Even as bank lending to small businesses decreased in the last three years, lending by credit unions increased. Now, credit unions want Congress to loosen the limits on how much the nonprofit financial institutions can lend to businesses.
A bill introduced by Sen. Mark Udall (D-Colo.) on March 8 would let credit unions increase their small business lending, now capped at 12 percent of assets, to 27 percent.
Credit unions had about $39 billion in outstanding loans to small businesses last year, up from $24 billion in 2006, says Bill Hampel, chief economist at the trade group Credit Union National Association, citing data credit unions report to regulators. The equivalent lending by commercial banks peaked in 2008 at nearly $700 billion and declined to $626 billion in 2010, according to bank regulatory filings. (Both measure loans under $1 million, which the government uses as a proxy for lending to small businesses.)
About two-thirds of the nation's 7,000 credit unions don't do any business lending at all, Hampel says. Of those that do, about 350 are near the cap, meaning business loans constitute between 7.5 percent and 12.5 percent of their assets, he says. Even at 7.5 percent, a credit union will start "tapping the brakes" on business lending and might reach the cap in three years, he says.
Banks oppose lifting the limit, saying that business lending takes tax-exempt credit unions away from their nonprofit mission of serving members. "Credit unions were granted tax-free status to help them serve individuals of modest means, not to get into business and commercial lending," Camden Fine, head of the Independent Community Bankers of America trade group, wrote in a March 3 letter to congressional leaders.
Hampel says lending goes to businesses owned by credit union members, and the average loan size is about $200,000. The 12 percent limit was created in 1998, and it doesn't apply to about 100 credit unions that were major business lenders before then and were grandfathered in. In addition, loans under $50,000 and loans guaranteed by the Small Business Administration don't count toward the cap. Attempts to pass a version of the bill last year in the Small Business Jobs Act failed.
More people are starting businesses but fewer of them are hiring employees, according to a report released today by the Kauffman Foundation.
The report shows a jump in new businesses formed by those with the slimmest employment prospects, such as people without high school diplomas and workers in the construction industry.
"That's counterintuitive. Construction bore the brunt of the recession," says Dane Stangler, research manager at Kansas City (Mo.)-based Kauffman. What happened, he says, is that people laid off in the construction industry have few other options for generating income than attempting to start their own one-person businesses. The growth in startup rates also skews toward men and older workers.
Even as the overall startup rate is increasing, the share of people starting companies that employ other workers is falling. Between 2007 and 2010, the percentage of people who started businesses each month increased from 0.30 percent to 0.34 percent, while the percentage of people who started new employer firms each quarter dropped from 0.13 percent to 0.10 percent. (The data is from surveys by the Census and Bureau of Labor Statistics.)
Study author Robert Fairlie, an economist at University of California, Santa Cruz, writes:
These opposing trends may be due to the Great Recession and its high unemployment rates pushing many individuals into business ownership. These individuals probably were more likely to start sole proprietorships and other non-employer firms instead of starting more costly employer firms.
Even with the overall startup rate elevated, Stangler says the trend of entrepreneurship driven by necessity is a "very disturbing and discouraging picture."
The report also found that immigrants and Latinos recorded large increases in the rate of entrepreneurship during and after the recession.
Not-for-profit student entrepreneur networking group Kairos Society is holding its third annual Global Summit--meetings and breakout sessions with promising business founders and seasoned executives--on Feb. 25 and Feb. 26 at the United Nations and the New York Stock Exchange.
The goal, says the group's 21-year-old founder, Ankur Jain, is ambitious: to create "billion-dollar businesses that tackle the world's greatest challenges." He expects 350 student entrepreneurs from around the globe and approximately 150 business and political leaders to participate.
The event isn't open to the public but some of the sessions will be recorded, edited, and posted on the Kairos website, Jain says.
More from the Bloomberg story about Kairos and the event:
Most of Kairos members ... have ideas for improving global living conditions and the environment such as electric motorcycles for city residents or portable solar panels for farmers.
[...]
Several Kairos members have been able transform their ideas into businesses, Jain said. Levant Power Corp., a Cambridge, Massachusetts-based company founded by former Massachusetts Institute of Technology student Shakeel Avadhany, makes a vehicle shock absorber that converts the bumps in the road into energy, according to the company's website.
MobilEdu is an iPhone application developed by former Stanford students Kayvon Beykpour and Joe Bernstein that universities can customize to let students look up information such as class schedules, events and maps. Their San Francisco- based company, Terriblyclever Design LLC, was acquired in 2009 by Blackboard Inc., a Washington-based company that makes software for colleges, according to a press release.
[...]
Among the executives scheduled to attend are: Peter Diamandis, chief executive officer and founder of the X Prize Foundation, a Playa Vista, California-based company that hosts competitions for entrepreneurs; Duncan Niederauer, chief executive officer of NYSE Euronext, owner of the New York Stock Exchange; and Bruce Mosler, chairman of global brokerage for New York-based Cushman & Wakefield Inc., the world's largest privately held commercial real estate broker.
Entrepreneurship has always been about solving problems. What distinguishes social entrepreneurs is how much their solutions improve people's lives. They're building companies to lift people out of poverty, improve global health, extend human rights, and protect the environment. They're business people, too, and they take profits as seriously they take their missions. Social enterprises aren't charities--they sustain themselves and grow because their customers pay for the value they create.
We want your suggestions for companies to profile in Businessweek.com's third annual roundup of America's most promising social entrepreneurs. We recognize that what it means to be a social enterprise is open to debate, as more companies incorporate social goals and nonprofits increasingly rely on business methods to further their missions.
Here's what we're looking for: Entrepreneurs creating profitable, scalable companies to solve social problems. We want businesses with social missions baked into their operations, not tacked on as extras. We want companies that can demonstrate results, both in the marketplace and in their missions. That means we'll only consider companies that will disclose their annual revenues. We're seeking for-profit companies based in the U.S., doing business here or abroad, that meet these criteria.
Submit your company or another you know of using the form below. We'll take suggestions through Mar. 31, though there is no need to submit the same company more than once. In the early summer, our reporters and editors will post profiles of the 25 we find most promising. Then we'll ask you to vote for the one you find most promising, and announce the five that get the most votes. (For a look at roundups from previous years, click here and here.)
The Chilean government launched its Start-Up Chile program last year with the goal of putting Chile on the map as an innovation hub. To do so, it offered foreign teams behind 25 startups $40,000 grants, residency visas, and hand-holding from the program's staff to speed acclimation and networking.
The program was popular. More than 150 people applied, including the team behind data platform maker Junar, which was accepted and raised $1.2 million in December--$800,000 of which came from local investors, according to Nicolas Shea, who heads the program. He adds that another program alum's startup is set to raise a similar amount.
Now Chile is releasing its second iteration. The premise is the same. But the budget is 20 times larger ($20 million) and the scale is more ambitious: up to 300 startups by yearend. It will start to accept applications on Feb. 15 on its website.
Like last year, any type of entrepreneur (of any nationality residing outside Chile) is welcome to apply. "We're a government; we don't pretend to be good at picking winners," says Shea. "We can discriminate by who is serious and who is not by references, application, essays, etc... Serious entrepreneurs are rational people. They come to Chile because it makes sense to come to Chile."
Shea acknowledges that some business types are better suited for a stint in Chile than others. "Of course, it's easier to move if you're a technology entrepreneur. Real estate would be more difficult, right?"
He sees the White House's recently launched Startup America Partnership as validation of the his program's promise. "It was inspired, partly, by Start-Up Chile. I'm 100 percent sure about that."
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