A Young Entrepreneur on Bank Failures and Small Business

After the nation held its breath over the weekend, the Fed finally stepped up to aid the embattled Fannie Mae and Freddie Mac, and while I am hoping this will shore up some of the uncertainty in the financial markets, as a small business owner, I am still plenty worried.

My ability to borrow cash to invest and grow my start-up storage business (The Box Butler) has never been more constrained. Even with this tremendous show of confidence by the Fed, my small business brethren and I do not have the resources to grow our companies which will ultimately be bad news for the US economy.

The US SBA has studied the effect small business have on job creation, and in 2002/2003, when the most recent statistics are available, businesses with less than 20 employees created 1.6M new jobs, four times as many as businesses with 20-499 employees. And if you look at big business, those with over 500 employees, the net loss was 150,000 jobs.

In the wake of the failure of Bear Stearns, the layoffs at all the major financial institutions and the continued threat of more bank failures well into 2008/2009, shouldn't we be looking at more solutions to stimulate the economy?

This is only magnified when one considers the aging demographics and the desire for many baby boomers to work from home and cut down on travel time and -- dare I say -- gasoline consumption. Where are these new opportunities to cut commuting time, brave new ways of working and open new opportunities going to come from -- well, according to the data I have read, it's entrepreneurs and small business owners who are themselves investing in the American dream. They are creating jobs, figuring out ways to leverage resources and providing the brain power and drive to fuel our growth.

While shoring up the US financial markets is critical, we have to be looking toward the future and what has worked in past, which means investing in ourselves. We must begin addressing ways to help the small business owner tap into available financial resources and while we need tougher lending criteria we cannot cut off the source of capital entirely, it will be the death blow to our economy and the future of America and all it stands for.

Comments

[Repub4Obama]

Mr. Sinclair, please get face time with an Obama delegate. One of the few things I don't like about the current political platforms is the complete lack of small business discussion. Being an entrepreneur myself, it's a concern, and your voice needs to be heard.

[FatherWolf]

The basic problem is that the financial institutions pumped the sources of credit way too fast and pumped them dry. We've been building up too much debt in too many areas, and have been moving the debt around to hide it.

Add the fact that not enough of this debt has been going into investments that have a multiplier effect (infrastructure) and too much of it has been into stuff that's not doing us any good (a needless war, toys exp. for the rich, mortgages that people can't afford) , and you have an economy that's headed downhill fast.

BTW - it's ironic that Mr. Sinclair wants to start up yet another storage business, adding to an industry that's been booming in recent decades. All the stuff that Americans put in these storage units is indicative of our problem. People are spending way too much money, typically on credit, on so much stuff that they can't even keep it all in their houses. This stuff is not doing them any good if it's sitting in a storage unit. Purchasing all this largely foreign-made stuff gives a temporary superficial boost to the economy. But much of that money would be much better spent, via taxes, on boring but productive infrastructure -- education, roads, water and sewer systems, clean and efficient energy use, electronic communications, public transportation, etc.

[lionqueen]

I am unaware of one financial institution that forced credit on anyone. Borrowers asked for "zero down" "no doc" (no documentation proving alleged income) loans, and refinanced their debt with institutions who offered such terms, if their current financial institution did not.
The borrowers were not duped - they demanded these terms, and when they could not repay their loans, many said that they did not understand the transaction.
Greed was not limited to financiers.

[joebhed]

Dear lionqueen - fierce protector of her fledgling bankers, who yearn to flee at the approaching masses demanding monies they have no right to, nor ability to pay back, and at conditions that would make any believer in soundness and stability tremble in their dens:

You are a riot.

The day has not yet come, but it may someday soon, when "borrowers" dictate the lending policies to bankers, and are able to "demand" that monies be provided.
That'll be after the monetary revolution.

It is a well-known and established fact that the cheap-money bankers pyramid began their own softening of standards as a means of keeping up with the initial, innovative risk-takers, that then deteriorated into a give-away, in order to keep their balance sheets balooning via the credit bubble.

PUHLEEZ, hold your ridiculous criticisms of these borrowers, who, I admit, should have recognized the fallacy of these greedy bankers.

But, in their defense, at what grade to we teach our kids about finances and money management in this country and in this capitalist economy?

Best said as "Let the Buyer Beware".
That goes for the government bailout as well.

[researcher]

and many of these small business use cheap illegal labor to make their profits

service economy yea right

this country is toast

only denial keeps us from seeing that

[francinehardaway]

You are not kidding. I have been a small business owner, now an investor in other entrepreneurs, for thirty years. Wells Fargo just froze my lines of credit, effectively cutting off my ability to help others. Long story short, as a "valued customer" of Wells Fargo, I'm not worth any more than you are. Such an interesting position we are in.

[Henry]

"we cannot cut off the source of capital entirely"

Bank loans to small business are not capital. Your failure with the language obscures the problem you describe. Bank loans create money to finance economic activity. It's an old story. When the banks do not lend, economic activity wanes. So why are banks worried? Why would banks restrict lending? One of the 5 "P's" of credit is "prospects". And prospects do not look good at this point. This is the time where the banker proves his merit to the community. Funny-money lending under the Greenspan era was for fools.

Capital can be called "net worth" but it is the accumulated investment and sum total of accumulated past earnings. Marx called capital the accumulated "effort" of labor that ran to the capitalist. A bank loan is not capital.