President Obama last week sought to address concerns that the federal government's economic stimulus measures are not doing enough for the little guy, unveiling a new initiative to expand the Small Business Administration's lending activities and promising more discussion of small-business support in the weeks ahead.
That's all fine, and there are certainly businesses that will benefit from this and other elements of the American Recovery and Reinvestment Act. But in the end, I remain skeptical that the federal government is really going to be much help to me or my company.
For starters, Small Business Administration loans are not actually government loans, but rather bank loans that are subsidized and partially guaranteed by the government. When the stimulus bill was first passed, I asked my banker about the enhanced SBA loan program. He said there was a lot of confusion about it, and his bank, at least, wasn't exactly bending over backward to figure it out.
For the banks, there isn't necessarily a lot of incentive to get involved. Even though the stimulus bill boosted the government guarantee to 90 percent of the loan amount (up from 75 percent to 80 percent) and eliminated some fees, it's still not risk-free for risk-averse banks. The default rate on SBA loans is pretty high historically, so you can't entirely blame the banks for the caution. There is also a lot of administrative overhead for what are mostly small and not terribly profitable loans.
The administrative burden was also a big issue for a new program in the stimulus bill that was supposed to provide small, interest-free loans to small businesses to help them refinance existing debt. And it also promises to be a major hurdle for one new initiative announced last week, which would give banks and community development corporations access to low-cost capital"”if they agree to a host of oversight requirements.
For would-be borrowers, the paperwork burden on any SBA loan is substantial, and some collateral is still required. If you're in a service business in which the funds are not going to be spent on equipment or other hard assets, that's problematic. Traditionally, the SBA has required many small lenders to put up their house as collateral, but that doesn't work if you took out a second mortgage to fund the business in the first place.
The stimulus bill did boost the volume of SBA loan activity, but it still lags behind prerecession levels.
The other stimulus measures aimed at small businesses include an expanded tax credit under which recent losses can be deducted against prior years' profits. But that, of course, helps only if you had some pretty profitable years in the recent past.
The best way for small businesses to benefit from the stimulus is to get government grants and contracts that are flowing through various programs. Construction companies, for example, can get roadwork. Alternative-energy companies can get weatherization work or even National Science Foundation grants for R&D. But, as with any government contracting process, you have to put your mind to it and figure out how to work the system. It's not something the CEO can do in a few spare minutes.
All of the stimulus efforts"”and indeed virtually all federal, state, and local government business-assistance programs"”present entrepreneurs with the classic dilemma: Is it worth the time, vis-à-vis the many other things you could do with that time? My suggestion would be that if you're big enough and serious about it, you should treat it as a major business-development initiative and staff it accordingly. If you can't or don't want to do that, I'd forget about the government and focus on sales.
None of this is really a complaint; irritating as it may be to see the government pouring billions into corrupt and incompetent institutions like Citigroup (C) or American International Group (AIG), I don't really think it's the federal government's job to finance small publishing companies in Missoula, Mont. If government wants to get involved at all, it should be at the state and local level (though in my experience, these programs are in many cases are even more cumbersome).
What the federal government can do for me is help fix the health insurance mess, which now looks like it's going to get worse before it gets better. I haven't seen our rates yet for next year, but apparently 15 percent to 20 percent rate-hikes for small-business health plans are the norm, as insurance companies look to rake in as much profit as they can before health-care reform kicks in.
If I could save $500 or $1,000 a month on health insurance, that would be real help. And no special paperwork required.
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