Laying Off Small Business - Part II

Part II The Solution Small Business Incentive Program
Ref. Part I The Problem (Previous Blog)

The Problem. Every small business took a major cash flow hit based on the 2008/2009 financial tsunami. For many they can’t continue because they can’t buy or purchase raw materials to produce goods to stay in business. For sure, grow and expansion are not options. For most, survival means cut back and jettison programs, projects and employees. And, forget innovation.

Prime the Pump. The small business capital source is the unlikely and unwilling local/regional bank. It is not and should not be the government. Fortunately, it does not have to be the Government.

The Solution. The government needs to return to a thirty year old practice of insuring Small Business Loans to banks – but with a new set of “RULES” designed around today’s capital economy, financial institutions and void of the historic paperwork nightmare birthed in the 1930 post depression recovery.

In Principal. It forces the banks to save their local small businesses because when they thrive – the local bank thrives. The community thrives. It is a true back to work program. It is not minority based, but merit based. The SBA program can be sold, managed and administrated by the local bank. The Government sets the standards and insures the banks loan portfolio for small businesses that meet the 2009 SBA Recovery criteria. By SBA setting the recovery criteria it becomes the antidote to today’s point scoring and rooted in the belief that only a few percentage of the businesses that meet the criteria will ever go bad. The bank portfolio is covered by the SBA Insurance and the government payout is minimal compared to the increased revenues by successful small businesses

2009 SBA Incentive Program. The new rules address three (3) small business needs. They are (1) existing business that suffered a LOSS in the 2008/2009 Tsunami, (2) successful businesses that need capital to grow and (3) new business ventures. The SBA Incentive program is called the SBA IP.

The major success factor. Local banks are the master at complying with regulations. They will promote, sell, execute and administrate the program without bias, exception or corruption. The SBA IP program will be done right.

The major requirement. The SBA IP approval must be automatic and online with adequate protection to detect scams and fraud across multiple banks and lending institutions. In the past, the SBA program was more paperwork and hassle and for both banks and small business – not worth the hassle. Consumers going directly to the SBA for loans or even guarantees was even a worse nightmare. The SBA is not in the small business loan business. They are in the insurance business where they issue a policy to the bank and they process claims from the bank. When the bank is compliant – the SBA pays the claim. This also positions the government to start any recovery of back taxes or other claims that may be applicable in default or closing of a local business.

Criteria. A progressive coverage, much like a deductible, could be instituted by the SBA and the bank. 100% criteria means 100% coverage at favorable interest rates. Plans or exceptions with partial criteria could be covered with a partial percentage and different interest rates. This enables the bank to offset the void with collateral from the small business. Lower interest rates could be available to businesses with green or energy related businesses. Small business who meet the banks traditional criteria and point scores do not qualify for the SBA IP program. The SBA can set this criteria to insure the bank is not insuring all loans through the SBA. The SBA is designed for companies with an existing track record that have been impacted by the financial tsunami.

Existing Business Working Capital Loan Criteria
5 years or more in business
Tax returns with one year profitable before any loss carry forward
Loan amount equal to 2x the revenue shortfall of the previous year (4 Qtr 2008 vs. 2007)
All back taxes paid with proceeds
Interest rate at bank favorable rate

Existing Business Growth Capital Criteria
5 years or more in business
Tax returns with 2 of the last three profitable
Loan amount not to exceed 10% of last years revenue
All taxes current an paid in full

New Business Criteria
Established Business or University sponsor (Affidavit)
Raise matching funds – Deposit in the bank
Business Registration and all initial filings.
Business Plan showing launch within one year Revenue year 2
Have all Business and merchant accounts within the bank
SBA IP allocations for new business based on banks service area and number of small business clients.

Fraud and Abuse. This is mitigated by the banks due diligence. They can feel, see and touch their local businesses. The existence of income tax records, 941’s combined with commercial personal, business and government data base confirmation make fraud difficult. The bank absorbs the risk if the loan for loans placed that have been submitted with falsified information.

Results. The SBA IP and Recovery Act passed by congress will jump start small business and allow businesses damaged with the 2008/2009 Tsunami recover. The health and revitalization of America’s small business will lead to more hiring, more production and profits that will produce more taxes for the government. The business growth and new business criteria will fund and fuel innovation from the business marketplace. Small business owners with existing successfully businesses are the ideal and untapped platform from which to launch innovation. Academic innovation will continue to be fueled by government research grants.

Larry White
www.elink.to/1ltLarryWhite