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The Agenda: Paid Sick Leave Has Some Business Owners Feeling Ill

May 1, 2013 by Leave a Comment
The Agenda

How small-business issues are shaping politics and policy.

When the advocates at Family Forward Oregon sought to muster support among businesses in Portland for a local paid sick leave ordinance, they found a sympathetic ear in Tony Fuentes. Mr. Fuentes and his wife operate Milagros Boutique, which sells cloth diapers and clothing for babies and children on Portland’s northeast side.

“The idea that 80 percent of low-income workers don’t get a minute of protected time was not in line with my view of the country, or of the social compact,” Mr. Fuentes said, who testified in favor of the bill at a council hearing.

But to judge by the efforts of local business organizations in Portland and in New York City, which is poised to pass its own paid sick leave law, as well as from interviews with a handful of businesses, the more common response is hostility, or at least wariness.

Portland’s new law, which passed the City Council in March, follows a template set by a handful of other cities, and Connecticut, in the last seven years. (In Philadelphia, a similar proposal could not overcome a veto by the mayor.) Businesses with at least six employees have to provide one hour of paid sick leave for every 30 hours an employee works, up to 40 hours a year, as well as protect the employee’s job. Companies with five or fewer employees must offer the same amount of unpaid, job-protected time off. An employee must work at least 240 hours before becoming eligible. In Portland, the law takes effect in January.

Mr. Fuentes said that he already offered paid time off to all of his employees (the number fluctuates between five and seven). They can use the time for any purpose, he said, and he has found that offering the time has added just 1 percent to his total labor expense. “The costs are pretty minimal,” he said, “and, talking with other businesses in Portland doing the same thing, our costs are line with theirs.”

Because Mr. Fuentes has a paid time-off policy that is at least as generous as what the city will soon require for sick leave, he will not be affected by the new law. But whether a business owner supports the law does not necessarily turn on how much strain the law will put on the company. Family Forward Oregon also tried to press Lisa Schroeder, owner of Mother’s Bistro and Bar into service for paid sick leave. Ms. Schroeder also offers paid time off and may have seemed a promising candidate to be a public face for the measure, since she is well known for her liberal views on other issues. But Ms. Schroeder demurred.

“I believe in it,” she said. “However, in my business, there’s a lot of ‘brown bottle flu,’ so you have people who call in because they had a rough night the night before.” Ms. Schroeder said she offered paid sick leave in addition to vacation days for employees who are “legitimately sick” — “I have the right to reserve judgment” — and she had hoped the ordinance would require a doctor’s note, but others called that a hardship for employees.

In the end, she said, “I just chose to stay neutral and let the chips fall where they may.”

Debbie Kitchin, a contractor who runs Interworks, a Portland remodeling business, worries about the paperwork associated with the law. Ms. Kitchin provides paid time off for her three full-time workers, but not for her crew of part-timers, which this year has ranged from one to three — she said she wasn’t sure whether the law would require her to offer paid leave. (Lisa Frack, spokeswoman for Family Forward Oregon, said that question would be resolved when the rules to carry out the law are written this summer.)

“For some of our people that we’ve brought in part time, they might work 20 hours one week and four hours the next week,” she said. “And our payroll software doesn’t really track the benefits by cumulative hours. It tracks them by pay period, or by month, which adds to the cost.

“By itself, it’s not the end of the world. But do you know how many other things there are like this? It’s the cumulative effect of all these little things,” she continued. “In my field, there are contractors who not only won’t do this but don’t even pay payroll taxes, liability insurance. They don’t get licensing and bonding. So this is just one more burden to businesses that are trying to follow the rules.”

Ms. Kitchin, who testified against the ordinance in a council hearing, said that next year, she might rely on a staffing agency or have her current employees work longer hours rather than hire additional part-timers, though she acknowledged that both of these alternatives would add to her costs as well.

For businesses like Ms. Kitchin’s, the bill in New York City promises a somewhat lighter touch than the Portland ordinance. Should it become law — it is likely to come up for a vote in two weeks — only businesses with at least 20 employees will be required to offer paid leave when it takes effect in the spring of 2014. A year and a half later, the threshold will drop to 15 employees. Businesses with fewer employees would still have to offer unpaid leave and job protection.

Jason Chung, who owns a Key Food supermarket in Forest Hills, Queens, that employs about 35 people, called the proposal undue interference. “Lawmakers should leave those kinds of things to the business people,” he said. Mr. Chung does not offer paid sick leave or time off now, but, he said: “If somebody’s sick — they have a legitimate excuse, a doctor’s note — oftentimes we give them full pay. So we don’t have to be told to do it.”

When asked if the rule would raise his costs, Mr. Chung, who is considering opening a second store, paused. “Not as much as Obamacare,” he said. “But I know Obamacare will have a big impact on the business.”

Article source: http://boss.blogs.nytimes.com/2013/04/29/paid-sick-leave-has-some-business-owners-feeling-ill/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: Will Higher Taxes Affect Small Businesses? You Tell Us

November 13, 2012 by Leave a Comment
The Agenda

How small-business issues are shaping politics and policy.

President Obama may have won a decisive reelection victory, but it is John Boehner, the Republican speaker of the House, who is making the rounds and claiming a mandate. And everywhere he goes, he’s talking about what would happen to small businesses if the Bush-era tax cuts on the wealthiest Americans are allowed to expire. To ABC News’s Diane Sawyer, Mr. Boehner said, “Raising taxes on small-business people is the wrong prescription given where our economy is.” He told USA Today, “Raising taxes on small businesses will kill jobs in America. It is as simple as that.”

In a statement to reporters the day after the election, Mr. Boehner made what some observers described as a concession: House Republicans would consider new revenue as part of a deal to avert the “fiscal cliff.” But he then explained that the new revenue could not come from higher tax rates. “In the New Testament, a parable is told of two men. One built his house on sand; the other built his house on rock,” he said. “The foundation of our country’s economy — the rock of our economy — has always been small businesses in the private sector. I ran one of those small businesses, and I can tell you: raising small businesses’ taxes means they don’t grow.”

To support the claim, Mr. Boehner turned to the same controversial Ernst Young study on which Mitt Romney relied in the first presidential debate in Denver.

Of course, this view is no less controversial now than it was at the time of that debate. Since the debate, we’ve learned about a September report (pdf) from the nonpartisan, and respected, Congressional Research Service, which surveyed the historical record and found that “the reduction in the top tax rates have had little association with saving, investment, or productivity growth” — but “appear to be associated with the increasing concentration of income at the top of the income distribution.” The Congressional Research Service withdrew the report after Republican senators complained.

Then, last week, a report from the Congressional Budget Office seemed to suggest that raising the tax rates on the wealthiest Americans would have little effect on economic output in the fourth quarter of 2013.* Extending the top tax rates would cost the economy 200,000 jobs, according to the C.B.O., an estimate well below the 700,000 jobs that Ernst Young predicted would be lost. In fact, the C.B.O. figures show that while raising taxes (on everybody) amounts to about two-thirds of the total deficit reduction in 2013, it has a much smaller effect on gross domestic product, the measurement for output. (The C.B.O. report relies in part on economic modeling, much like the Ernst Young study, meaning that the C.B.O.’s assumptions about the relationship between taxes and economic output informed the results.)

And Agenda readers who own small businesses have weighed in as well. Jed Horovitz in New Jersey wrote, “Each year, I decide how much money to re-invest in my company and how much to take out. Because I pay taxes on my profit, I always look for productive ways to invest in my company first. Spending pretax money makes sense. If my taxes were lower, I would take more money out and just put it in the bank.”

Carol Gillen, who described herself as “the wife and bookkeeper of a small-business owner” in New York, said, “Demand drives hiring, not the personal income tax of the owner.”

But The Agenda would like to hear from more business owners. We want to take a close look at how you and your companies would be affected by increasing the top tax rates, including how it might affect hiring and investment plans. It would be an intensive profile — we would want to talk through specifics on revenue, income, taxes and investments. (We have made the same request to the National Federation of Independent Business and the S Corporation Association of America, both of which strongly oppose any income tax increase.)

It’s a lot to ask, we know, but it’s an important issue. If you own such a company and have employees — making you a job-creator — and you’re game, please drop us a line to let us know you’re interested.

*More precisely, the C.B.O. report said that extending all of the Bush tax cuts and fixing the Alternative Minimum Tax so that it does not reach deeper into the middle class would add about 1.4 percent to the nation’s gross domestic product in the fourth quarter of 2013. Meanwhile, fixing the Alternative Minimum Tax and extending all of the Bush tax cuts except for wealthier Americans would add about 1.3 percent to G.D.P., so the additional G.D.P. attributed to extending the tax cuts for the top two tax brackets amounts to one-tenth of 1 percent.

Article source: http://boss.blogs.nytimes.com/2012/11/12/will-higher-taxes-affect-small-businesses-you-tell-us/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: Congress Reaches Deal to Reauthorize and Revamp Small-Business Programs

December 15, 2011 by Leave a Comment

The Agenda

How small-business issues are shaping politics and policy.

The House of Representatives and the Senate have resolved a three-year battle over the future of two important federal initiatives to aid small businesses: the Small Business Innovation Research program and the Small Business Technology Transfer program. On the particulars, the Senate seems to have carried the day, but the House has won long-term changes to the innovation research program that open it up to companies backed by venture capital. In their dispute, the House and Senate have served as proxies for opposing views of the program’s purpose: whether it should funnel funds to small businesses otherwise neglected by the markets, or maximize the return to the economy in job and wealth creation.

The two initiatives are popular programs that steer federal technology research funds to small businesses. The Small Business Innovation Research program directs the 11 government agencies that spend more than $100 million on research grants to set aside 2.5 percent of that pool for companies with fewer than 500 employees. Agencies generally grant up to $100,000 in the early, exploratory stage of a project, and up to $750,000 for a two-year follow-on phase. In 2010, agencies reported that $2.2 billion in the program’s funds went to small firms, according to the Small Business Administration, which oversees the initiative. The technology transfer program requires the five agencies that spend more than $1 billion on outside research to set aside 0.3 percent of their budgets for partnerships between small firms and nonprofit institutions, which amounted to $276 million in 2009.

“The consensus view is that S.B.I.R. is probably the best R.D. program in the federal government,” said Jere Glover, executive director of the Small Business Technology Council, an affiliate of the National Small Business Association. A 2008 study by researchers from the University of California found that S.B.I.R. recipients accounted for between 20 and 25 percent of top American innovations since 1997. (The study was financed by the Information Technology and Innovation Foundation, a Washington-based research group that backs activist innovation policies by government.)

But when the program’s authorization expired in 2008, members of the House Small Business Committee sought to restructure it, making companies that are majority-owned by venture-capital firms eligible to participate as well as increasing the size of the grants. “The reauthorization focuses the program on the best ideas with the greatest chance of success and not a company’s financial structure,” said Rep. Sam Graves, Republican of Missouri and committee chairman, upon the introduction of legislation to change the program earlier this year. “Given the difficulty in acquiring capital to support innovative ideas, we thought the current program was overly restrictive and needed to be changed.”

Senators were not eager to embrace this remaking, but though the disagreement over reauthorizing the programs pit chamber against chamber, this was not a partisan dispute. The most recent House bill, advanced by Republicans, in fact backs away from even more radical changes that were proposed by House Democrats in 2009 and that passed the chamber with broad bipartisan support. The Senate offered an alternative (which passed unanimously) that set aside a small percentage of the innovation research program’s funds for venture-backed companies and scaled back the increase in award sizes, while increasing the size of both programs, something the House opposed. In 2010, the Senate sweetened its offer by making more financing for innovation research available to venture-backed companies.

That was essentially the deal the House accepted this week, as part of the National Defense Authorization Act. Companies in which a group of venture funds owns a majority stake are now eligible to compete for up to 25 percent of the S.B.I.R. funds from the National Institutes of Health, the National Science Foundation, and the Department of Energy, and up to 15 percent from the eight other federal agencies that participate in the program. The ceiling on individual grants in both the innnovation research and the technology transfer programs will increase to $150,000 for projects in the first phase; for second phase grants it will grow to $1 million. And over the next six years — the length of the new authorization — the share of external research funds agencies will have to set aside for S.B.I.R. will grow from 2.5 percent to 3.2 percent. The allocation for the technology transfer program will rise from 0.3 percent to 0.45 percent.

In exchange for having its vision curtailed, the House did win other concessions, said Darrell Jordan, Mr. Graves’s spokesman — for one, companies backed by private equity and hedge funds will also be able to participate in the innovation-research program alongside venture-backed companies.

Mr. Glover’s organization, the Small Business Technology Council, opposed allowing venture financing into the program, but on Tuesday Mr. Glover said he was satisfied with the deal. “We are very pleased to have stability in the program and a long-term understanding of where the program is going over the six years,” he said. “We recognize that in Washington there needs to be compromise to move forward.” Since the S.B.I.R. program lapsed in 2008, it has been renewed with temporary extensions 14 times. The latest temporary extension is set to expire Friday evening.

Still, Mr. Glover wondered whether the presence of venture money might move the program’s focus away from the more conceptual stage of innovation, when an idea is riskiest. “The idea behind the S.B.I.R. program was to fund projects at an earlier stage in the cycle, when they wouldn’t be considered eligible for funding by anybody else,” he said. In the first nine months of 2011, venture capitalists reported directing less than four percent of their total investments to the seed stage of development, according to figures from the National Venture Capital Association.

But in an e-mailed statement, Mr. Jordan disputed Mr. Glover’s characterization of the research program’s goals. “Yes, the S.B.I.R. program is designed to help innovative small businesses get ‘seed funding,’ but it is also focused on the commercial potential of the product,” he said. “And most VC-backed companies have already demonstrated their ability to develop good products, making them a good investment for taxpayers.”

Restructuring the Small Business Innovation Research program is not the only instance of Congress making small-business assistance available to more — and larger — companies. Last year, Congress increased both the loan limit and the size standards for eligibility for Small Business Administration loan programs. In October, S.B.A. officials reported that in a year of record lending, the number of small loans — presumably going to the smallest borrowers — declined.

Article source: http://feeds.nytimes.com/click.phdo?i=f6cb43e208997e9af26e89efc4870473

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: Fraud and Loopholes Deliver Small-Business Contracts to Big Firms

November 2, 2011 by Leave a Comment

The Agenda

How small-business issues are shaping politics and policy.

It’s been a busy season for combating fraud in government contracts for small business, for prosecutors enforcing the law as well as the legislators trying to improve it. But for both, it appears to be an uphill battle.

In June, the federal government charged two men with creating a fake small business to win a $100 million Defense Department contract. Two months later, a businessman pleaded guilty to obtaining to false citizenship papers, which he used to get a security clearance from the Department of Defense so that he could receive preferential small-business contracts.

In October, one man pleaded guilty to a scheme in which he and a partner vouched for the small-business status of each other’s company. That, in turn, led the Justice Department to uncover an alleged ring of bribery and kickbacks centered at Eyak Technology, or EyakTek, nominally a small business based in Virginia with a $1 billion contract to provide information and security technology to government agencies. An indictment announced on Oct. 4 claims that the company’s contracting director conspired with officials in the Army Corps of Engineers to steer federal purchases to an unnamed subcontractor. That subcontractor then inflated its bills — by $20 million, according to the indictment — and used part of the proceeds to pay off the Eyak and Army Corps officials.

The federal government is the world’s largest buyer of goods and service, and it is supposed to make sure that 23 percent of those purchases go to small businesses. In the case of economically disadvantaged businesses, government agencies can often set aside contracts and award them without putting them up for a competitive bid. The government perennially misses those goals, but most observers believe that the amount of small-business contracts the government does report masks a share that have in fact been diverted to larger companies. Fraud is an important, though unquantified, culprit.

Observers say government officials in charge of procurement are often too busy to look closely at a company’s small-business credentials. But the Small Business Administration’s inspector general, Peggy E. Gustafson, testifying in a Congressional hearing last week, said that her agency often did not effectively oversee the contracting programs and did not aggressively pursue companies that misrepresented themselves as small. The S.B.A., Ms. Gustafson said in her prepared statement, “needs to change its culture so that employees understand that their mission includes not only assisting small businesses but also ensuring accountability and integrity to prevent fraudulent and improper actions from depriving procurement opportunities for legitimate firms.”

Ms. Gustafson also said that despite the recent legal victories, seeking justice in a courtroom was difficult because a company that fraudulently identifies itself as small in order to win a federal contract usually fulfills the contract. “Without an associated and definable loss to the government, criminal prosecutors are sometimes reluctant to pursue action against these companies, or if they do pursue them, may only be able to obtain limited sentences,” she said.

That is not the case in the EyakTek case, where the government allegedly paid for the conspirators’ BMWs, first-class airfares and Cartier watches. But while the company itself was not implicated in wrongdoing — charges were only brought against its head of contracting — the allegations surrounding EyakTek raised other troubling questions about small-business contracting, because the company had a legally sanctioned leg up in the competition for small-business contracts. Eyak is what’s known as an Alaska Native Corporation, and with that designation, it is able to compete for contracts set aside for companies that participate in the S.B.A.’s 8(a) program. This is a program intended to help small, disadvantaged businesses — particularly those owned by minorities — by providing business training coupled with opportunities for no-bid contracts set aside just for them.

In the 1970s, Congress made Alaska Native Corporations a special class of 8(a) business. Unlike most businesses in the program, the Alaskan companies are not subject to a limit to the size of a no-bid contract. And while a typical 8(a) business must be managed by someone who meets the program’s definition of disadvantaged, that’s not the case with Alaska Native Corporations, which  tend to recruit executives with broad and deep ties across government agencies and pay handsomely for their experience.

These features have made Alaska Native Corporations very popular with government bureaucrats because they offer an easy way to meet small-business quotas. In 2009, according to the S.B.A.’s inspector general, Alaskan firms took in 26 percent of total 8(a) contract dollars. EyakTek and other subsidiaries of the Eyak Corporation together took in at least $338 million, according to a search of the federal contracting records performed by the American Small Business League, which lobbies for integrity in small-business contracting. (If a native company gets too big to participate in the program, the parent corporation can simply create a new company — another advantage not afforded other program participants.)

Any effort to change the rules for Alaskan companies is likely to meet stiff resistance in Congress. (Alaska’s representative, Don Young, is the second-ranked Republican in the House in terms of seniority and the sixth most senior of all representatives.)

Surprisingly, even trying to pass legislation to curb fraud is more difficult than one might expect. In her testimony, Ms. Gustafson proposed measures to make it easier to prosecute fraud and stiffen penalties for conviction, in part by defining a loss to the government as equal to the size of the contract.

A bill containing these provisions has passed the Senate, but Rep. Sam Graves, the chairman of the House Small Business Committee, faulted the Senate bill for, among other things, not including an exemption for honest errors. “The small-business affiliation rules are complex and are not intuitive, so I’m hesitant to potentially trigger jail time for companies that make a mistake,” he said in an interview with VetLikeMe, a newsletter for business owners who are wounded veterans, “although I agree that we need to more vigorously enforce the certification rules.” The House has not yet taken up the Senate bill.

Mr. Graves also expressed skepticism about a separate House bill, introduced last month, that would exclude the subsidiaries of publicly traded companies from the definition of a small-business contractor. The law already requires that recipients of small-business contracts must be independently owned and operated, but a American Small Business League spokesman, Brian Reeder, said a clarification was necessary. “Common sense says that independently owned means not publicly traded,” he said, “yet publicly traded companies and their subsidiaries receive contracts that government agencies put towards their small business goals.”

The bill was introduced by Rep. Hank Johnson, a Georgia Democrat, with support from 16 other Democrats. No Republicans sponsored the legislation, and Mr. Graves, the Small Business Committee chairman, opposes the bill “because it places further restrictions on how a small business can be organized and the source of its investment,” said a spokesman, Darrell Jordan. “At a time of record unemployment, Chairman Graves wants to support measures that help small businesses grow.”

Opposition to Mr. Johnson’s measure isn’t strictly partisan. The Georgia congressman introduced an identical bill last year, while Democrats were in charge. It died in committee.

Article source: http://feeds.nytimes.com/click.phdo?i=76f36b6cf33087176ebd9bce5c8eb29a

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: Confused, a Family Business Turns to a Coach

October 7, 2011 by Leave a Comment

Courtesy of BariJay.Susan Parker (left) and Erica Rosenfeld: “Nobody knew what to do.”

She Owns It

Portraits of women entrepreneurs.

Susan Parker and Erica Rosenfeld, who are sisters, have run BariJay together since 2008. But during the last meeting of our business group, Ms. Parker said they have only recently settled into clearly defined roles that allow them to work together happily and effectively at their company, which manufactures bridesmaid and prom dresses. In the beginning Ms. Parker said, “It was kind of a free-for-all and nobody knew what to do.”

With an M.B.A. in finance, Ms. Parker immediately gravitated toward BariJay’s books. Ms. Rosenfeld, who has a background in publicity, took on advertising and marketing. But there were plenty of responsibilities left, including production. Ms. Parker said she tended to fill the void. “I wanted to learn production and was excited about it,” she said. With responsibility for finance and production, key aspects of the business that played into her background, Ms. Parker said she sometimes felt she was taking on too much.

The lack of clarity also caused confusion. “You didn’t know who was supposed to do what, and you never knew when you were stepping on someone’s toes,” said Ms. Parker. “I’d have a meeting with someone and my sister would say, ‘Why didn’t you tell me about it?’”

As the sisters struggled to define their business roles, the chaos began to affect their personal relationship. Finally, about four months ago, they decided to hire a business coach. Ms. Parker got the idea from the members of her Entrepreneurs’ Organization forum, a group of owners that meet monthly to discuss business issues. By the end of their first day-long session with the coach, each sister had a clearly defined role that took advantage of her skills and interests. Ms. Parker handles finance and production. Ms. Rosenfeld handles advertising, marketing, and sales. “Design was a little tricky,” said Ms. Parker. Ultimately, because the dresses must be designed in a way the company can produce, that function went to Ms. Parker.

“We got big lessons on the difference between accountability and responsibility,” said Ms. Parker. “We realized that if I’m accountable as the head of the company, it doesn’t mean that Erica doesn’t have her responsibilities, and that if we make her accountable for sales, it doesn’t mean that I don’t have mine,” she said.

Working with the coach was a great experience for both sisters, said Ms. Parker. In addition to helping them define their roles, he convinced them to create BariJay’s first business plan. Garment center businesses are run “old school, by the seat of your pants,” said Ms. Parker. When her father ran the business, BariJay had no formal policies or standards. She said she and her sister are working to change that.

The coach also emphasized the importance of daily “huddles,” said Ms. Parker. During these five- to 10-minute morning check-ins, the sisters meet with their assistant designer, a sales liaison, and the heads of production, bookkeeping and customer service. Each person has a minute to describe their biggest accomplishment from the previous day, their most important goal for the current day, and any issue that might require someone’s help.

These three points were carefully chosen to prevent participants from focusing on minutiae. “I don’t want to know every little thing they did,” said Ms. Parker. So the emphasis is on accomplishments, not tasks. Ms. Parker said she has been amazed by the level of teamwork these meetings have facilitated. Now, instead of operating individually, departments are making important connections. Over all, said Ms. Parker, the changes suggested by the business coach have made BariJay more proactive.

Have you had a good — or bad — experience with a business coach? Do you have thoughts on the best way to find one?

You can follow Adriana Gardella on Twitter.

Article source: http://feeds.nytimes.com/click.phdo?i=94600561811772bdfabfe760969ad6ed

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: S.B.A.-Backed Lending Set a Record in 2011

October 6, 2011 by Leave a Comment

The Agenda

How small-business issues are shaping politics and policy.

The Small Business Administration did record business in 2011, guaranteeing more money in loans to small companies than in any year in its history. But the very smallest businesses, seeking the smallest loans, had more trouble getting an S.B.A. guarantee than in 2010.

In all, by the end of the S.B.A.’s fiscal year, on September 30th, gross loan approvals reached $19.6 billion in the agency’s general business, or 7(a), loan program and $4.8 billion in capital investment loans issued in what’s known as the 504 program. In just the first quarter of the year (the last three months of calendar year 2010), the agency approved $9 billion in 7(a) loans, nearly as much as it had approved in all of 2009. Gross loan approvals, which reflects totals before canceled loans are subtracted, is how the agency commonly reports its lending statistics.

After accounting for the portion of 504 loans not guaranteed by the government, the agency said it had supported $30.5 billion worth of small-business borrowing in 2011, surpassing the record set in 2007 of $28.5 billion. The total is 35 percent more than the figure for 2010, when loans with S.B.A.-backing totaled $22.6 billion.

“We are back at the weekly S.B.A. loan levels we saw before the recession hit,” said S.B.A. Administrator Karen Mills, in a conference call with reporters, “even without the special provisions that helped us fill the gap in these past few years.”

Ms. Mills was referring to stimulus provisions that increased the guarantee on regular 7(a) loans from 75 percent to 90 percent and slashed fees in both loan programs and which undoubtedly buoyed lending in the first quarter. Those provisions expired in May 2010, and Congress did not renew them until September, when it passed the small-business jobs bill — but even then, it extended the more generous terms only through the end of December. Industry observers say that both pent-up demand from the summer and fear that the provisions would not be renewed again drove much of the lending early in the fiscal year.

The S.B.A. tracks its lending across different types of loans as well as to different types of borrowers, and most of these groups showed some increase over 2010. But one case is a conspicuous exception: the number of 7(a) loans of $150,000 or less actually fell by about 13 percent. Meanwhile, the total amount borrowed with these smaller loans fell by less than 2 percent — meaning that even the smallest loans are getting bigger. In fact, across all traditional 7(a) loans (excluding smaller Express loans), the average loan size nearly doubled, to $624,000.

Last year’s small-business jobs bill raised the maximum loan available under several different S.B.A. programs — in the 7(a) program, the limit went from $2 million to $5 million — and also allowed bigger businesses to participate in the program. It would make sense, then, that smaller borrowers might get squeezed — with bigger loans, banks make more money for the same amount of work. And institutions set goals among different types of lending by total loan volume, not the total number of loans.

Ms. Mills suggested in the conference call that the higher loan limits did not really affect the average loan size. Instead, she said, “the bulk of the increase came in the midsection, actually, in the $350,000 to $1 million loan size,” and added that the agency is studying the data to account for this increase. She did not address whether larger companies were taking advantage of the program. But, she acknowledged, “one of the gaps we are concerned about is the lack of loans in the smallest dollar level.”

Incidentally, the S.B.A. nearly exhausted its legal authority to guarantee loans before the fiscal year ended. Each year, Congress authorizes a maximum amount of lending; in 2011, the cap on 7(a) loans was $17.5 billion. At about 5 p.m. Eastern time on September 30th, agency officials concluded they were too near the cap to continue financing loans. According to a spokeswoman, Hayley Meadvin, 44 loans that had been submitted by banks on Friday for final approval were held over the weekend until Monday morning — and fiscal year 2012 — before they were finally financed. In the end, the agency approved $17.4 billion in guarantees (after subtracting canceled loans from the gross total).

The authorization limit set by law is usually theoretical — lending had never before come close to the cap, according to agency officials and industry watchers. Separately, Congress typically appropriates some money to help subsidize the loans, which are mostly paid for by borrower and lender fees. This constitutes a more concrete limit on lending; but while the agency has occasionally run out of subsidy and had to stop making loans, that did not happen this year. However, if current trends continue, it could happen this fiscal year. For 2012, the Obama administration proposed reducing the subsidy appropriation to $16.5 billion, in an effort to cut $11 million from the agency’s budget.

In the conference call, Ms. Mills said the administration had no plans to revisit the subsidy limit. “We believe that looking at the loan volumes that we have, that this is the right number to have as our limit,” she said. “You don’t want to ask for more than you can actually use, because you want to use all taxpayers’ dollars as effectively as possible.”

Article source: http://feeds.nytimes.com/click.phdo?i=50f32a40144af8cbc9ffc95bbf0dd82f

Filed Under: Small Business Tagged With: ,

You’re the Boss Blog: Will Obama ‘QuickPay’ Policy Mean Billions to Small Businesses?

September 16, 2011 by Leave a Comment

The Agenda

How small-business issues are shaping politics and policy.

On Wednesday, the White House made good on President Obama’s pledge, in his jobs speech to Congress last week, to speed up government payments to small-business contractors. The new policy, which has its own product-like branding, QuickPay, reduces the government’s payment time from 30 days after receiving an invoice to 15 days. In a statement, Karen Mills, Small Business Administration administrator, lauded the new policy: “QuickPay is a smart and powerful boost that effectively delivers billions more dollars into the hands of small contractors so that they can do what they do best — create jobs.”

Really? Billions more dollars? The Agenda thought an elaboration might be in order here, so we called Joe Jordan, the S.B.A.’s associate administrator for government contracting and business development.

The billions more dollars, he said, represent the interest saved on the cost of financing the goods and services produced for the government. Many businesses — perhaps most — do not finance their production or inventory out of earnings but rather by borrowing against lines of credit or taking out other loans. Even those that do rely on earnings then have an opportunity cost. “By cutting the receivables time in half, you’re reducing the negative float — it’s the financing cost of the good or service they just sold to the government,” Mr. Jordan said.

Small-business contracts officially totaled about $98 billion in 2010, so the financing cost that will be saved by halving payment time is some small percentage of that. “We don’t have a hard number, but it’s billions,” Mr. Jordan said. “But it’s single-digit billions.” For businesses with large contracts, in the range of $100 million, Mr. Jordan said the reduction in negative float could make a real difference in freeing up money for investments. “There are certain break-even points where the math definitely works on hiring new workers because of the savings.” Mr. Jordan, though, could not say immediately how many small businesses receive $100 million contracts.

There are other benefits, too, he added. Faster payment lessens the uncertainty in making those investments and reduces the transaction costs associated with financing production — the time spent tapping credit lines or paying them down.

So there you go.

QuickPay applies only to officially designated small-business contractors, not the behemoth corporations that do much government work. And the policy covers only prime contractors, those companies that deal directly with the government. But many small businesses also serve as subcontractors to other prime contractors, and Mr. Jordan acknowledged that subcontractors often have to wait to be paid for their work. (In fact, according to Washington Monthly, some major corporations have, as a matter of policy, extended payment times to small vendors to 60 or even 120 days.) Mr. Jordan said the administration had taken up the issue, but added in a subsequent e-mail that “expanding this to subcontractors is still an open question.”

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