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SBA Loan Programs Need Bear Grylls-like Help
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If the French Can Do It, Surely We Can Too! (more on that in a minute)

Last night, 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) — 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!

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13 Comments

  1. Scott McMurrian says:

    I’ve come to appreciate your blogs. I sure connect to your suggestions to stimulate the small business market.

    I’m sure you join me in praying for our leaders (to come out of the darkness in their minds) that they may stop hurting the country and stand for morally sound fiscal and social policies.

  2. John Marek says:

    For the last couple of years, I have been buying pet supplies at a locally-owned shop near my home. Recently, I noticed that the on-hand inventory has gotten very thin and asked the owner what was happening. He explained that about a year ago he had opened a second location on the other side of town. This location was in a newly completed strip center and although he was one of the first occupants, he was assured that he would have neighbors very, very soon. Well, the economy tanked, the promised neighbors never arrived and the 2nd store has been a drain on his resources. He has not been able to secure any sort of loan for inventory, which is considered an operating expense, and will probably lose the 2nd store. These are the kinds of entrepreneurs the government needs to help. Folks with a solid track record who find themselves in circumstances beyond their control.

  3. Bruce Carpenter says:

    Chris has said it as well as anyone, and over and over again. Small business has always and continues to be the engine that drives our economic growth and provides most of the employment in our economy as well. If we don’t put gas in the engine it’s difficult to understand how we can expect it to talk us anywhere.

    Keep advocating policies that make sense and most importantly have a real chance of making a difference.

  4. YASIN ALI says:

    Unless Wall Street is controlled this drama is going to continue. We do not see it but there is more than meets the eye and what we hear on the news. Personally, no one is worth $100m or more for any job in any category. I mean any job as an individiual to get paid for his work assignment.

    There needs to be check & balance in place. I mean for a particular position in any field the level of compensation must have a maximum. Live with it or take off.

    The free-enterprise-system has really dome some damage and it is too deep now. America is no longer the most desired place on earth to live or move to, like it was. Europe and other parts of Asia have taken the lead. America is a heaven for crooks and easy money….we read about it daily. e.g Madoff case, etc.

    USA only 3 years ago was the easiest place on God’s earth to get credit.(credt cards, stated income mortgages, SBA loans, other loans) the results of which our children will see and it has started already. God bless us all.

  5. Michael says:

    Chris, It is laughable to read the amount that will be allocated to ‘enhance’ SBA Loans. I spoke with a banker friend who is a member of ABA(American Banker’s Association) and he told me that in the next three years $80 TRILLION in commercial loans need to be refinanced.(Yes with a T) The challenge is that the places businesses(small – BIG) have gone are scrambling to meet FR and FDIC reserve requirements. The lending institutions are calling good loans to pay for the bad… and the borrowers on the good loans can not find alternative financing. I have a remedy to help if I could get the audience with Bernanke or Geitner. -the remedy is not upping micro loans amounts by $15k by the way – what a joke!

  6. Brian says:

    I agree with your views on how to stimulate the economy. When is the government going to realize that the rich do not care or filter their money down to the middle class? The middle class is keeping the middle class afloat, by the grace of God. The rich only care about the middle class when they are working to make them more rich. They are rich because they don’t give money away and when they do, they give to a nonprofit company that they own. They are the president of the nonprofit and get a salary from that business also. Sadly most of our government leaders are rich person so they cannot relate to the flight of the small business person. The money never makes it to the people who it.

  7. Howard Head says:

    Well, having been arouund for perhaps three times some of you who have responded or at least twice, I confess that I have no clue. I started my first business in 1953 and I started my last business in 1990.Both started with minimal capital but under the true free enterprise system. Most of my business was related to home building and I remember every recession we went through. Home building led us out of every one. But, I never saw anything like this. And, I believe that our President is incompetent and his agenda excludes entrepreneurs. He has never been one. No one of strength is challenging him and I believe your only salvation will be to have major wins by the conservatives, soon. But, don’t count on that. They are good at shooting themselves in the foot.
    I have never been a pessimist but reality is what it is and it seems very much like it has been designed.

  8. Chris Hurn says:

    Brian —

    You might agree with my views here, but I cannot agree with yours. I think you’ve oversimplified how the “rich” act and whether money filters down or not. If it weren’t for the rich, most not-for-profits would have very limited funds — what you’re calling the “rich” give away a substantial amount of money. A successful businessperson who offers a product or service the marketplace finds valuable, and becomes wealthy in the process, is not inherently “bad” or “evil.” To quote the infamous “impresario,” Shawn “Jay-Z” Carter, “You can’t help the poor if you’re one of them.”

  9. Bob Mellino says:

    Chris:
    I love reading your emails and going your blog. I feel we all need to help and like you I am trying to do my part. Small businesses do not have the money to hire high priced consultants or buy expensive software. So many are unaware of what they have already in their computer such as Microsoft’s programs; Access, Excel and PowerPoint to help them survive and prosper. I am offering a free downloadable book to guide them on my website ramloans.com. Please check it out.

  10. Chad Angell says:

    For some of us small businesses, the banks have managed to ruin our credit by deciding to pull our lines of credit with no notice. Not sure how we are expected to get any kind of loan and will probably put many of us out of business. Yet they get bail out money from the goverment. I believe you are on the right track. The small business of this country is what makes the machine roll down the tracks.

  11. Sam Haq says:

    Chris,
    I have one 6 and another 10 years old daughters too… Glad to see that you are also looking at our kids future…

  12. Ron Johnson says:

    Don’t look to the Government to help us out of this economic mess.

    They are the reason we are in it.

    It’s up to you and your company to help businesses.

    “The glass is either half empty or half full.”

  13. Braudis Lee Pegram says:

    I agree with you Chris, except the part about “blowing it up entirely”: what may seem terribly inadequate to some may very well be a god-send to others. The paperwork needs to be streamlined and the amount increased, true; but there are some who have managed to get through the maze and the funds have lifted a number of small businesses to a higher level. Tiny progress, but progress. But isn’t that how we make in life? Many small steps can lead to large successes.

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