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In the President's announcement yesterday to raise SBA loan sizes and to help small banks access TARP funds, there is nothing to address the underlying problems of America's small businesses. I yawned. At this grim stage, what small business needs is the equivalent of outdoor survivalist Bear Grylls.
I realized that last night as my wife and I took our two young children, ages 6 and 8, to our “part-time” church (since we spread our visits among three) to hear TV star and faith-filled survivalist, Bear Grylls, speak about his adventures.
While I was impressed with his humility and straight-forwardness, I was particularly struck by his explanation for why he accepted his recent appointment as the Chief Scout (head of the Scout Association - - previously known as The Boy Scout Association):
“Kids are never short on dreams, just opportunities. I want to provide more opportunities for them . . . to live their dreams.”
How succinct a comment, I thought. Never a scout myself, I took his comments in an entirely different direction. I thought, how appropriate and analogous are they to the entrepreneurs of today.
Entrepreneurs, in fact, are in active pursuit of their dreams. In many cases, they are the “kids who refused to fully grow-up.” You know, everybody else - - in that “mature” stage of their life — has given up on their dreams more or less. But not these hardy souls.
And yet, for the few who do press on, there are so many obstacles to battle. A slow economy. A depressed state of consumer and business confidence. A barrier-creating political class in Washington (most of whom have never had to meet a payroll) seemingly dead-set on creating even more obstacles . . . just taking from those who've worked hard to create . . . and handing it over to those who've hardly worked.
The President Spoke, I Yawned
So yesterday's announcement from President Obama, as I expected, was merely another incremental step for the group that can lead us into Recovery much quicker - - America's much vaulted, but often maligned small business owners and entrepreneurs.
The President's solutions (primarily raising SBA loan sizes and offering to help much smaller banks access some cheap “slush” funds, otherwise known as TARP monies) may marginally result in more loans, but they do nothing to address the fundamental, underlying problem: namely, an unhealthy small business sector.
Lenders will continue to be overly selective to whom they'll lend money, for as long as the vast majority of businesses show decreasing revenue and profit trends, and regulators stay clamped-down on lenders - - not realizing the unintended consequences of their actions in prolonging the Funk (defined by me as that lonely, dark period before a Recovery takes hold, where anxious people don't do much of ANYTHING - - too scared to move forward; too scared to turn back). Tweaking existing SBA loan programs may help some, but it is still just tinkering on the margins.
For the millionth time, I'll state it again for you here: the SBA doesn't lend money to small businesses; it only guarantees (backstops) it. The banks and non-bank lenders make the loans, and they will continue to restrict credit (and extend the time to Recovery) until small businesses become healthy again (defined by me as increasing revenues, positive net incomes, and acceptable EBITDA's). Yet isn't it ironic that these same lenders often times have far worse financials than the small business owners they're turning down for loans?
This Critical Situation Demands Greater Action than What We're Getting
As I've been saying on this blog since December 2008 (at least 21 references - – yes, one of my interns counted), there are several solutions that would have a much more profound impact than anything the President mentioned yesterday:
Extend the SBA 7(a) loan program guarantee of 90% until the conclusion of fiscal year 2011 (that's until September 30, 2011).
Launch (FINALLY!) the $15 billion Treasury purchase program of SBA loans to thaw the secondary markets (was announced in March, but not one dime has been invested yet) — especially for 504 loans, which are still in a deep-freeze.
Allow a “true” refinance for both SBA loan programs, 7(a)'s AND 504's, so more of the allocated SBA dollars for these programs can be put to use NOW tapping embedded equity in commercial property, for instance - - as usual, billions of approved SBA loan funds went unused in the just concluded fiscal year.
Streamline the paperwork for the new ARC loan program, increase the eligible borrowing limit on these loans, or blow-up it up entirely — I'd vote for the latter since its $255 million is about the equivalent of a pimple on the rear-end of an ant in an elephant stampede.
Enact a six-month payroll tax holiday to immediately stimulate the sector and the economy.
Allow capital gains from equity investment made into eligible small businesses (less than $100 million in revenues) in calendar years 2009 and 2010 to be permanently tax-free - - this will stimulate dramatic growth of these enterprises.
That's it. Do the above and we accelerate the time it takes for America's small businesses to become “healthy” again. Once that happens, credit will flow more freely and a sustainable Recovery will take hold. It's really not that complicated . . . unless you"d like more social engineering instead of true economic progress - – in that case, it takes a bit longer for free-market forces to defeat centralized planning.
The French Are Beating Us in an Ideas Race
Now, I hate to bring it up here, but . . . France (yes, France!) of all places, just announced the formation of a 2 billion euro (about $2.9 billion) fund to invest in French small businesses as a means of keeping the sector afloat there . . . and retaining (hopefully creating, sometime in the future) French jobs. Two point nine billion dollars for only 65 million people! To formulate an equivalent number for the U.S., we'd need a little over $13.7 billion - - peanuts compared to what we did for just AIG alone. And notice that Sarkozy is proposing equity capital, not just regurgitating the same, tired debt capital tweaks.
So do you really think President Obama's proposals are the best we can come up with?!? Surely we won't let ourselves get lapped by the French, will we?!? Sadly, we have to admit the French are being just a bit more creative than our leaders, aren't they? Maybe ours are just content to watch Rome burn and simply enjoy another high-quality photo-op.
Now, don't misinterpret what I've written here. I'm NOT suggesting we want the American government (like the French) taking ownership stakes in our small companies too — they've already splurged on our behalf with big bets on such blue-chippers as Bank of America, Citicorp., and GM - - can't wait to see how they'll run health care!
But there ARE other good ideas that need looked at (like the ones I've been proposing for many months - - some of which I've AGAIN listed above). We CAN come up with more enlightened ways of giving this sector a hand-up, not merely another hand-out - - let the Big Business Dinosaurs live with the strings that come attached to that kind of “aid.”
Getting back to Bear Grylls
In over 50 episodes of his show, Man versus Wild, he has taught viewers how to survive in the harshest places in the world. For small business owners and entrepreneurs in America these days, that harsh place is here . . . more and more are dropping every day, simply NOT surviving.
Maybe it's time my suggestions earn me a place on the President's proposed panel of small business experts (non-partisan, surely) that is tasked with coming up with future solutions . . . or maybe the people, like you, that I advocate for, will just get stranded out in the cold on a sinking piece of ice?!? Who knows? I don't pretend to have ALL of the answers, but I do know one thing: the time has come for a small business survivalist like Bear Grylls!
This is a syndicated post to Blue MauMau by Chris Hurn, an expert on SBA loans and the cofounder and CEO of Mercantile Commercial Capital, LLC, an SBA 504 lending institute.