Posted by: John Tozzi on January 21
Lower prices during a recovery, not a recession, Susan L. Reid writes at Small Business Trends.
Caron Beesley explains tax changes that affect small business at Business.gov.
Health care reform is now nearly dead. Sen. Olympia Snowe (R-Maine), who spent months in a bipartisan group drafting one of the proposals but ultimately opposed the bill, says it's time to "go back to the drawing board and try to see what essentially could be a basis for consensus," David Herszenhorn reports at the NY Times Prescriptions blog.
Harvard Business Review blogger Umair Haque argues that businesses need to scale their ambitions, not their operations.
The venture capital industry urges President Obama to create a "Clean Energy Deployment Administration" to help finance the commercialization of clean technology. A PDF of their letter is here.
A neat infographic rounds up some familiar small business stats at Focus.com.
Posted by: John Tozzi on January 21
One reason small business lending is down is that many loans are secured by personal assets that have lost value. A recent article in the San Francisco Fed's Community Investments journal explains what's happening (PDF here). Author John Moon writes:
...some bank lenders had reported reducing the amount of their extended lines of credit as a result of lowered appraisal values on personal homes that secured these small business loans. For other businesses that borrowed directly through a home equity line of credit, notably immigrant micro-businesses, a similar reduction in credit resulted as home values were reassessed.
One study cited in the article, though dated, estimates that 55% of all small business credit dollars are personally guaranteed. So plummeting personal wealth -- in the form of home prices, stock valuations, and other personal assets -- make borrowers riskier to banks. The change is beyond the business owner's control. It has nothing to do with how well the business is run, demand for its products or services, or the owner's ability to manage cash flow and make timely payments. But it still affects the supply of credit.
The personal guarantees also affect the demand for credit, Moon notes. Entrepreneurs who have already seen their wealth evaporate are unlikely to gamble what remains of their home equity in an uncertain business environment.
This dynamic isn't limited to personal assets. The falling value of commercial real estate, equipment, and other collateral for commercial loans has crimped credit for small and midsized firms. One solution being floated is collateral deposits, where a government or public-private partnership makes up for the shortfall in collateral by putting cash on deposit with the lender.
But there's no easy fix. Moon writes:
The relationship between personal assets and small business financing has presented particular challenges during this economic downturn. On one hand, the pledging of personal commitments can help banks mitigate against greater risk associated with the economic downturn. On the other hand, the drop in asset values as a result of the recession makes it more difficult for small business owners
to pledge personal commitments. The net result may be that on the supply side, access to credit is further constrained for small businesses because of this dynamic. On the demand side, a small business owner will be reluctant to pledge his own assets or provide a personal guarantee if he has a pessimistic outlook for his business or the economy. Fundamentally and not surprisingly, to increase credit supply and demand, asset values and business prospects need to improve.
Posted by: John Tozzi on January 21
I spent a good deal of time last year writing about credit card reform -- and how Congress left small business cards out of the new consumer protection laws. At one point we pressed top card issuers for info about their rates -- with mixed results.
Today a new credit card comparison tool goes online from BillShrink. BillShrink will feature 48 business credit cards from major issues and recommend one based on users' responses to questions about the size of their companies, amount of spending, need for trade terms like net 30 payment, and desired rewards. The company claims to save consumers on average $1,000 a year on costs associated with credit cards, and CEO Peter Pham expects small business savings to be substantial as well. "Small business owners, if they use the right card, can probably be traveling for free and never pay for a hotel again," he told me Wednesday.
BillShrink, which also lets consumers shop for mobile plans, lower gas prices, and rates on savings accounts and CDs, gets a cut from some (but not all) customer referrals. Pham says such fees don't influence the site's recommendations. The company is not is not the first credit card comparator to hit the market. Others include CreditCards.com, CardRatings.com, and BankRate.com.
I'm interested to see how BillShrink's data on the rates, fees, and other terms of small business cards compare to consumer cards. (The site tracks some 200 consumer card offers.) If the costs of business cards rise relative to the cost of personal cards, that may indicate that 1) credit card reform worked to reduce costs for the consumer accounts it applied to, and 2) small business card users could benefit from similar reforms.
As Pham says, transparency is a precondition for reform. "If nobody know they’re getting ripped off, then nobody’s going to do anything about it," he told me. We'll be watching.
Posted by: John Tozzi on January 20
Seth Godin on the importance of typefaces. (Please read, comic sans users.)
Planning helps reduce the stress of running a business, Colleen Debaise writes at the WSJ.
The number of business school students interested in social enterprise is rising dramatically, Duke University Fuqua School Dean Blair Sheppard tells McKinsey Quarterly. (H/t Small Business Labs)
Small business loan balances are still dropping at the nation's biggest banks, Catherine Clifford reports at CNNMoney.
Anita Campbell of Small Business Trends looks at a pair of seemingly conflicting studies on whether recessions affect the rate at which people start businesses.
VC Dispatch has a neat interactive timeline of the last decade in venture capital and startups. A decade ago Pets.com was burning cash on Superbowl ads...
Posted by: Nick Leiber on January 19
For many entrepreneurs, 2009 was another year of slumping sales and frustratingly tight credit. Their expectations for this year aren't shaping up to be much better. One big reason for this lack of optimism: uncertainty. Entrepreneurs are worried about how pending policy decisions will affect recovery, according to recent polls and conversations I've had with business owners from across the country.
So earlier this afternoon, when I watched a webcast on the state of entrepreneurship in the U.S. led by Kauffman Foundation head Carl Schramm held at the National Press Club in Washington, D.C., I brightened up a bit. Schramm, along with Commerce Secretary Gary Locke, entrepreneurs Reggie Aggarwal (Cvent) and Mary Naylor (VIPdesk), and educator Frank Douglas (Austen BioInnovation Institute), acknowledged the need to reduce the uncertainty facing entrepreneurs and offered fixes for policymakers to consider.
During his half hour speech, Schramm proposed reworking the EB-5 visa program to favor founders, making some of the Sarbanes-Oxley rules optional for small companies at shareholders' discretion, temporarily exempting businesses less than 5 years old from payroll taxes, making it easier for professors and students to commercialize research, and developing interest in entrepreneurship at a younger age (he cited the nonprofit Network for Teaching Entrepreneurship's success with high school students).
After Schramm's speech, Locke spoke briefly about fostering the right kind of conditions for entrepreneurs, acknowledging that "too many of our brightest minds were busy engineering credit default swaps," aiming solely for short-term gains. He urged policymakers to "start promoting the right kind of risk."
Later, during the panel discussion, Schramm talked broadly about the need to recognize that small businesses, not large corporations, have created almost all of the net new jobs in the U.S. in the past 30 years. He urged policymakers to act on this "unspoken so" and target entrepreneurs.
Kauffman is posting an archived version of the address as soon as it's available. You can also read Schramm’s speech, profiles of the three panelists, and the results from a poll released today.
