STARTUPS ARE US! The Small Biz Administration
IF not us who? IF NOT NOW, when? IF NOT FOR YOU, THEN FOR WHOM?
The Small Business Administration (SBA) is a United States government agency that provides funding and support to small businesses. They are much needed on board now. JOBS are the main fix economy needs and it is NEW STARTUPS which statistically can give the most cluck for the buck, i.e. the most new jobs to an economy in attrition. When the SBA kicks into gear (as it must soon, awaking from its hiatus or hibernation period,) it's going to be YOU there my friend, in line with your business idea, seeking funding. The statistics prove that these start-ups are the best hedge against joblessness. Mort Zuckerman was on TV tonight quoting all the stats. Keep the pressure on Obama's jugular. Read these facts, memorize the info and get your paperwork going!
Too Small to Fail
While the big boys wait for bailouts, small businesses remain essential to the nation's economic and social fabric.
November 12, 2009 URL: http://www.entrepreneur.com/startingabusiness/successstories/article204020.html
By Mark Pawlosky
Over the past 18 months or so, the phrase "too big to fail" has become nearly as universal as "In God we trust." But what about the flip side--is there such a thing as "too small to fail"?
Talk to independent business owners and civic leaders from one end of this country to the other in places like Thomasville, Ga., Columbus, Ind., and Gearhart, Ore., and they'll tell you with certainty that the answer is yes. They'll quickly point out that beyond creating jobs and generating tax revenue, small businesses are essential to the social fabric of towns and cities and foster, in essence, a sense of community. Small businesses, they will argue, support local civic initiatives and open their doors and wallets to charitable events. "They are always the first ones to step up to the plate," says Karen Smith, director of Thomasville's Main Street program, which aims to rehabilitate historic downtown buildings with the assistance of the Georgia Trust for Historic Preservation.
In downtown Thomasville, Dana Davidoff Abernathy, co-owner of specialty kitchen store Relish, has created what she calls a community "hangout," with overstuffed seating and roomy kitchen tables for morning coffee. "You could sit here for five minutes or five hours, there will always be someone to chat with you. Everybody wants to feel part of a community."
But as the recession continues to bite, independent business owners, experts say, are the ones most at risk of failure because, unlike large corporations, they have fewer cost-trimming options left. And when it comes to additional financing, they have not received either the attention or the money the federal government has lavished on big corporations.
"It's crazy," says Jose Gonzales, co-owner of At Home in Thomasville, a specialty retailer in downtown Thomasville. "If big corporations can't keep themselves alive, why should we foot the bill? I mean, who's going to bail us out, the small-business owner?"
Adds Jerry Osteryoung, who has mentored entrepreneurs and independent business owners for the past 14 years at the Jim Moran Institute for Global Entrepreneurship: "All you hear about is the problems big businesses are facing, but I'm here to tell you small business is getting hit hard. And if you look at who really supports their local communities, it is small businesses."
If you want to see firsthand the big impact small business can have on a local community you need look no further than Columbus, Indiana. That's where local entrepreneur Anthony Moravec has embarked on a two-year, multimillion-dollar odyssey to restore Zaharako's Confectionery. The landmark fell into disrepair after the Greek family that operated the business since the early 1900s was forced to close its doors because of personal and business setbacks.
"It is an investment in the future of the community," says Moravec, CEO of Applied Laboratories, a small manufacturer of over-the-counter pharmaceuticals that has about 100 employees. "The immediate goal was never about profits."
That's a good thing, as it turns out, since Moravec has put more than $3 million of his own money into the Zaharako's project. "I had no idea how expensive restoration could be. It's twice what I estimated. And if I had a partner, they would have thought I was nuts."
Moravec committed to restoring Zaharako's in 2007 when his pharmaceutical business was booming. His goal was to restore the ice cream shop to its original grandeur, right down to the maple floors and the century-old Welte Style 3 Cottage Orchestrion, a self-playing pipe organ that sounds to the ear like a full-bodied orchestra. In order to achieve his goal, he had to repurchase the Welte from a private collector who snapped it up when Zaharako's had closed.
"It cost me an arm and a leg, but I was determined to have it," says Moravec, who also bought an old-fashioned ice cream parlor in New York and had all of its contents shipped to Indiana. "I became collectible-obsessive," he admits.
Zaharako's Ice Cream Parlor and Museum held its grand reopening on June 9. And thanks to publicity in Chicago and surrounding areas, crowds streamed into town all day and waited in line for hours to glimpse the renovations, sample the ice cream and dine in the restaurant, which Moravec added to create revenue opportunities.
"Before it opened, I told him it was a great gift he was making to the city. I also told him he'd never make a dime on the place," says Jack Hess, president of the Columbus Area Chamber of Commerce. "I'm now starting to think I was wrong. I took my family there a week after it opened and it was standing-room only."
Hess says Moravec follows in a long line of Columbus entrepreneurs who have taken it upon themselves to reinvest in the community.
"It's not just about jobs," Hess says, "but about social capital and the positive ripple effect it has in a place like Columbus."
For his part, Moravec thinks he might have stumbled upon a successful new enterprise, which is OK for now since he's finding it difficult to convince bankers to lend him money at a reasonable rate to expand his pharmaceutical operations.
"It's kind of ironic. We've never been in better shape financially with less debt, but bankers have grown extremely conservative. Any talk you hear about government supporting small business is, quite frankly, lip service," says Moravec.
A half a country away in the tiny seaside hamlet of Gearhart, Ore., John Allen, operator of the Pacific Way Bakery & Cafe, echoes Moravec's sentiment. The cafe, praised by the late gourmand James Beard for its fine food and atmosphere, is a local icon and hub of community activity.
"We try to provide a personal experience at the cafe and our customers have responded by supporting us," Allen says, but admits the slowing economy has forced him to trim employees' hours. When asked if the bailout programs have helped small businesses like his cope with the recession, he responds, "Nope. Absolutely nothing."
Mark Pawlosky is a West Coast-based digital media consultant who during a 20-year career has written extensively about entrepreneurs, startups and small business.~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~^~
WIKIPEDIA has a file on SBA which sez :"The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters." Well, we are certainly in a disasters now, friends.
The SBA makes loans directly to businesses and acts as a guarantor on bank loans. In some circumstances it also makes loans to victims of natural disasters, works to get government procurement contracts for small businesses, and assists businesses with management, technical and training issues.
The SBA has directly or indirectly helped nearly 20 million businesses and currently holds a portfolio of roughly 219,000 loans worth more than $45 billion making it the largest single financial backer of businesses in the United States.
The SBA was established on July 30, 1953, by the United States Congress with the passage of the Small Business Act. Its function was to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns." Also stipulated was that the SBA should ensure a "fair proportion" of government contracts and sales of surplus property to small business. This was accomplished primarily through the Small Business Innovative Research program and government "set-asides."
The SBA has survived a number of threats to its existence. In 1996 the then newly Republican-controlled House of Representatives planned to eliminate the agency. It survived and went on to receive a record high budget in 2000. Renewed efforts by the Bush Administration to end the SBA loan program have met congressional resistance, although the SBA's budget has been repeatedly cut, and in 2004 certain expenditures were frozen.The SBA has an associate administrator for the following offices:
* Communications and Public Liaison
* Congressional and Legislative Affairs
* Disaster Assistance
* Entrepreneurial Development
* Equal Employment Opportunity and Civil Rights Compliance
* Field Operations
* Government Contracting and Business Development
* Hearings and Appeals
* Inspector General
* International Trade
* Management and Administration
* Minority Enterprise Development
* Native American Affairs
* Size Standards
* Small Business Development Centers
* Surety Guarantees
* Veterans Affairs
* Women's Business Ownership
SBA loan programs
The most visible elements of the SBA are the loan programs it administers. The SBA itself does not grant loans with the exception of Disaster Relief Loans. Instead, the SBA guarantees against default certain portions of business loans made by banks and other lenders that conform to its guidelines. Disaster Relief Loans are issued directly from the SBA.
Contrary to popular belief, these programs are not generally for persons with bad credit who can't get bank loans, nor are they primarily used for startup funding; rather, the primary use of the programs is to make loans for longer repayment periods and with looser affordability requirements than normal commercial business loans. Also, a business can qualify for the loan even if the yearly payment would be the same as the previous year's profit, whereas most banks would want payment for a loan to be no more than two-thirds (2/3) of the prior year's profits for a business. The lower payments, longer terms and looser affordability calculations allow some businesses to borrow more money than they could otherwise.
One of the most popular uses of SBA loans is for commercial mortgages on buildings occupied by a small business. These programs are chosen because most bank programs, while having similar payments and rates, require borrowers to refinance every five years.
Types of Guaranteed Business Loans through banking institutions include:
* Loan Guarantee Program: The 7(a) Loan Guarantee Program is designed to help small entrepreneurs start or expand their businesses. The program makes capital available to small businesses through bank and non-bank lending institutions.
* 504 Fixed Asset Financing Program: The 504 Fixed Asset Financing Program is administered through non-profit Certified Development Companies throughout the country. This program provides funding for purchasing land or construction. Of the total project costs, a lender must provide 50% of the financing, a Certified Development Company provides up to 40% of the financing through a 100% SBA-guaranteed debenture, and the applicant provides approximately 10% of the financing. Aggressive vetting of any property purchased through this program is required. Specific SBA Phase I Environmental Site Assessment guidelines apply as all properties are treated as "high risk."
* MicroLoan Program: Available for up to $35,000 through non-profit, micro loan intermediaries, to small businesses considered unbankable in the traditional banking industry.
* Economic Development Program: SBA partners such as SCORE and the Small Business Development Centers (SBDCs), operating in each state, provide free and confidential counseling and low-cost training to small businesses.
* 8(a) Business Development Program: Assists in the development of small businesses owned and operated by individuals who are socially and economically disadvantaged.
Homeowners are eligible for long-term, low-interest loans to rebuild or repair a damaged property to pre-disaster condition. Before making a loan, the SBA must establish the cost of repairing or rebuilding the structure (which is determined by SBA's Field Inspectors who visit the property), the applicant's repayment ability (determined by applicant's creditworthiness and income) and whether the applicant can obtain credit in the commercial market (called the credit elsewhere test). Applicants who do not qualify for disaster assistance loans may be referred to the Federal Emergency Management Agency (FEMA) for grants. Although SBA won’t decline a loan for lack of collateral, the agency is statutorily required to ask for whatever collateral is available including the damaged property, a second home or other real estate.
Businesses are also eligible for long-term, low-interest loans to recover from declared disasters. Similar to the homeowner's loan program mentioned above, a small business owner must pledge any available assets and acquire a similar pledge from a spouse or partner in the case of any shared assets. If defaulted on the loan, the spouse or partner must surrender their value in the assets. The total value of an applicant’s assets is not considered by the SBA; therefore, a company may be approved for a loan regardless of whether that person has little or great net worth.
Once an SBA loan is approved, the SBA mails closing documents to the applicant for signature. Disbursements include an initial unsecured amount of $14,000, and subsequent disbursements depending upon construction progress and continued insurance coverage. After final disbursement, the loan is transferred to one of the SBA's servicing offices for management, or to its collections office in the case of default.
Disaster Relief Loans are often approved within 21 days. (is it raining where you are, huh?)
If a business which has a current Disaster Relief Loan defaults on the loan and the business is closed, the SBA will pursue the business owner to liquidate all personal assets. The IRS will withhold any tax refund expected by the former business owner and apply the amount toward the loan balance.
SBA loan industry
The SBA loan industry can be divided into distinct categories:
* The largest United States Banks, such as Bank of America and Wells Fargo, generate the bulk of their SBA loan volume by the loans, especially the express loan and line of credit, being offered to those who would be declined for a normal bank loan due to factors such as length of time in business or slightly stricter affordability factors. These banks have sophisticated computer systems that generally makes this process seamless, and are quite different from other financial institutions who utilize SBA lending for separate and distinct purposes
* SBA loans are used heavily by banks of all sizes to finance the purchase or construction of business owner occupied real estate (ie. real estate purchased by a business). Many banks only offer SBA loans for this purpose. In particular, they are using to finance properties that the bank would consider too risky to finance on their own, due to them being of a special or environmentally risky nature that can make their resale value limited; these properties include Motels, Gas Stations, and Car Washes.
* SBA loans are also used to allow individuals to buy existing businesses. Since, unlike in real estate transactions, commercial lenders are allowed to pay a referral fee to business brokers who help people buy and sell businesses, this segment of the industry is dominated by smaller banks and standalone finance companies who engage in this practice.
Small Business Investment Companies (SBICs)
One of the first steps toward a professionally-managed private equity and venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act officially allowed the SBA to license private "Small Business Investment Companies" (SBICs) to help the financing and management of the small entrepreneurial businesses in the United States. Passage of the Act addressed concerns raised in a Federal Reserve Board report to Congress that concluded that a major gap existed in the capital markets for long-term funding for growth-oriented small businesses. Additionally, it was thought that fostering entrepreneurial companies would spur technological advances to compete against the Soviet Union. Facilitating the flow of capital through the economy up to the pioneering small concerns in order to stimulate the U.S. economy was and still is the main goal of the SBIC program today.The passage of the Small Business Investment Act of 1958 by the federal government was an important incentive for would-be venture capital organizations. The act provided venture capital firms structured either as SBICs or Minority Enterprise Small Business Investment Companies (MESBICs) access to federal funds which could be leveraged at a ratio of up to 4:1 against privately raised investment funds. The success of the Small Business Administrations efforts are viewed primarily in terms of the pool of professional private equity investors that the program developed.
In 2005, in response to extensive losses incurred in connection with tech boom investments, the SBA decided to wind down its "Participating Securities" SBIC program, which had provided equity-like SBA backing for equity-oriented SBIC funds. That program had been launched in the early 1990s. The last funding to Participating Securities SBICs occurred in late 2008. The SBA's "Debenture" SBIC program, the original SBIC vehicle founded in 1958, is still very much alive and healthy and continues to license and contribute capital to SBIC funds. As of October 2009, there were approximately 125 active Debenture SBICs operating in the US.
YADA YADA YADA. Get on the stick mon. Get yer paperwork up and running.
<=== BACK TO THE SMALL BUSINESS ENCYCLOPAEDIA, "GUERILLA CAPITALISM R-US"