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

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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.

Government Killed Small Biz Jobs on July 15

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And the SBA is non-responsive.

In April I shared Why Small Business is Fed Up With Government – both sides are addicted to “big”. That addiction continues to escalate and hurt small businesses nationwide. And a Washington Post survey say you’re tired of it.

In early 2009 both sides declared the 19 largest banks “too big to fail”, and vowed at every photo op to change that. It was the political buzz-phrase de jour for a few months designed to make us “small” guys feel like someone was looking out for us while they gave hundreds of billions to their big business friends.

Today, three years later, those same few banks now control an even LARGER percentage of the banking industry. That’s how big government dealt with the issue; with their handouts they made the banks even bigger and an even greater national security risk for us. They assumed we would go back to our pitiful little lives and ignore them.

In 2010, Olympia Snowe, the self-styled Republican Senate advocate for small business, introduced legislation to kill the only small business loan actually designed for very small businesses. She had championed the loan through Congress, but received strong opposition from her big bank friends as well as her big government friends. She showed that her allegiance is to the bigs.

And now, in the midst of the biggest recession in history, government is killing small businesses with new regulations. On July 15, the State Department introduced requirements that forced small businesses to put as much as $500,000 in escrow (a business I know would have had to escrow that amount), and leave it there for 12-24 months without touching it.

This drove thousands of small businesses under in only a few days. The big businesses swooped in behind like vultures on a wire and took over all the customers these small businesses had cultivated for decades. They couldn’t get back in business now if they wanted to. Big government now has fewer, bigger clients to regulate. All the bigs are happy.

How did our government help the little guy with this? The business owner and I approached the SBA Office of Advocacy on July 11 and sent repetitive requests for intervention, the very thing that this bureaucracy was designed to do. For 24 days we received no response to many emails until July 29, which was a very unprofessional reply making the SBA out to be the victim. Since asking us a question on August 4, we have again received no responses to many more emails over the last 15 days. Simply inexcusable for an agency supposedly designed to advocate for small business.

Giant business and giant government got us in this mess, then turned around and looked behind and asked us to get them out of it. But they don’t invite us to the table to help them see how to do it. We couldn’t possibly know – we’re small and they’re big, and big knows better than small. Washington has Jeffrey Immelt, former CEO of GE who paid no taxes last year, in charge of fixing this. He, too, has no clue what a small business looks like.

Talk to any banker who used to give small business loans, and they will tell you very quietly and in complete anonymity that the reason their lending standards are beyond the reach of most healthy small businesses is because the government regulators are putting such pressure on them that they can’t adopt REASONABLE (not loose) lending standards. 73% of small businesses who need capital haven’t even bothered to apply because they know it’s useless. 48% who do get rejected – astonishing statistics. The 25 biggest banks control 32 percent more deposits than they did in 2006, but made 30 percent fewer small business loans.

This is your small business advocacy in Washington. In case you wondered if anyone is looking out for you, the small business owner, on either side of the aisle or in any of the halls of the giant bureaucracies there, you might think again.

I’ve said this in dozens of places on the internet for three years – access to capital is the #1 issue for small business and has been since October 2008. #2 is predictability from our govt., and #3 is regulations that hurt small business and help the big ones. The SBA says the #1 job growth sector is businesses with 1-9 employees and the #2 job growth sector is 10-19 employees. Then they, the rest of the government, and the giant corporations who all got us into this mess, continue to use this crisis to help each other just get bigger. Expect large donations from giant corporations to both sides next year.

Small business doesn’t want a bailout. And I personally don’t have time for recessions – I have somewhere I need to be with my business. None of the above make it impossible to succeed, but it does make it harder. And when government proactively kills jobs and small businesses like the State Dept. did on July 15, that is interventionism in commerce that is unacceptable and needs to be addressed, even if the SBA doesn’t have the spine to do it (in case you wondered, the SBA isn’t focused on small businesses under 19 employees).

Caveat emptor – for too long we have bought that someone in Washington is looking out for us. Think again. You won’t get help and you don’t need it. You can succeed without their help; just know that they are not in Washington to make it easier for you, but to make it easier for themselves and their giant corporation donors. It’s time to expose the game for what it is, one “big” scratching the back of another “big”, all at the expense of 28 million small businesses and the American economy.

This isn’t a lack of courage to act. This is simple self-preservation at work – both bigs (giant government and giant business) will protect their “bigness” at any cost, even the worst recession in history. And certainly without blinking an eye at the demise of small businesses.

Why small business is fed up with government

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Both sides are addicted to Big.

What really grinds the gears of small business owners is the near-complete inattention by lawmakers on who creates jobs.

So said Kimble Fletcher Ainslie in a Cato Institute article from December 20, 2001 titled “Bush Ignores Small Business.”

Eight years later under a different president, Catherine Clifford’s article in CNNMoney.com on September 30, 2009 continued the criticism of lawmakers ignoring small business:

Business owners really bring out the pitchforks when they consider the speed with which billions of dollars were distributed to large Wall Street firms and banks. That is what sticks in the small business owner’s throat more than anything.

Banks received $700 billion dollars in handouts in October 2008, with almost no regulations or restrictions. In February 2009, big businesses and big state governments received $787 billion, an incomprehensible $1.5 trillion total dollars. General Motors alone received $30 billion dollars when they would not have qualified for a credit card.

The top job provider in the U.S. economy is businesses under 10 employees. Those with 11-19 employees are second. Seventy-nine percent (79%) of all businesses in America have less than 10 employees.

In February 2009 while big businesses and big state governments were receiving $787 billion, the politicians threw a $255 million bone to small businesses in the form of the SBA ARC loan program, providing a potential $35,000 for a business that could get one. That’s 2/100th of one percent of the $1.5 trillion dedicated to the single largest job growth sector in our economy. While giant banks and corporations got handouts and bailouts many times in just a few days, the first ARC loan didn’t get processed until June 2009, five months later. By December 2009, only 45% of that tiny amount had been loaned.

Adding insult to injury, in December 2009, Republican Senator Olympia Snowe, a self-proclaimed small business advocate, introduced legislation to kill the program and return the remaining 55% back to the Treasury immediately.

Small business owners are not fed up with the government because they don’t get handouts. They are fed up with the symbiotic, parasitic relationship between politicians, big business and big banks. It’s hard enough to grow a small business. Swimming upstream against the constant deluge of advantages, handouts, bailouts, special loan programs and preferential treatment given to big businesses is the real rub.

The mis-named Small Business Administration is of no help. When the SBA was created in 1953 the big business lobby got their political friends to define small business as any business with under 500 employees, which is 99.94% of all businesses in America (only 17,000 of 28 million are larger than 500 employees). It’s like calling everyone under 7′ tall “short”. So it’s no surprise that almost all of the SBA’s attention is on businesses that are 6-7′ tall. Businesses under 5′ 4″ aren’t on the radar. So even with the SBA, true small businesses are on the outside looking in.

In 2009 Australia passed the Fair Work Act, legally defining a small business as having fewer than 15 employees. A similar law in the U.S. would be a good start. Then small business needs the creation of a real SBA, not so they can get handouts, too, but so they have a seat at the table to level out what has been an un-level playing field for decades.

The big business-big government parasitic relationship has been exposed by this last recession. It’s time to put an end to all the patronage that goes between the two of them, all to the detriment of true small businesses.

Big is Not Small

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Help stop the SBA madness.

I’ve never used my blog to directly advocate for an issue, but the SBA’s long-term focus on big business has moved from absurd to something there is no word for. I don’t want more handouts. I just want them to stop giving them to big businesses, and expanding to include even more big businesses to give handouts to. Help us stop it.

The SBA lost its way at its inception in 1953 when politicians bowing to big business interests defined “small” as any business with fewer than 500 employees. That is 99.9% of all businesses, a ludicrous and meaningless description of small. This happened because big businesses lobbying their politician wanted to make sure they didn’t get left out of the handouts. As a result, the SBA focuses almost all of its attention on larger businesses from 100-500 employees. Only 17,000 of the 28 million businesses don’t qualify!

They are now expanding the definition to include 9,450 of those 17,000, because large businesses with 400-500+ employees are once again growing huge and don’t want to be left out of the handouts that were set up to encourage small businesses to compete against the Bigs.

We can stop this nonsense. What can you do? Go to the SBA site here and submit the following objection, or your own. They must post them publicly and enough complaints will get their attention and require a response.

Rasmussen (a polling company) says the traditional three classes in America – rich, middle class and poor, have now been replaced by only two – The Ruling Elite, and everyone else. We have become a nation ruled by the Bigs who have completely lost touch with who they exist to serve.

But in the Participation Age we are now in, you can make a difference. Go to the SBA site and let them know a “small” business has fewer than 20 employees, and to stop expanding to serve their big business cronies.

Copy the following, fill in the contact info on the SBA site here, and paste the following or your own objection. Let’s begin to create a voice for small business at the table of the Bigs.

COPY THE FOLLOWING:

The existing SBA definition of “small” includes 28 million out of 28 million businesses (only 17,000 are left out). It’s like saying all people less than 7’ tall are “short”. Your continuing expansions move it to 7 1/2’ tall people.

How can you claim to serve small business when you include 99.9% of all businesses, and want to increase that to 99.95%? No understanding of “small” justifies these increases, and only goes to demonstrate that the SBA does not have a focus on small business.

In 2009 Australia passed the Fair Trade Act that formally defined “small” as “under 15 employees”. Even that would still include over 80% of all businesses in America, but would be a much more realistic definition of “small”.

I hereby formally request that you defend your definition of “small” against the commonly held understanding of the word “small”, and either
a) Reduce the standards by nearly 2500% (from 500 employees to 20) to reflect a realistic understanding of small, or
b) Rename yourself the Mid-to-Large Size Business Administration (MLSBA).

See the Miriam Webster definition of “small”:
1 having comparatively little size or slight dimensions
2 a: minor in influence, power, or rank b : operating on a limited scale
3 lacking in strength – a small voice
4 a: little or close to zero in an objectively measurable aspect (as quantity) b: made up of few or little units

  1. How does “comparatively little” describe 99.9% of all businesses?
  2. How does 99.9% reflect “minor in influence, power or rank?
  3. How is 100-500 employees “lacking in strength” when compared to the 80%+ businesses with fewer than 10-15 employees?
  4. How is 28 million out of 28 million “little or close to zero”, or “made up of few or little units”?

I look forward to your formal public reply.

Gandhi – “Anyone who thinks they are too small to make a difference has never gone to bed with a mosquito”.

Thanks for making a difference!

Which Banks are Making SBA Loans?

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The ARC loan is harder to get than it should be and serving a much narrower part of the small business community than intended, but if you can get one, it can be a great help to your business. Don’t take no for an answer – get creative!

What Banks are Making these Loans?

For a PDF list of banks in your state offering the SBA ARC loan go to: sba.gov – scroll half way down this page and click on: “List of lenders who have made ARC loans to date”

What is the ARC Loan?

Best explanation of the ARC loan itself that I’ve found on the internet is here at the Business Borrowers Alliance.

Contact Neal Gordon for more info – Just one page of their info is reproduced here:

From Business Borrowers Alliance Website:

About the ARC Loan Program

ARC loans can be used to make payments of principal and interest, in full or in part, on one or more existing, qualifying small business loans for up to six months. ARC loans provide an immediate infusion of capital to small businesses to assist with making payments of principal and interest on existing debt. These loans allow borrowers to redirect cash flow from making loan payments to investing in their businesses, to help sustain the business and retain jobs. For example, making loan payments on existing loans with proceeds from an ARC loan can allow a business to focus more funds on core operations, such as buying inventory or making payroll.

ARC loans are interest-free to the borrower, carry a 100 percent guaranty from the SBA to the lender, and require no fees paid to SBA. Loan proceeds are provided over a six-month period and repayment of the ARC loan principal is deferred for 12 months after the last disbursement of the proceeds. Repayment can extend up to five years.

ARC Loan Eligibility

ARC loans are available to viable, for-profit small businesses in the U.S. that have qualifying small business loans and are experiencing immediate financial hardship.

Your small business must be an established business, have financial statements demonstrating it was profitable in one of the past three years, and be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval. If your business does not meet these criteria, you can discuss your eligibility with your lender. ARC loans are not designed for start-up businesses.

Examples of qualifying loans may include credit card obligations for your business, capital leases, notes payable to vendors/suppliers, Development Company Loan Program (504) first lien loans, other loans to small businesses made without an SBA guaranty, and loans made by or with an SBA guaranty on or after Feb. 17, 2009.

ARC loans are designed to help businesses experiencing immediate financial hardship for reasons such as

  • Loss/reduction of customer base
  • Increase in cost of doing business
  • Loss/reduction of working capital and/or loss/reduction of short term credit facilities
  • Inability to restructure existing debts due to credit restrictions
  • Loss/reduction of employees (intellectual capital)
  • Loss/reduction of major suppliers (major suppliers out of business)

Where do I get the forms?

URL to download the SBA forms if you think you might want to do this you can visit Business.gov and download the forms at:

http://www.business.gov/finance/financing/loans/sba-loans/sba-loan-application.html

or best, bet, contact your bank and ask for the SBA ARC Loan officer. Many banks have customized these forms from the generic ones here, so you’ll end up filling out twice.

The SBA and Politicians Get Another Empty Photo Op With Small Business

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What would have happened if we bailed out only the banks and big corporations that didn’t need it? How dumb would that have been? That’s exactly what we’re doing with small businesses.

I’ve been working to get the politicians, the SBA, and the banks to work to support small businesses and live up to the expectations they’ve been putting out there for that support. Media is beginning to take notice. Fox Business Channel may have us on live in the next few weeks, and CNNMoney.com published an article using some of our info today.

The article was too short to say much. Following is more if indeed you even want more.

My position is that I don’t feel the government owes large or small business a handout or even a hand up.

My problem is that once again the politicians and the SBA have made claims about giving a hand up to small business that isn’t living up to any of the hype. Politicians have a bad habit of wanting to get their pictures taken with small business people to pretend that they are providing something commensurate to the help they give large businesses. Again, I don’t care if they help or not, but I do care deeply when they claim something that is not true and further their political careers with empty photo ops at the expense of small businesses. They are clearly not looking out for small businesses on either side of the aisle.

In February, Congress approved a new type of loan for small business called the ARC Loan, which, from outward appearances, appeared to actually be the first loan the SBA and the politicians have ever put out that was focused solely on true small businesses (under 20 employees, which is still 80% of all businesses in America.)

The director of the SBA, Karen Mills, was quoted as saying the ARC loan is for “immediate relief” for small businesses who could pay off “home equity loans and credit cards” used for business purposes. At no other time has the SBA recognized that, good or bad, this is the primary way most true small businesses fund at least part of their startup.

But banks are simply not allowing this loan to be used for this very purpose for which it was designed. And the banks have put so many further restrictions on getting this loan that it is actually easier to get a conventional loan than it is to get this ARC loan.

The restrictions have kept the applications so low that nine months after this loan program was conceived, only 20% of it has been distributed while hundreds of billions were distributed to high risk banks in a few days with no paperwork! But the real travesty is this:

Distressed small businesses can forget it – As a result of the changes the banks have made to the ARC loan requirements, almost no distressed small business can qualify. Most of these loans are going to very healthy businesses who would make it through the recession just fine without the ARC loan. This program, which was designed for “immediate relief” is being issued to healthy companies who don’t need it, and the SBA and the politicians are saying they’re helping distressed small businesses.

If you are lucky enough to have a conventional business loan with your own bank (most true small businesses don’t have these), they will allow you to apply. And if you get accepted, they will take $35,000 from their left pocket (the ARC loan) and put it in their own right pocket (applying it against your other loan with them). This simply reduces their at-risk loans. Paying off home equity loans and credit cards, the principle purpose of this loan program is simply out of the question.

I’m one of those businesses that don’t need the loan. I applied for one of these just to see what the experience is like since I recommended to so many others that they should do it before it was obvious it was so flawed. We don’t owe any money to our bank, Wells Fargo, so we will likely get rejected, but I needed to see if all the objections were real. They are- our initial submission was 301 pages. I’m sure they’ll want much more before we’re told we don’t qualify. Oh, by the way, the bank has already told us that with our good credit and low debt, we already qualify for their conventional business loans, which are much higher risk for them and should have a much higher qualification threshold. Hmm… seems upside down, doesn’t it?

The stimulus was $787 billion dollars. This ARC program is $255 million, or three-tenths of one percent of the entire bailout. Small business is 50% of the gross domestic product but get’s three-tenths of the bailout? The big businesses were given hundreds of billions of dollars in just a few weeks when not a single one of them would have been able to qualify for the $35,000 ARC loan. But nine months later, only 20% of the meager $255 million has been distributed, and that only for the purpose of banks taking money from their left pocket and putting it back in their right pocket.

Meanwhile the SBA and the politicians on both sides of the aisle continue to pat themselves on the back for another empty photo op with small businesses. Again, I don’t care if they help small biz or not – I’m not a victim in need of handouts. But don’t pretend to be helping when you’re actually just using the small business owner to promote your own careers with empty promises.

Continuing (almost daily) attempts to reach politicians and the SBA to get them to either fix this or stop pretending they are helping fall on deaf ears. They’re all too busy patting themselves on the back for once again giving the appearance they’ve been helpful to small business.

What would have happened if we had only given support to the banks and big corporations who didn’t need it? Sounds irrational, but that’s exactly what’s going on with “assistance” to small businesses.