that exceeds $500,000, the SBA recommends 25% in equity from the purchaser.

The guidelines are seen as a compromise between the free rein on goodwill that lenders and business appraisers had historically experienced and the March rules. For potential buyers, the new rules, like the March rules, may provide security that they aren't overpaying for a company's intangible assets.

Jeanine Vigeant of Providence, R.I., said she wished some goodwill restrictions were in place when she took out an SBA loan in April 2008 to buy a business that imported shoes from China for U.S. distributors. She paid $1.5 million for the business, relying on the seller's word that the loyalty of 10 customers, the primary basis for the goodwill, which made up 95% of the price, would continue.

But, within months of acquiring the business, those customers had severed their relationship, she said. Ultimately, she and her son, a partner in the business, defaulted on the loan after six months. The sellers of the business didn't return calls to comment.

"When I read [in March] that the SBA would put a cap on the goodwill or hold the seller accountable for more, I couldn't resist writing to the SBA," she said. "I told them I wished this had happened a year earlier, because then I would not be in this position."

Pro Bono Work Helps Firms Fight Economic Slump

Pro Bono Work Helps Firms Fight Economic Slump
Employees Volunteer Services to Charities and Nonprofits, Fostering Potential New Customer Relationships

By RAYMUND FLANDEZ

Some small businesses are following the recession playbook of the unemployed.

Just as many laid-off workers are volunteering more to fill up their free time and enhance their résumés, small-business owners and their employees are doing more pro bono services or volunteer work as a marketing and customer-relations strategy.

The recession hit Studio G Architects Inc. of Boston particularly hard last fall, causing 2008 revenue to drop 30% from the prior year, says Gail Sullivan, the principal. Clients of the 16-year-old architectural firm killed or put on hold 10 projects last October. With work slowing down, the company began providing 15 to 20 hours a week in pro bono services to keep employees occupied and potentially attract future contracts. It worked.

This spring the firm prepared preliminary design projects, such as a playground for severely handicapped children, for various charities. The projects later received full funding and Studio G obtained several contracts, which ranged in value from $16,000 to $100,000. "Offering the pro bono services has given us a chance to maintain our design vigor [and] resulted in people hiring us," Ms. Sullivan says.

For a small business that has lost clients or seen revenue-generating projects dry up, performing free work is a way to keep employees engaged while cultivating new relationships. Donating services to charity groups, churches, schools and other nonprofits can "increase local visibility, deepen local business ties and create opportunity for new business," says Christine Banning, vice president of marketing and communications at SCORE, a Washington-based group that provides free counseling to small businesses.

While it is a strategy that can bear fruit in a tough economy, she warns that small-business owners should set parameters in terms of how much they give away. With charitable giving falling in 2008 for the first time since 1987, dropping about 2% from a year earlier, according to a Giving USA study released last month, more nonprofits could be seeking donations from local businesses.

That is why Robert Politzer, president and chief executive of GreenStreet of New York Inc., made sure his pro bono work can benefit his company in the future.

At a networking event four months ago, Mr. Politzer met the director of the Hudson River Clearwater Sloop Inc., a nonprofit that aims to preserve and protect the Hudson River. Now, the green-building and consulting firm is serving as the volunteer construction manager of the group's new headquarters in Beacon, N.Y. As a public-relations move, GreenStreet is uploading videos on YouTube as it documents the pro bono work.

"This is only going to help expand our network, which should lead to more business for us," Mr. Politzer says.

Indeed, relationships matter now more than ever, says Audrey Murrell, professor of business administration at the Katz Graduate School of Business at the University of Pittsburgh. Those customers who get a first-hand look at a company's expertise during a pro bono project will likely turn to that company later, Ms. Murrell says.

"When there are fewer opportunities, there are more choices of whom people are going to do business with," she says, adding that people are going to "be more influenced by the relationship that you've cultivated."

One of the beneficiaries of eMazzanti Technologies' largesse this year was a local church, which had trouble setting up an outdoor wireless digital sign board. The Hoboken, N.J., technology company worked on the four-month project free of charge, saving the Our Lady of Grace church some $7,000 to $12,000.

In exchange, the company received an endorsement unlike any other. At a Mass, the pastor thanked the company in front of the congregation.

"My wife says, 'It's almost like a referral from God,' " says Carl Mazzanti, the 33-year-old chief executive.

With business ebbing, George Amorim, the co-owner of Divine Catering LLC of Madison, N.J., is offering free food and catering services this summer to local charities, in preparation for more business in the fall, when holiday parties are typically in full swing.

So far this year, he and his five employees have put on a Fourth of July barbecue party at a local children's hospital and donated a cheese tray for a bowling fund-raiser. In September, the company plans to cater a 10K running event. "We're trying to get the word out," says Mr. Amorim, whose business started in 2004 as a caterer for private-jet passengers. "All these things that we're doing now are for the future."

Steve DiFillippo, owner of Davio's, a 24-year-old Northern Italian steakhouse in Boston, shifted 30%, or some $20,000, of the company's advertising budget to pro bono work. This year, he says, not a week goes by that the company doesn't offer its services for charity events, or give away gift cards. Last year, the frequency was every other week.

"It's worth more to do charity work than to advertise in a local magazine," he says. "It's more like guerrilla marketing. People see that we're involved in the community."