What about the nation's largest industry? Why isn't Small Business Inc., which employs 60 million people and accounts for 70% of all new jobs each year, getting help from the Obama Administration's new stimulus package? The nation's 23 million small business owners could do the most to kick start our tanking economy, but they're getting nothing but crumbs. While more than 12,000 small businesses close their doors each week, this crucial sector of the economy is getting less than 1% ($700 million earmarked vs. $1 trillion in proposals).
It's a travesty that the government isn't doing a lot more. By the Small Business Administration's own numbers, $25 billion in direct loans could mean more than 2 million jobs, created immediately. This is not some small interest group. This is the backbone of our regional and local economy. This is where help from the Obama Administration could count the most!
Once again, the nation's 23 million small business owners are the victims of benign neglect. Geithner, Summers and Bernanke, who are allegedly in charge of the nation's economic policy, have absolutely no experience with small business. They have always received their checks on time, from Harvard University, the World Bank or any of other hide-bound institutions they work for. The Three Amigos have no idea what it's like to lie awake at night wondering if they'll be able to meet payroll. When it comes to the needs of small business, they just don't get it.
The stimulus offers $630 million to support the loan guarantee program of the Small Business Administration, even though two of its largest loan programs are down 40% so far this year, and more than 30% in 2008. The stimulus bill fantasizes that by cutting the loan fees to small business, volume will skyrocket. Loans are down because banks don't want to take the risk on marginal credit with only a 75% guarantee from the government.
The few Congressmen who acknowledge the existence of Small Business Inc. say that tax cuts are the solution. That's not even close. The stimulus bill includes various minor tax cuts for small business, as well as additional depreciation and write-off incentives, but these benefits can't be collected until at least 12-15 months from now in 2010, when small businesses file these tax returns. Of course, this is assuming they haven't foreclosed by then and that they made any money in a one of the worst years on record for small business.
Sponsors of the stimulus bill say that small business will benefit indirectly from the spending programs. This is the same discredited thinking of Reagan's "trickle-down" economics and it's a joke. What about the 600,000 plus small businesses that will fail this year, the millions of businesses that won't make a profit, and the millions more workers who will lose their jobs as a result?
The stimulative effect of these all too modest proposals is next to nil. The administration needs to do better if it wants the little guy to benefit from any real effort to revive the economy.
President Obama has continually said he and his administration wants new ideas so let's see if he's really listening. Here, Mr. President, are some honest suggestions that bear consideration:
1) The stimulus package should immediately allow $25 billion in direct loans to small business, bypassing the recent history of declining bank-guaranteed loans to make sure that the money gets quickly and efficiently to small businesses. Small Business Inc. will never be a gold-plated borrower and the bill must make allowances for this, by broadening the loan criterion to ensure that most small businesses are eligible. These loans are no less risky than those that have already been given by the government and Federal Reserve to the likes of Citibank, Bank of America, AIG, the auto industry, etc.
The current SBA bank loan guarantee program should be altered to a 100% guarantee by the government rather than the current 75% to 85% allowed. It's understandable that the banks would be averse to losing 25% on marginal loans that are costly to collect, and that's why they are attempting to marginalize this lending program. The government should pay increased loan fees to ensure that the banks get solidly behind it.
Small businesses would willingly pay the bank's fees if they could secure the money they need. Example: right now the fastest growing service offered to small businesses is "merchant advances." These are small loans made at interest rates of anywhere from 30% to 250% by legally organized companies. These companies make payday lenders look benign.
2) The Federal Reserve should be directed and empowered to make loans to small businesses at 2% to 3%, which is currently being charged to the mismanaged and greed-based Wall Street companies.
3) The SBA budget should be increased fivefold to $3 billion and emphasize management assistance and serious outreach to small business. In surveys we have conducted recently, less than 10% of small business owners understood the loan programs offered by the government.
4) There are many other stimulus programs that can be offered including technical assistance, a Small Business Peace Corps, broader and better enforcement of set aside programs.
The Obama Administration repeatedly asks for ideas from Main Street. Barack Obama won the election in large measure because of his professed willingness to listen. But if this stimulus package is anything to go by, Small Business Inc. still isn't being heard.
George A. Cloutier -- a graduate of Harvard and Harvard Business School, is the founder and CEO of American Management Services, one of the Nation's largest turnaround and management services firms specializing in small and midsize companies. The company, founded in 1986, and its 120 full time employees have worked with over 6,000 small businesses across 400 industries. Mr. Cloutier is also the author of the upcoming book, Profits Aren't Everything, They're the Only Thing, to be published this year by Harper Collins.