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Small Business Critical of Stimulus

By MICKEY MEECE

Published: New York Times, February 6, 2009

As a huge stimulus package wends its way toward President Obama’s desk, business owners say that all they really want is cash in the tills to be able to survive and then help propel the economy out of recession.

 

Practically Speaking

Mickey Meece writes about strategies to help small-business owners overcome daily challenges.

 

The $819 billion bill passed by the House last week and a similar measure under consideration in the Senate simply do not go far enough to bolster the small-business sector, owners and those who lobby on their behalf say. “Small businesses are a job engine for the economy,” said David French, vice president for government relations at the International Franchise Association. “Unfortunately,” he said, the stimulus package offers “a thimble-full of fuel for this engine.”

By his estimation, only 0.05 percent of the House bill is dedicated to small-business lending programs, and the Senate version is only slightly better. “It’s not a lot of money relative to the scale of the credit market problems,” Mr. French said.

Sure, said Victoria Braden, chief executive of Braden Benefits Strategies in Atlanta, some provisions like extending tax credits and accelerated depreciation from last year’s assistance package will help. “But it’s not enough to stimulate the kind of growth we need,” she said.

Her company, which provides employee benefit assistance to companies with 20 to 300 employees, is reeling from its clients’ mass layoffs in early January, she said. “We still don’t know how much income we lost.”

Job creation is a hot-button topic for the stimulus package. In January, employment among businesses with fewer than 50 workers declined 175,000, the third consecutive monthly decline, according to the ADP Small Business Report released Wednesday. Businesses with fewer than 500 employees lost 430,000 jobs in the month, ADP said, indicating that the recession was hitting the sector hard.

Companies like MCM Composites in Manitowoc, Wis., a maker of composite molding parts for military contractors and aerospace companies as well as houseware and cookware manufacturers, have drastically reduced operations.

This month, said Michael J. Fredrich, the owner, there are only enough orders to keep operations running two- to two-and-a-half days a week. “That’s it. That’s all we can do.”

What is not included in the stimulus plan, but could help, is a reduction of the highest tax rate, Mr. Fredrich said. Many owners pay income tax at the personal level, as he does, so it would be money in their pockets to reinvest.

“That would have an immediate effect,” Mr. Fredrich said, as would a payroll tax holiday, which is also not included.

Terry McGill, who owns a commercial and industrial painting operation in Omaha, would welcome a six-month payroll tax holiday, something advocated by the National Federation of Independent Business. Mr. McGill said his remaining 30 employees — down from 60 — would have extra money in their pockets each week to spend.

If the amount equaled 6 percent of a payroll, and a worker made $500 a week, for example, that’s $30 more. “That doesn’t sound like much,” he said, “but that’s $1,560 a year, that’s without including any overtime.”

“I just think it’s a real fair way to do things,” Mr. McGill added. “It wouldn’t be money hidden away; it wouldn’t be a lump sum. If you had 30 bucks more a week, it might be your gas for the week, but as a stimulus, it would get spent. I would certainly spend it, both at home and in my business.”

To put it in perspective, he said, the profit margin in his industry runs 3.5 percent to 7 percent. “You’re really talking about a break that would exceed what we would consider a good year,” Mr. McGill said. “Boy, would that make life better.”

Meanwhile, banks are still not extending credit readily, eliminating a vital cash outlet for businesses.

The Federal Reserve’s quarterly report on bank lending, issued on Monday, found that the number of banks that tightened their lending policies on all major loan categories over the previous three months “stayed very elevated.”

The current climate has made owners even more pessimistic than they were last fall, according to the Small Business Research Board in Buffalo Grove, Ill., which is finishing up its latest confidence survey.

What is needed is access to capital, said Gregg Steinberg, president of the board. Not only has lending ceased, but the value of business owners’ homes is falling, meaning owners cannot tap into home equity for their businesses.

Mr. Steinberg is advocating that the stimulus bill include an emergency lending vehicle similar to the disaster relief loan program after Hurricane Katrina.

Local banks could provide the loans with government backing and built-in technical expertise, he suggested, to ensure the program was efficient and effective.

Paul G. Merski, chief economist at the Independent Bankers Association, said that the House and Senate had tried to address inadequate lending in their bills. On the appropriation side, the House allocated $500 million to the Small Business Administration’s guaranteed loan program to decrease or eliminate fees. The Senate version bumps that up to $615 million.

The provision, coupled with a two-year increase in the guaranteed level of loans to 95 percent, from 75 percent to 85 percent, would “kick-start” lending, Mr. Merski said.

The ripple effect could be far and wide, he said. Community banks, which represent about 12 percent of all bank assets, but make 20 percent of all small-business loans and about half of the loans that are less than $100,000, would churn out new loans to small businesses and franchises. Those companies in turn could buy equipment and hire back employees, who could then spend more money as consumers.

While President Obama wants Congress to move quickly, Karen Kerrigan, president of the Small Business and Entrepreneurship Council, said more time should be spent examining other ideas. “I think more than expediency,” she said, “it has to be a good bill.”

“If small-business owners are to shoulder the responsibility for getting our nation back on sound economic footing,” Ms. Kerrigan said, “they need something from this package that will encourage them to invest, hire and prepare for growth.”

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