THE ROCHE RECORD

THE ROCHE RECORD  –  by Frank Roche
February 10, 2011

SMALL BUSINESS OWNERS NEED SOME HELP


While it is statistically accurate to say the US economy is growing and recovering from the worst of the 2008-2009 economic downturn, many small business owners are still reeling, haven’t witnessed any recovery, and still wonder where their bailout is.

Whether I’m out with friends, or during Q&A sessions after speaking, I’m often told by small business owners that banks aren’t lending, the government isn’t doing anything to help them as they did for big business with the TARP money, and how they should have more clout given that they are part of a group that has hired approximately 60 percent of all new hires over the past ten years and employ just over 50 percent of all private sector employees.  They’re frustrated, some are angry, their livelihoods are at risk, and they don’t have many places to turn.

Not surprisingly, most of those I speak with are connected to the housing, construction, automotive, or retail sectors.  

Small business owners want to know what is being done for them.  They want to know what can be done for them.  There is no answer that is likely to satisfy their short-term needs.

Small business owners have already received the standard political give-aways in an effort to mollify their feelings over the bailouts related to TARP:  capital gains tax reductions for certain assets; accelerated depreciation; the standard $5,000 business tax credit; and the $1,000 dollar tax credit for hiring an unemployed person.  Not surprisingly, these cookie cutter policy band-aids aren’t doing much to help.

Putting those policy measures aside, the very best local, state, and federal policy makers can do is lower small business taxes and fees, and reduce the regulatory burden, and they should do so sooner rather than later.

The tough love part of the answer involves discussing perceptions, expectations, and what may be a paradigm shift when it comes to consumption and savings.  The post 9/11 American economic expansion proved to be unsustainable, fueled by poor public policy and historically low long-term interest rates.  By 2008 it became clear to all we had experienced a housing bubble, weak risk management in the financial sector, and lax oversight by governing authorities.  Yet, small business owners are in many ways still stuck in those heady days.  Why can’t I get a loan?  Why is collateral not worth as much as before?  Why is my credit line being cut, or eliminated?  Why bailouts for banks and not home builders, or Realtors?

As for those businesses that benefited from the bailouts, they’re rich and powerful and have access, small business can’t match that.  That can be changed through the political process.

Furthermore, contrary to the perception among many of the small business owners I speak with, bank loan officers are still lending (commercial and industrial loans, commercial real estate loans, residential mortgage loans, consumer loans, lines of credit), just not as much as they were three years ago.  Banks are reducing risk and therefore have bolstered lending standards eliminating many borrowers who had access to credit during a period of weak lending standards three years ago.  New and existing homes are being sold, just not as many as three years ago.  Homes over $400k are being sold, just not as many as 3 years ago.  New and used cars are being sold, just not as many as three years ago.

When times are good entrepreneurs flood the most active sectors, when times turn bad, many entrepreneurs don’t survive.  Only the best will survive.  Such is free market capitalism.

Free market capitalism, the worst system there is, except for all others.

Small business owners deserve credit for taking risk and pursuing their dream.  The key word is risk, and more often than not, the government should not be involved in mitigating that risk.  However, local, state, and federal policy makers should do all they can to make the economic environment as business friendly as possible.

Lower taxes rather than higher taxes

Fewer and rational regulations rather than more and irrational regulations.

Hang in there small business.  The cycle will turn.  Don’t forget the power of the ballot box.

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