Small Business Investment Will Resolve Recession
Monday, February 15, 2010 at 08:44AM By Nathaniel Gurien
North Conway
Business tax cuts create or maintain jobs, and only indirectly, when businesses with ready access to capital, i.e., large publically-traded companies, are confident of increasing demand. In this economy, most businesses share the same “crisis of confidence” as consumers, so are unwilling take speculative risks by increasing their costs until demand is obvious and demonstrable.
Small businesses in today’s economy are effectively barred from access to fresh capital, so they have no discretionary money to hire people and/or purchase equipment, even if they have a productive, recession-proof business model in place. A six-percent reduction in payroll taxes, or accelerated depreciation on equipment is useless if there's little to no capital or financing available.
Especially in the North Country, small business is the primary engine of permanent job creation (as opposed to the temporary jobs created by infrastructure projects).
As written, the ‘jobs’ bill making its way through Congress will do little to help small businesses create jobs and grow community prosperity.
While the President’s proposal to invest the $30B of repaid TARP funds in community banks to bolster small business lending may help on the margins, small business borrowers would still be subject to these regulated banks’ ‘risk-adverse’ lending standards and reserve requirements. The many small businesses throughout NH that I’ve spoken with know well what I’m referring to.
What would have an immediate positive effect would be for small businesses with sound business plans that emphasize job creation to have access to lending. This could be accomplished on a fast-track utilizing the existing local infrastructure of SBA/SCORE to review and polish viable business plans combined with lending via the actively functioning network of non-profit small business investment & development corporations in the North Country and throughout NH.
Since the capital would be provided as a loan, the ultimate net cost to the taxpayer would be comparatively low.
Typically, at an average of $50,000 per business loan, a small business would on average create about 5-10 jobs @ $30,000 per year (gross w/benefits), with a resulting additional annual gross payroll of $150,000 to $300,000. To put this into a national perspective, $30B in repayable loans would roughly create upwards of $200B in new annual payroll, or 6,000,000 permanent new jobs. How many permanent new jobs has the so-called $800B ‘stimulus’ bill created or saved even according to the most optimistic estimates? And how much of that is being repaid?
Each new job increases the quality-of-life for several family members as well as the job-holder. Their increased spending in their communities lifts the prosperity and confidence of other local small businesses, and well as friends and neighbors. And of course, productive small businesses spend money in their communities for supplies, services and charitable works.
If this initiative was implemented, a tangible measure of optimism would grow among both consumers and businesses countering the prevailing economic pessimism that is at the heart of this ‘Great Recession’.
Taxpayers would receive an extraordinary ‘bang-for-the-buck’ with a comparatively tiny net investment, and demonstrable job creation and renewed confidence would be felt by summer's end.
Reader Comments (5)
Statistics show that 65% of all new businesses that start end up closed within five years. The ones that remain in business are, more often than not, either undercapitalized or in need of further loans and/or financing to survive.
Mr. Gurien rather than post public relations fluff on this board I'd ask you to check your facts about exactly what taxbase and jobs these businesses you speak of do for the local community.
Please also explain on how you arrive at SBA/SCORE is effective at either evaluating business plans or for that matter doing anything even remotely effective in starting a business venture. CIte specific examples including the name of the business and how many jobs were created.
"Statistics show..." Cite them please. "...that 65%..." Cite this also. ',,,end up closed.." Might the individual details of why matter? Please detail this also. "The ones that remain are...undercapitalized..." Perhaps a well-reasoned and vetted business plan, that is revised as circumstances and opportunity change might avoid this? What percentage are in need of further loans "to survive", and which require additional financing to grow? Isn't it rather common that most business (by nature) require growth financing in several rounds as they grow to maturity?
One of SCORE's central missions is to help & advise small businesses and entrepreneurs with the development of viable business plans. Their expertise stems from their volunteers required previous careers as successful business people from a wide range of fields and endeavors.
Mr Connolly, rather than post public relations fluff on this board, I'd ask you to check your facts.
I did check my facts. I also asked you to provide actual information about your claims that small business can be successful in the long run in creating jobs. I also asked you to provide actual evidence that SCORE does anything towards this end.
You didn't do this.
Your post is fluff. Nothing more.
I represented three towns in the NH House. My experiences are real. The retirees at SCORE do nothing but to give bad advise this is followed by a plethora of consultants, bankers and state officials that talk the talk but when it comes time to commit to actual money they're like your post on this board.
Fluff.
My experiences are real also, and I could easily have a chip on my shoulder based on my experiences with state & federal assistance over the last year. I believe I'm more tenacious and resourceful than most small businessmen, and with or without government support, I'll find a way to succeed. So it is not primarilly for myself that I make this proposal.
For what it's worth, I concur with much of your assessment of "consultants, bankers and state officials".
Productive small businesses who've adapted to our 'new economy' need access to venture capital and financing to create permanent jobs and prosperity. My own North County company is a perfect example of that. We cannot trade on past results since these are irrelevant to current conditions. With a re-tooled business plan, proven viable via extensive market-testing in this 'new economy', we lack 'historicals' by definition, and so don't qualify for traditional financing or economic development, which are 'risk-adverse' by nature. And as, e.g., NHSBDC just advised me, angel & venture investors are currently only interested in ventures with high-tech sizzle, not more conventional business models irrespective of potential.
So my suggestion was that with federal funding, our economic development infrastructure cover that venture funding gap since the private sector will not currently do so.
Perhaps SCORE and NH-DRED are not the best vehicles for such a program, but the need, opportunity and benefits are real.
Small businesses that are undercapitalized, poorly market-tested and/or lacking good business plans make up the majority of the faliures within 5 years you've referred to. IMHO, weeding through those to identify the good ones (and helping those with sound ideas to first produce a viable and complete business plan) has the fast-track potential for job creation and general economic productivity.
But hey, what do you suggest?
A great starting place would be to pass over the nomination of Commissioner George Bald. In his place nominate a Commissioner that comes from a corporate background with quality experience in sales and more specifically, a sales environment that was lynch pinned on a turn-around or challenging corporate environment. I think this would be a vast and needed improvement at DRED.
For whatever its worth right now I'm watching the trailer for the new Wall Street II movie that's coming out in April. Looks interesting, Gordon Gecko: "Greed is Good." I rather have a Gordon Gecko as DRED Commissioner than a career bureaucrat that spends his days explaining why things can't be done.
This would be followed by the firing of intrim Economic Development Director Duddy and what I think is the completely useless position of Director of International Commerce, Dawn Wivell.
I'd like to see a restructred DRED working closer with agencies like the Business Finance Authority and even nearby state governments on issues in economic development that face the region.
This would be the starting place for my ideas. And yes, I do have a chip on my shoulder.
A large one.