Small Business Critical of Stimulus


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.”

Novel Approach to Health Plans Gains Traction
Microsoft Study: Small Businesses Using Technology to Cut Costs
Government Contracting How To's
500+ Tools for Small Business
Grow Your Business by Growing Your Credibility as an Expert
IRS May Give Some a Break
Writing a Business Plan
The Elements of a Business Plan
Turning Around a Struggling Business
How to Re-negotiate Your Lease
How to Raise Cash for Your Business Now
The Most Profitable Home-based Businesses
Is it True That Tax Dollars are Saved by Forming an LLC
Teen Entrepreneurs Provide Information All Entrepreneurs Can Use
100 Attributes of Entrepreneurs
Managing Customer Relationships
Personal Characteristics of Entrepreneurs
Franchises Growing Despite Economy and Credit Crunch
How to Avoid Franchise Pitfalls
How to Select a Franchise
How to Succeed as a Franchisee
Why Franchisees Fail
Google, SBA Launch "Tools for Online Success" Partnership to Assist Small Businesses
President Signs Extension for SBA-backed Small Business Loan Program
New Online Course Helps Women Entrepreneurs Access Government Contracts
SBA Offers Online Course on Winning Government Contracts
SBA Affirms Commitment to Meet, Exceed Small Business Contracting Goals
SBA Names Regional Chiefs for Four Regions
SBA Announces Changes to SBIC Program
SBA Launches Refinancing Program for Fixed Asset Loans
SBA Introduces No-Interest Loan Program for Struggling Small Businesses
SBA Sets Alternate Small Business Size Definition for Guaranteed Loans
Ana Recio Harvey Named Head of SBA's Women's Business Unit
Senate Confirms Karen Mills as Head of the SBA
SBA Launches Online Community for Small Business
The Small Business State of Your State
States Develop Their Own Stimulus Plans to Aid Small Business
Surviving an Economic Downturn
Join Our Mailing List
Small Business Critical of Stimulus - Strategic Growth Concepts - Business Information Articles - safe_subscribe_logo
For Email Marketing you can trust