It’s Small Business Week – Why The SBA Should Be Uninvited.

Their Small Isn’t Our Small.

In recent years the SBA has proactively, aggressively, and steadily moved away from serving the 98% of business with 1-19 employees, and is now focused almost solely on the top 2% of the largest corporations in America. In the last decade, no organization has been less helpful and more hurtful to small business in the U.S. than the SBA.

The 98% vs the 2%
29.1 million, or 98% of businesses in America, have 1-19 employees (2011 US Census data, including non-employer businesses). Of the other 2%, 1.9% of them have 20-100 employees, and 100+ employee corporations constitute only a tiny tenth of a percent (00.1%) of all businesses. Yet the SBA has evolved into the guardian of the 2%. Just about every statistical category shows the SBA has left the 98% behind.

The SBA – “Hey, Let’s Make Big, Small”
From 2008 to 2013, Karen Mills, the previous SBA Administrator, led the largest expansion of the definition of “small” in the 61-year history of the SBA. It is only partially completed – the expansion continues today under the new Administrator. So far it has resulted in 66,600 large corporations with up to $35.5 million in revenue and 1,500 employees being reclassified as “small”. The continuing reclassification will possibly include a hundred thousand more giants in the next couple years. All of these newly and absurdly classified “Smalls” are in the top 1/10th of one percent of the largest businesses in America.

How has this hurt true small business – the 98% with 1-19 employees?

Fewer Loans to Bigger Businesses
The 98% need loans of $50,000 to $250,000 – rarely more. According to Terry Sutherland, SBA Press Office Director, in 2008, the average SBA loan was $182,000 and 24% of them were under $100,000. In 2013, after the expansion, the average SBA loan is a bloated $547,000 and less than 9% of them were under $100,000.

Year – – – – – – SBA Loan Size – – – – % Loans below $100k
2008 – – – – – – $182,000 – – – – – – – – – – – – 24%
2013 – – – – – – $547,000 – – – – – – – – – – – – – 9%

The reclassification of 66,600 “Bigs” to “Small” allowed banks to give a reduced number of loans to a lot fewer, much bigger companies, and still proclaim they are serving the small business community. The SBA got on the bandwagon and released countless press releases touting how much more they have loaned to “small” businesses in the last three years. But the fact is that this simply made even more big businesses the focus of what used to be the Small Business Administration.

Venture Capitalists – The New Darling of the SBA
Over the last six years the SBA has also gotten in bed with venture capitalists, who have no interest in small business. Scott Case, a favored DC venture capitalist, has worked very aggressively with politicians to redirect the efforts of the SBA to venture capitalists and away from small business. Case has famously said, “If you sit in a room of 200 startups, and you ask which of them are small businesses, no one will raise their hand. What they’ll tell you is that they are giant businesses that just haven’t scaled yet.”

Billions Redirected to VCs, Away from Small Businesses
The result? In 2012 the SBA committed $1 billion through a program called SBIC, directly to venture capitalists to invest. In 2013, the SBIC venture capital loans were over $3.5 billion. Those funds go directly to venture capitalists, not a penny of it goes directly to small business owners. Venture capitalists like Scott Case do not invest in plumbers, restaurants, local retailers, or other 1-19 employee businesses. You also have to be a C Corporation to qualify, an entity structure that makes no sense for most small businesses. These billions are not set aside for the 98%, or even directly the 2%, but for venture capitalists.

Helping The Bigs Hurts The Smalls
Just about everything the SBA does these days makes success easier for large corporations and harder for small businesses. Every time the SBA gives a loan to a large corporation it allows them to expand and go after the customers of the underfunded 98%, and every dollar spent on an SBIC is unavailable to a true small business.

So What Is “Small?”
The SBA now absurdly defines “small” as 500 to 1500 employees, and up to $35.5 million in revenue.

The European Union defines small as 10 employees. In 2009, Australia passed the Fair Work Act, defining “small” as 15 or fewer employees. Congress usually defines it as 20-25 employees, rarely as many as 50. The general public overwhelmingly defines small as 1-19 employees – the 98%. But by no definition is 1,500 employees or $35.5 million, “small”, except at the SBA. As we celebrate Small Business Week, the SBA continues to work relentlessly to expand that definition.

Will The SBA Once Again Champion Small Business?
The SBA has a new Administrator, Maria Contreras-Sweet. Will she reverse this infatuation with the 2% of Bigs and get back to a focus on the 98% of Smalls, or will she continue to steer the Small Business Administration in the direction of the Bigs? The first two things she can do is 1) stop the ongoing expansion of the definition of small and 2) stop funding venture capitalists. These and many other steps are needed to get the SBA back in touch with the 98%. Until then, the SBA has no place in Small Business Week, because it has lost its way as the advocate of small business.

264 banks on the wall, 264 banks…I’ll…

Relentless beats smart all day long.

Banks blow chunks when it comes to small business support. Everybody knows it (including the bankers). But every once in a while one of them has an entrepreneurial spasm and supports a great idea. It just might be yours. But only if you’re relentless.

John McCormack, author of my favorite “motivational” book – Self-made in America, went to 265 banks trying to get a loan to open a hair salon in a mall in the 1970s – an unheard of proposition then. No bank was biting.

He called his wife after the 265th and told her he was going to open a Tex Mex restaurant because the banks were all offering him money for that. She told him go ahead, but reminded him that Walt Disney had gone to 302 banks before the 303rd gave him money for his ridiculous idea to open an amusement park in the suburbs of Los Angeles.

John decided he would keep trying until he went through 302 banks before opening a Tex Mex. The next day the 266th bank gave him the money. He now owns many locations and makes $200k+ a year in profit from each one.

In 1989, John wrote this in “Self-Made in America” about banks:

Bankers are by nature conservative bean-counters, and entrepreneurs are, by definition risk-taking bean-planters. I’ll make my point simply: can you point out a banker or a bookkeeper who has ever started anything on his or her own – other than trouble?

Banks in this country are bureaucratically stacked against the entrepreneur or the original thinker, and our country’s economy is paying dearly for it. Bankers love to write checks to companies with track records, because they don’t do any work to do it, but as we can well document many of those “safe loans” made in the last decade have been nothing short of foolhardy. To this day, I worry more about my bank going broke than I do about myself going broke.

That’s a guy who, 23 years ago might as well have been talking about the banks of the last five years. Nothing has changed.

I am not a victim
So how did John McCormack respond to this well-known fact? He kept going. He was relentless. He didn’t let this keep him from reaching his dreams. John knew what I say all the time:

Circumstances don’t make me who I am. How I respond to them, does.

90% of life is what I make happen. 10% is what happens to me. Are you a victim of the banks, or a victor who will find the one bank who is having an entrepreneurial spasm and will work with you?

What made McCormack keep going? In his own words:

It wasn’t brains, brawn or even our business plan that resulted in our ultimate success. It was persistence, pure and simple.

I call it being relentless, a form of conation. I’m not smart, I’m just relentless. You don’t have to be smart, just relentless.

Keep hunting. A good idea will ALWAYS get money if you need it, even if it takes you being relentless. And if your idea can be proved without big money, even better. Prove it first, then go get the money. Either way, relentless beats smart every day.

Just keep counting banks, you might end up with a better story than Disney or McCormack. If you get to the 304th bank before you get your loan, write a book about it!

How & Why to Find a Locally-Owned Bank

The velocity of the dollar.

Macro capitalism has given micro-capitalism a bad name. The purpose of capitalism is to create the velocity of the dollar locally – everyone prospers. Big biz takes that dollar away to “headquarters”. Here’s one way to keep your dollar in your town.

Hudson Bay Co. started in 1670 and was the largest landowner in the world for centuries – they are still in business. For thousands of years big businesses like that were always the exception, and our economies did not revolve around worshiping at the altar of Giant Corporation, Inc.

In the late 1800’s for the first time in history, giant corporations began to regularly spring up, but it wasn’t until the 1950s that the term “big business” became common place in the English lexicon.

Big business is a very new idea that many believe will have the same run that the railroads had. In 1903 the railroads had 97% of all inter-city traffic. Yet with the advent of the internal combustion engine, they were already dead and didn’t know it. In 2011, railroads provide 0.03% of inter-city traffic.

Giant corporations like Hudson Bay will always be around, just like railroads, but with the advent of the internet, nano technology and ease of travel, we are moving back locally. And that’s a good thing.

Capitalism always had the unintended good of “the velocity of the dollar”. I spend a dollar at the bakery, who spends it at the tailor shop, who spends it to buy some shrubs, who spends it at the local restaurant, etc. Everybody prospers. Giant Corporation, Inc. interrupts that process. I spend a dollar at Giant Corporation, Inc.’s local big-box and a good-sized chunk of that dollar is taken out of the local economy back to headquarters.

Here’s a great and easy place for us to start to bring the dollars back into local communities. Bank locally.

You can read why we’re leaving our giant bank and why we didn’t do it sooner here. We’re now beginning the process to look at which local bank we want to work with.

Here’s three easy steps you can take to do the same thing:

1) Find a financially healthy (4-5 star) local bank anywhere in America at this great website hosted by Bauer Financial – select your state and you will see only the banks that are headquartered in that state.

Within 15 minutes of doing this, I identified 5-6 local banks that we will be interviewing.

2) Before you decide which ones to interview, visit this site hosted by Pro Publica to see all the banks in the U.S. that took a bailout. In just a minute or two you can see if any of your local banks did. I dropped one of my potential choices after visiting this site.

3) Check out your finalist’s sites, interview them to see which one best fits your needs, and keep your dollar speeding around your own town, city and state.

The move to “shop locally” isn’t a fad. We’re just going back to where we lived for thousands of years. Check out and while you’re at it.

Happy banking!

Why We’re Leaving Our Giant Bank

And why we didn’t do it earlier. UPDATED Jan 2013

Wells Fargo is likely the “great bank” among the big ones, with the highest integrity and the lowest tolerance for bad banking practices among the bigs. But if my experience is typical as I believe it is, that should scare us all.

In early 2009 Wells Fargo took away our business credit line without so much as a letter to tell us why – it just vanished from our online banking screen one night. They did this to every single small business account in America without regard to the viability of the business. The $25 billion in 2008 Federal bailouts to WF never trickled down from Wells to their clients. I personally know of many very healthy businesses that were destroyed by this single act, and tens of thousands were damaged for years after because of it.

When it happened, we showed our local Wells Fargo branch manager our perfect credit and they said, “Frankly, we took away everyone’s business lines with no regard for their credit. We just had to make our own balance sheets look better.” That honest Wells Fargo manager said their credit requirements had tightened to the point of being “ridiculous.” She’s no longer there.

Many business owners switched to using their personal credit lines and had their interest rates jacked up right AFTER using them, not before. We did this to see what would happen and sure enough, within a week our rate was jacked, too. All while Wells Fargo was receiving the lowest interest rates from the Feds in history and had lined their pockets with $25 billion in free bailout money that had no strings attached to it.

This is the great bank, the good one amongst all the bad ones. If this lack of integrity is how good one acts, what are the bad ones like?

In 2010 after more incidences of bad customer service, we told our Branch Manager we were leaving and were looking for a small local bank that wouldn’t make macro-decisions that ignored their customers. We also told them we would wait until our revenue was significant enough to make Wells Fargo stand up and take notice.

We set up our one international business with a local bank in early 2012, not Wells Fargo. But our main focus is Crankset Group, which grew 392% from 2008 to Dec 2012, which has been with Wells for six years. They requested a meeting in December to introduce us to four business bankers they now want us to work with, and told us we didn’t have to interact with the regular branch folks anymore. We’re special now that we’re big enough.

Our growth and the complex merchant account changover required is making it hard to invest time in changing banks. But we’re committed to doing it before the end of 2013. We are thinking of hiring a marching band when we do. And when we meet with Wells Fargo to close out, we hope they’ll learn from our experience, but based on their disregard for us as a client until we were “big”, we’re not holding our breath.

Do the small banks do better? Our experience with our other business is that they are much more better at paying attention and meeting our needs. And much less expensive.

Pert of the 2013 update – we got a form letter from Wells Fargo yesterday, January 3, stating that they will now be charging their clients for cash deposits. They are now charging you to put cash deposits in their bank so they can make interest off of it. Mind-boggling, but not surprising.

In the same letter they outlined three other new fees, including charging their clients for transfers from Wells Fargo savings to Wells Fargo checking – $15 a pop to do that. My community bank will transfer to another unrelated bank anywhere in America for $7.50 and sometimes nothing. Watch closely – Wells is taking their cues from the airline industry. Next they’ll be charging to use their pen, and then for the lollipop.

Our lesson? Go local whenever possible. It’s not a panacea, but it can never be worse and more than likely a local bank, as with any local business owner, is more likely to pay attention because they live there, not in some skyscraper 1,000 miles away.

What’s been your experience with big banks/big business vs. small banks/businesses?