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You’re the Boss Blog: This Week in Small Business: Analytics and Hashtags

June 17, 2013 by Leave a Comment
Dashboard

A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.

Must-Reads

Kevin Colleran discusses the troubles of raising an entrepreneur. Cullen Roche says these are the three worst financial predictions from the past five years, and David Rotman explains how technology is destroying jobs.

Economy: Is Bernanke the Best?

The government’s finances continue to get better, Standard Poor’s upgrades its outlook for government debt, but the United States hits the debt ceiling anyway. Housing gains may be setting off an uneven small-business recovery. Dan Ritter lists four reasons that the Federal Reserve chairman, Ben S. Bernanke, may be the world’s best central banker. Mortgage applications increase and mortgage rates are the highest since March 2012. Retail sales (pdf) also increase. But machine tool orders drop, the Aruoba-Diebold-Scotti Business Conditions Index continues to show worse-than-average conditions, and there were still 3.8 million job openings on the last business day of April (little changed from 3.9 million in March). Robert Reich wants a national economic strategy for better jobs.

Small Business Week: The Complete Schedule

Here’s the Small Business Administration’s complete schedule for Small Business Week. ADP will be a co-sponsor of some events and contribute to panel discussions on the new health care law. The UPS Store is also showing the love. The National Federation of Independent Business reports a rise in small-business confidence, and another survey says three of four small-business owners expect revenues to increase in the next year. But a Pew study shows that 70 percent of small-business owners see threats to their businesses and the economy from the lack of retirement security. The Hartford finds small-business owners are playing it safer.

Social Media: Analytics and Hashtags

Twitter opens up its Tweet analytics to everyone, free, and joins with JPMorgan Chase to encourage small businesses to advertise more. Facebook promises a more simplified advertising experience and introduces hashtags. A tanning salon’s text-messaging campaign generates $196,000 in its first 30 days. Will Oremus says people trust the National Security Agency more than they trust Facebook. This is everything you need to know to sell your stuff on Facebook, and Kim Stiglitz lists five Facebook metrics you should be watching. An entrepreneur sells his @AMD Twitter handle to Advanced Micro Devices for a charitable sum, and Hillary finally sends a tweet. Kelly Clay says that gaming LinkedIn is surprisingly easy (and John Sculley doesn’t really want to be your friend). This is how social media changes everything, and here are seven social networks to keep an eye on. This infographic reveals the best (and worst) times to post to social media.

Marketing: Old Spock vs. New Spock

A book from the founder of FreshBooks explains how to charge what you’re worth. A car commercial pits old Spock versus new Spock. David Daniels and Mike Hillyer share six secrets of successful e-mail senders. Amanda MacArthur suggests big ideas for small businesses that want to make their customers feel special, and Shep Hyken wants you to ask yourself: “Is what I’m doing right now going to get the customer to come back the next time he or she needs whatever it is that I sell?” This is what it takes to develop a brand, from conception to introduction.

Cash Flow: One Way to Save Money

The Initiative for a Competitive Inner City is looking for inner city companies that need growth capital. These four companies are helping small businesses navigate the perils of shipping. A keyboard snooze turns into a huge bank error, and an entrepreneur saves money by moving to the woods.

People: What Makes Employees Stick Around

New technologies will help improve work force management, enable you to better track remote employees and use “telepresence” so that even workers out of the office can roam around the office. Some companies let employees buy extra time off or sell unused vacation time for cash. More employees are standing up for their workplace health while others learn a few lessons from the military. Laura Walter suggests 15 ways to create a happier work environment. This company can explain what makes employees stick around. This is how a 28-year-old got her job with Warren Buffett. Sixty thousand people sing “Bohemian Rhapsody.” Here are three of the most common time wasters at work, and Paula Davis-Laack says life is too short to tolerate these 10 things. Here are the best 17 pieces of advice you’ll ever hear.

Start-Up: Exploding in St. Louis

A start-up that makes it easy for developers to add telephone calls and texting to Web sites and mobile apps wins a $70 million investment, and another start-up that brings Big Data to college search raises $4 million. A New York start-up tries to mobilize every small- and medium-size business in America. Colorado introduces a start-up every 72 hours, St. Louis’s tech start-up scene is exploding, and cities around the country hunt for the same magic. Alex Payne, formerly of Twitter, cautions young programmers who are considering careers in start-ups. Ellie Cachette has advice for start-ups that don’t fail but don’t succeed.

Management: What Jelly Can Do for You

Marina Krakovsky says one thing makes a company last forever. A June webinar will help you prevent manufacturing downtime. Tim Berry explains why decision-making is easier than decision-doing. Lajos Moczar says agile methodology promises many things, but the reality is often very far from the expectations. Some experts say information technology departments won’t exist in five years. If you work from home, you may want to try Jelly. Barbara Austin explains how to rise above the pack (without biting or clawing). This is how to be a team leader in a small business. Alexandra Franzen gives a backstage tour of her business, and a dog-groomer in Illinois explains how her business works.

Retail: Who Killed the Cash Register?

David Lipson has a few tips for cutting expenses in your restaurant. A restaurant uses a mini-helicopter to deliver food to tables. This is why millionaires shop at Wal-Mart in Canada. Here’s how small retailers can build a powerful, budget-friendly surveillance system. Two detectives want to find out who killed the cash register. Chris Petersen wonders if retailers should replace the four P’s with the four C’s. Microsoft will open stores in Best Buy locations.

Around the Country: A Black Market in Cronuts

Small businesses may be over the economic hump in Florida. An ADP regional employment report shows that the South Atlantic, West South Central and Pacific regions generated more than half of all new private sector jobs in May. A survey concludes small businesses are exporting more. Sam’s Club introduces a 25-city small-business “boot camp” series. Miami is the most “underbanked” city in the country. A black market in cronuts has appeared in New York City, and the city’s government has proposed a polystyrene ban. Entrepreneurs are celebrated in Louisiana. And here are five maps that show how divided America really is.

Around the World: Starting Up in Moscow

In Britain, a young entrepreneur organizes her town’s farmers’ market. British workers over the age of 65 reach a record one million. The nation’s industrial output increases, and some officials hope the royal infant helps the economy. China’s economy stumbled in May. More than 3,500 participants, including entrepreneurs, investors, business people, I.B.M. employees and Dmitri Medvedev, attended a start-up conference in Moscow. Niraj Choksi believes the biggest threat to the global economy could come from outer space. American shale resources have added 47 percent to global gas reserves.

Red Tape: No Light Sabers

The Internet’s big names battle to salvage their reputations after recent revelations about the National Security Agency (the story is better when told through these classic children’s books). The federal income tax quietly turns 100. Ed McCarthy lists 10 steps to avoid estate-planning mistakes. The Transportation Security Administration tries to take away Chewbacca’s light saber. The American Institute of Certified Public Accountants announces a new financial reporting framework for small- and midsize entities. The Senate approves a five-year farm bill that would cut $24 billion from farm spending over 10 years, including a $4 billion reduction in food stamps. House Republicans have their eyes on a JOBS Act 2.0. And guess what: when businesses give judges money, the businesses usually get the rulings they want.

Ideas: The RoboRoach

A Kickstarter project promises a remote control to control live insects (the RoboRoach). A new door seal will keep conference rooms from becoming stuffy. Google reveals 90 regional finalists for its science fair. A report highlights growing opportunities in green markets. This is how Japan’s underground bike parking systems work.

Technology: Low-Tech Solutions

Apple unveils upgrades but some third-party developers say the company “ripped them off” with iOS 7. Hewlett-Packard introduces tech tools and a one-stop shop solution for small businesses. A Microsoft survey finds that once small businesses use the cloud, they consider it more secure than their own premises. Some believe Amazon will seize 3-D printing. Half of American homes own a tablet. An old-fashioned business copes with modern tech issues, and here are eight low-tech solutions for high-tech problems.

Tweet of the Week

@Hyken Employee engagement is real. And, it impacts the bottom line and customer service/experience.

The Week’s Best Quote:

Nate Kontny, an entrepreneur, discusses the importance of luck in his success: “I got lucky a writer with a lot of clout took interest in my project — interest that started because he once worked on a similar project seven years prior, so he understood the challenges I was addressing. … And I’m insanely lucky to have parents who taught me to persevere when I fell on my face. I’ve done that a lot getting here. But see, that’s the thing about luck. It has a funny way of showing up, when you keep showing up.”

This Week’s Question: Do you think the cloud is more secure than your own environment?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/06/17/this-week-in-small-business-analytics-and-hashtags/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: Do Romney’s Budget Pledges Threaten S.B.A. Loans?

September 13, 2012 by Leave a Comment

The Agenda

How small-business issues are shaping politics and policy.

Should Mitt Romney become president next year, he will face a difficult question pitting his eagerness to help small businesses against his eagerness to shrink the government: What to do with the Small Business Administration?

Since taking office in 2009, President Obama is on track to nearly double the S.B.A.’s budget. But apart from a burst of stimulus spending in 2009 and 2010 to increase lending temporarily, the infusion has not expanded the S.B.A.’s reach — it has merely allowed the agency to maintain its existing loan volume. Much of the S.B.A.’s mission is to guarantee loans to small companies that banks would otherwise not make, and steep cuts would likely force the agency to turn away borrowers.

While Mr. Romney’s campaign has been short on specifics about how it plans to achieve a “smaller, simpler, smarter” federal government, it does make two promises on its Web site that could affect the S.B.A.:

• Send Congress a bill on Day One that cuts nonsecurity discretionary spending by 5 percent across the board
• Pass the House Republican Budget proposal, rolling back President Obama’s government expansion by capping nonsecurity discretionary spending below 2008 levels

Either proposal could make it harder for small-business borrowers to receive government-backed loans, because federal law requires the government to set aside money to cover the cost of loans that it estimates will go bad, and the recession has driven those costs up by making small-business loans much riskier. Before the recession, fees on borrowers and lenders paid for the cost of loan defaults, but those fees have reached a cap set by law and can’t be increased unless Congress changes the law. Instead, since 2010, Congress has appropriated a subsidy to make up for the difference between the fees received and the allocation for defaults.

Largely because of the subsidy, the S.B.A.’s appropriation for small-business programs (that is, excluding funds for disaster loans, which the S.B.A. also administers) in 2013 will likely approach $1 billion, nearly double the appropriation in 2008. Loan subsidies for the agency’s two main loan programs, which cost taxpayers nothing in 2008, will grow to somewhere around $340 million, enough to support $22 billion in financing.

There is a fairly direct correlation between the size of the subsidy and the amount of lending — if the subsidy shrinks by 5 percent, lending will fall by roughly the same amount. That said, estimating the effects of Mr. Romney’s proposed 5 percent cut is a little complicated, if only because it is unclear what the starting point for the cut would be. Is it the president’s proposed budget for 2013? Is it the actual appropriation for 2012? Is it something else? (The Romney campaign declined to clarify.)

Taking 5 percent off what the Obama administration has proposed — and the House and Senate have largely accepted — for the S.B.A. in fiscal year 2013 would probably amount to a modest cut, but could still shut out some borrowers unless the agency is able to move some money around. If, on the other hand, Mr. Romney chooses to cut 5 percent from the 2012 budget, S.B.A. lending could be decimated. According to an Obama administration budget analyst who ran the numbers — but insisted on anonymity — the agency would be reduced to guaranteeing just $13.3 billion in loans in 2013. That is a third less than the $19.4 billion it has approved so far this year.

And slashing spending to below the level in 2008, when there were no subsidies, could effectively end S.B.A. lending. In the current economic environment, the loan programs cannot legally operate without a subsidy appropriated by Congress. (The S.B.A. will likely have some subsidy funds leftover at the end of 2012 that it can use next year, but once that money is spent, it will need a new appropriation to continue making loans.)

There appears to be little enthusiasm in Congress for raising those fees to substitute for the subsidy. In a budget letter this year, Republicans on the House Small Business Committee opposed both raising loan fees and cutting subsidies. The House, in its appropriation bill for 2013, actually passed a subsidy that was even larger than the president requested to support more loans.

But in an e-mail statement, Representative Sam Graves, the committee chairman, supported a 5 percent budget cut for the S.B.A. — even from the agency’s actual 2012 appropriation. “Our massive debt is acting as an ominous cloud over our economy, therefore, cutting the federal budget is necessary to help provide a better economic environment for small-business growth,” he said. “We can cut a lot of fat in every agency, including the S.B.A. There are some core programs that are useful, but there’s no question that there’s 5 percent of waste in agencies and numerous duplicative programs with little to show for the taxpayers’ generous investment.”

The Agenda sought the Romney campaign’s comment on the squeeze the S.B.A. might face and more generally on the agency’s place in Mr. Romney’s small-business agenda. The response from a campaign spokeswoman, Amanda Henneberg, didn’t mention the S.B.A. “Governor Romney has proposed bold policies that champion small business and support the economic growth needed to help create 12 million jobs in his first term,” Ms. Henneberg said in an e-mailed statement. “Chief among these policy proposals is reducing taxes on job creation through individual and corporate tax reform, stopping the increase in regulation that tangles job creators in red tape, and replacing Obamacare with real health care reform that controls cost and improves care.”

The S.B.A. also went unmentioned at the Republican convention two weeks ago, which dedicated an entire night to the theme of “We Built It” — a dig at President Obama’s “you didn’t build that” moment in July. But even so, the choice of speakers that evening illustrated the agency’s importance, perhaps unintentionally. Three of the four small-business owners who proclaimed on the dais that night that they built their businesses themselves have borrowed money with guarantees from the S.B.A. And the fourth sought business counseling from a small-business development center and a women’s business center — both organizations that are supported by grants from the S.B.A. and that might see less funding if Mr. Romney wins and follows through on his campaign pledges.

Article source: http://boss.blogs.nytimes.com/2012/09/13/do-romneys-budget-pledges-threaten-s-b-a-loans/?partner=rss&emc=rss

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Economix Blog: Bruce Bartlett: The Pros and Cons of Obama’s Reorganization Plan

January 17, 2012 by Leave a Comment

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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of the forthcoming book “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

On Friday, President Obama announced plans to consolidate a number of federal agencies related to business and trade into a single agency in order to improve efficiency and the international competitiveness of American companies.

Today’s Economist

Perspectives from expert contributors.

The agencies to be combined are the Department of Commerce, the Small Business Administration, the Export-Import Bank, the Overseas Private Investment Corporation, the Trade and Development Agency, and the Office of the Trade Representative. A 2010 report from the Congressional Research Service provides a good overview of the functions of these organizations.

This is not a new idea. In 1983, President Reagan asked Congress for a similar reorganization. According to a New York Times article, the purpose of the new agency was to create an American version of Japan’s powerful Ministry of International Trade and Industry.

At the time, Japan was widely viewed the same way China is today: as our greatest economic competitor and potentially a national security threat as well. Books like “MITI and the Japanese Miracle” (1982) by Chalmers Johnson were widely read. They glorified Japan’s “industrial policy” and praised its bureaucrats for vision and skill in using a combination of trade restrictions, targeted subsidies and regulatory policy to create an economic juggernaut.

While not seeking to emulate MITI’s heavy-handed command and control of private industry, American officials did see international trade, especially export prowess, as a key to economic prosperity and national power.

If it took selective trade restrictions on strategic goods like computer chips or subsidies to domestic manufacturers, then that’s what it took to maintain American supremacy in a world in which nuclear weapons counted for less and trade deficits were a sign of weakness.

Economists were less impressed by MITI than political scientists such as Dr. Johnson. The economists thought that Japan’s economic success lay mainly in its excellent tax and budget policies – which actually had their roots in the American occupation after World War II when Gen. Douglas MacArthur had the Columbia University economist Carl Shoup study the Japanese tax system and write a report whose recommendations were largely implemented.

Japan also had a highly competitive domestic market, a high savings rate and strong productivity growth.

These macroeconomic factors were far more important to Japan’s postwar economic success than anything MITI accomplished, the economists asserted.

In the late 1980s, cracks in MITI’s facade of invincibility were evident. By the early 1990s, high-profile MITI initiatives in advanced computers and nuclear power were widely viewed as failures.

Economists began increasingly to view MITI as a hindrance to growth. Books like “Divided Sun: MITI and the Breakdown of Japanese High-Tech Industrial Policy, 1975-1993” (1995) by Scott Callon reflected the growing consensus, as did the 1996 article by the economists Richard Beason and David Weinstein in the Review of Economics and Statistics.

By 2001, the Japanese government accepted the MITI critique and effectively abolished it, folding it into the Ministry of Economy, Trade and Industry. A 2002 study published by the Ministry of Finance concluded, “The Japanese model was not the source of Japanese competiveness, but the cause of our failure.”

Economists now discourage developing nations from adopting Japanese-style industrial policies.

Nevertheless, the Obama administration appears enamored with exactly the sort of industrial policy that Japan rejected. Last year, the president promised to double exports over five years, a goal most economists considered fanciful; has promoted “Buy America” requirements that have roiled trade relations with Canada, the United States’ largest trading partner; and often extols the special virtues of manufacturing companies, proposing more special tax breaks for them just last week.

One provision of Mr. Obama’s reorganization plan that is of particular concern to free traders is folding the Office of the Trade Representative into the Commerce Department.

I know from personal experience at the Treasury Department that in internal administration discussions of trade policy the various agencies are expected to play certain roles. Commerce always defends whatever business wants because that’s its job. The Council of Economic Advisers always takes the principled free trade position, and so on.

At the end, the Office of the Trade Representative is the “honest broker,” a role that would be impossible for it to play as part of the parochial Commerce Department. The Office of the Trade Representative’s ability to fulfill this function is now assured by its position as part of the executive office of the president. This allows it to take the broad view of what is in the best interest of the country as a whole and bargain with our trading partners in good faith.

To effectively abolish the Office of the Trade Representative is a dreadful idea. It is a small agency; there are no efficiency gains to be realized by making it another bureau within Commerce. And no matter what promises are made to guarantee its independence, placing the Office of the Trade Representative within Commerce will inevitably politicize the office.

It’s easier to defend the transfer of other agencies like S.B.A. into a revamped Commerce Department. There’s no evidence that S.B.A. does much of anything to promote small businesses. Its independent status has made it easier for those that benefit from its programs to essentially capture it and use it to channel funds to favored constituencies.

Conservative groups like the Heritage Foundation have for years called for S.B.A. to be abolished.

The Obama proposal may just be an election year ploy so that he can continue to say that he will create two million jobs through exports. It may also be designed to force Congressional Republicans to choose between their professed love of small businesses and the ineffectiveness and waste of the S.B.A.

But the Obama proposal may also indicate a commitment to discredited industrial policies and a subordination of trade policy to political interests.

Article source: http://feeds.nytimes.com/click.phdo?i=ac42d2895e804b4c98a718ea37c5cb80

Filed Under: Economy News Tagged With: , ,

Obama to Ask Congress for Power to Merge Agencies

January 13, 2012 by Leave a Comment

Mr. Obama called on lawmakers to grant him broad new authority to propose mergers of government agencies, which the Congress would have to approve or reject in an up-or-down vote.

The president, announcing the plan at the White House, said he would begin his pruning exercise by folding the Small Business Administration and five other agencies involved in trade and business, into a single agency that would replace the Commerce Department.

The White House said the consolidation would save $3 billion over 10 years and result in the elimination of 1,000 to 2,000 jobs, though he said those reductions would occur through attrition rather than layoffs.

“From the moment I got here, I saw up close what many of you know to be true: the government we have is not the government we need,” Mr. Obama told an audience of small business owners.

It is not clear whether Congress, which has blocked the bulk of Mr. Obama’s legislative agenda, will go along with the initiative. White House officials said that no president since Ronald Reagan has had the so-called “consolidation authority” Mr. Obama is seeking.

Republicans were immediately skeptical. They suggested that the White House was more interested in honing its re-election message than in reducing the size of government.

“Yesterday, President Obama asked for a $1.2 trillion increase in the debt limit, today he is proposing to shrink the federal government,” said Senator John Cornyn, Republican of Texas. “Unfortunately, President Obama does not have much of a record to back up his newfound, election-year enthusiasm for limited government.”

A spokesman for House Speaker John A. Boehner said that Republicans would take a look at the plan.

“We hope the president isn’t simply proposing new packaging for the same burdensome approach,” said the spokesman, Brendan Buck. “However, eliminating duplicative programs and making the federal government more simple, streamlined, and business-friendly is always an idea worth exploring. We look forward to hearing more about his proposal.”

By putting the onus for streamlining government on Congress, however, Mr. Obama was seizing a core issue of Republican presidential candidates like Mitt Romney — the inexorable growth of the federal government — and trying to turn it to his own political advantage.

It was the latest sally by the president, who has gone on the offensive against Congress as he embarks on his re-election bid. He appointed a new head of the Consumer Financial Protection Bureau, Richard Cordray, as well as other appointees to regulatory agencies, during a Congressional recess, to get around the opposition of lawmakers.

Under the terms of the reorganization proposed Friday, six relatively small agencies — the Small Business Administration, the Office of the United States Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the Trade and Development Agency — would be consolidated into a single agency focused on opportunities for the private sector.

The administrator of the Small Business Administration, currently Karen G. Mills, would be elevated to the cabinet.

To illustrate the tangled maze of government services for businesses, the president gestured toward a screen behind him that showed the dozens of Web sites, offices, and customer service centers that a company must contend with, many with overlapping functions.

Mr. Obama championed the goal of streamlining government during his State of the Union address last year. On Friday, he cited an example of duplication from that speech: the Interior Department oversees salmon in fresh water, while the Commerce Department has jurisdiction over them in salt water.

The president said he would use the “consolidating authority” only for bureaucratic reorganizations that cut costs and made the government more efficient. And he challenged Republican lawmakers to support an idea that they themselves have embraced.

“With or without Congress, I’m going to keep at it, but it would be easier if Congress helped,” Mr. Obama said. “This is an area where we should receive bipartisan support because making our government more responsive and strategic and leaner should not be a partisan issue.”

Article source: http://feeds.nytimes.com/click.phdo?i=eced0236a208cbe3ceaf90db991f9bdc

Filed Under: Business News Tagged With: , ,

Why Business Owners Routinely Bet the House, and Why It’s Getting Harder to Do

December 1, 2011 by Leave a Comment

He wanted to expand the business and pay off a $290,000 debt he had with the seller, replacing an 8 percent, seven-year debt with a 6.5 percent, 20-year loan. “It would have made a huge difference in terms of cash flow and growth capital,” Mr. Kumar said.

But both lenders he was negotiating with demanded that Mr. Kumar put up equity in his own home as collateral. Mr. Kumar hesitated, and then as 2008 wore on, he watched the value of his home fall to $330,000 from $425,000, wiping out all of his equity. Eventually, the banks broke off negotiations. With no cash on hand and revenue down by some 60 percent during the first half of 2009, Mr. Kumar closed Precision Steel in July 2009. Today, he runs an investment advice Web site, Value Stock Guide.

The collapse of the housing market has highlighted how entrepreneurs are routinely compelled to bet the house on their businesses. For many, taking the risk is tempting because their home may be their largest asset and loans against home equity are easier to find than business loans. Also, such loans come at lower interest rates than most alternatives. They can also allow a business owner to avoid giving equity to investors.

Using data from Barlow Research Associates, a Minneapolis company that conducts quarterly financial surveys, Scott Shane, a professor at Case Western Reserve University, estimated that from 2001 to 2006, the percentage of small business owners who tapped their home equity for business, either by pledging their homes as collateral or by borrowing against home equity, rose to 27.5 percent from 18.4 percent.

Sometimes, owners have no choice. The Small Business Administration’s 7(a) loan program, for example, “requires that if there is collateral available to make a fully secured loan, the bank lender has an obligation to get it as collateral,” said Steven J. Smits, associate administrator for the office of capital access at the S.B.A. Many lenders require owners to show that they are serious by putting up cash — often from home equity loans. “The standard in the industry is lenders want skin in the game,” Mr. Smits said, “and 20 percent is a safe rule of thumb.”

These days, however, the drop in home prices means that fewer owners have the home equity option. And while there is no way to determine the precise numbers, that drop has undoubtedly restricted the ability of owners to obtain financing to start, expand or maintain a business.

“The biggest problem is that revenues of the great majority of small businesses have gone down from between 10 percent and 70 percent,” said George Cloutier, founder of American Management Services, an Orlando, Fla., consulting firm that specializes in financial turnarounds for small and midsize companies. “In normal times, there would be a movement to use home equity to shore up losses and sagging sales. The problem that has occurred is that no one’s doing home equity loans, especially on marginal cases where the owner’s business is in trouble.”

Some worry about the impact this inability to raise capital and start businesses and hire employees might have on the economy; others wonder whether it ever makes sense to demand this level of commitment from entrepreneurs.

“Most start-ups in the U.S. economy are not suitable for venture capital finance,” said David T. Robinson, a professor of finance at the Fuqua School of Business at Duke. “So it’s probably the best system we’ve got. But it’s certainly an inefficient system, because if I have a great idea but no home, and you have a lot of home equity but no ideas,” the two sides are out of luck.

For many entrepreneurs, risking the house demonstrates a passion to succeed. Zalmi Duchman, 31, took a $100,000 home equity loan on his Surfside, Fla., condo and in 2006 used $5,000 of it to start the Fresh Diet, a gourmet meal-delivery service. (He used the rest for living expenses while building the business.)

About 18 months later he took out an additional $200,000 to match with a $900,000 S.B.A. loan that he used to buy a competitor with operations in Miami and New York. “I don’t think I would have gotten the S.B.A. loan without my condo,” said Mr. Duchman, who expects the Fresh Diet to bring in $30 million in revenue this year. “I wouldn’t have grown the way I did.”

Others see taking money out of the house as excessively risky. Philip Patrick, founder of PharmaStrat, a pharmaceutical consulting firm in Flemington, N.J., started his company in 2002 with $5,000 and says he has had a profit since its first quarter.

This year, he sold his business, which had annual revenue of $5 million, without ever having borrowed against his house. “I think some entrepreneurs, when looking for money, pitch that as a positive: ‘Look how much faith I have! I’m betting down to the last nickel!’ ” he said. “But I think that’s a negative. I don’t want to invest in someone who’s down to the last nickel.”

Betting the house can be especially uncomfortable for the spouses and families of entrepreneurs. After Rick Sanchez lost his job at a film postproduction house in 2006, he and his wife, Tara Zucker, decided to take $55,000 from a home equity line of credit to buy equipment and start their own postproduction business.

Post Haste Media of North Hollywood, Calif., did well at first, and they were able to pay off half the loan. Then, in 2008, the economy declined and they had to take out more money. “For me, it was an exciting prospect, though it was scary,” said Mr. Sanchez, 58. “For my wife, it was a lot more difficult. She’s a lot more conservative with money and worries a lot more about it than I do. It took a lot of working on those issues between the two of us.” When they paid off the loan in 2010, Mr. Sanchez said, “it was a great relief.”

Not every loan has a happy ending. In 2001, Linda Frakes, of Cumming, Ga., decided to buy a franchise in the Curves health club chain. By 2004, she owned eight. But Curves began to fall out of favor, and in 2005, Ms. Frakes refinanced her home twice to take out $155,000 in home equity and invest it in keeping the franchises running while she tried to sell them. “I was having trouble making payroll,” she said.

Ms. Frakes wound up selling her franchises for far less than the $150,000 to 200,000 she had expected to get for each of them. She eventually closed two locations and sold the remaining six in three sales for a total of $500,000. At the end, she was left with $80,000 in cash.

Laden with about $250,000 in business-related credit card debt on which she was paying $4,000 a month, a $3,500 mortgage payment, and little income, Ms. Frakes held on for about six months before she stopped making mortgage payments in spring 2008. She declared bankruptcy and then lost her home in late 2009. “I explained to my son the 15-year-old’s version of bankruptcy, and his only question was, ‘Are we going to have enough money for food?’ ”

Now 56, Ms. Frakes wrote a book about her experience and today owns Health Fairs Onsite, a company that puts on health fairs at corporate locations nationwide. It is 100 percent bootstrapped. “I don’t have any credit, you know?” she said.

Article source: http://feeds.nytimes.com/click.phdo?i=cc01a19d58b1e7c5e9895d047a414c47

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Conversations: Young Entrepreneur Sees Little Help In Washington

August 18, 2011 by Leave a Comment

Mr. Blumenthal said he made the trip to learn more about how the federal government viewed entrepreneurship. Like a lot of founders of start-ups, he has little interest in hiring a lobbying firm, but he is all too aware of the impact government and politics can have on business. For one thing, his New York-based company, which he says has 40 employees and produced more than $1 million in revenue in its first six months, is subject to regulations that vary widely from state to state.

The following is a condensed version of a recent conversation in which Mr. Blumenthal spoke, among other things, about what politicians don’t understand about business, what he had to promise the Small Business Administration he wouldn’t do with his borrowed money, and what the Bloomberg administration is doing right.

Q. What was it like trying to get an S.B.A. loan?

A. Finding a bank that did S.B.A.-term loans was a challenge. We were surprised that they needed two years and that banks had absolutely no flexibility. Many of the loan officers said we had a reputable business that was cash-flow positive and we had the most sophisticated business plan they’d ever seen, but they can’t provide loans to people who don’t have two years of tax returns.

Q. Isn’t that a reasonable request when you’re talking about using taxpayer dollars to guarantee a loan to a private company?

A. I understand where the banks are coming from. It probably was necessary to implement hard and fast rules to stop the bleeding when the crisis hit, but they should be looking at the policies and thinking: Does this make sense now?

Q. Was the application process difficult?

A. We had to sign so many documents that my hand hurt after I was done. I had to pledge not to open a zoo, swimming pool or aquarium. It struck me as strange. Yes, it’s the bank’s duty to do due diligence, but this was just a silly restriction.

Q. But there was a happy ending, right?

A. Yes, after being turned down by 15 banks, it was a personal relationship that introduced us to a regional bank in New Jersey that gave us a $200,000 loan.

Q. What reasons did the 15 banks give for turning you down?

A. They didn’t have the authority to bypass the rule that you have to have two years of tax returns.

Q. Was your company profitable at the time?

A. Yes, we were profitable and we had a ton of traction. We had higher customer satisfaction scores than Zappos or Apple. A rational bank should have wanted to support us, even though we were a more risky bet than a company that had been around longer.

Q. What did the bank that lent you money do differently? Did it demand collateral?

A. We came through a personal relationship at a very high level at a regional bank in New Jersey that didn’t have the draconian guidelines because their management was empowered to make decisions. For the $200,000 S.B.A.-backed loan that we got, the bank wanted $100,000 in collateral in either cash or marketable products. The reason they wanted so much collateral was that if we default, the regional bank is not going to go through the process of getting the money from the S.B.A. because it’s so onerous.

Q. What did the loan allow you to do?

A. We were able to hire 20 employees. The loan also helped us with cash flow and to purchase inventory. If we didn’t get that loan we would have had to go to the equity markets. Between the four of us co-founders, we own 90 percent of the company and that, in our opinion, is a good thing.

Q. What could Washington do to help?

A. The first is streamlining regulation. The rules of optical dispensing vary from state to state. Dispensing eyeglasses is not that complicated and even if it were complicated, there should be uniform rules. I’d also do something about the dearth of technical talent — it is really difficult to hire Web developers and engineers. We aren’t educating enough of these people. It was refreshing to hear the politicians talk about the STEM — science, technology, engineering and math — subjects, but come on, let’s get some of the smart engineers into the country by granting them their H-1B visas.

Q. Are you involved in the political process?

A. We have never met with politicians. I don’t know the first thing about how to get heard. My suspicion is that it’s to donate a lot of money.

Q. Have you had any positive experiences with government?

A. What the Bloomberg administration is doing in New York City is nothing short of amazing. They are listening and problem-solving. The typical process to get permits from the Department of Buildings takes several weeks, and if you are in a landmarked building it takes even longer. The Bloomberg administration put together the New Business Acceleration Team that helps business cut through the red tape and get those approvals faster.

Q. You mentioned that some members of Congress didn’t seem comfortable talking about technology. One senator, for example, didn’t know what a Web developer is. Do you think members of Congress should be required to go to a class to get up to speed?

A. Who would design that class? I hope not members of Congress. I was pretty surprised at the lack of mastery.

Q. Do you think the government is doing enough to encourage entrepreneurship?

A. I was recently told a statistic that the majority of entrepreneurs are foreign-born or haven’t graduated from college — which means the best and the brightest and the most educated are not pursuing entrepreneurial paths. For whatever reason, we aren’t encouraging these people to start their own business.

Q. Why do you think consumers should be encouraged to buy from young entrepreneurs?

A. I think consumers should buy whatever they want. I personally try to buy the best-quality items at the best price that do the least harm and from companies that are striving to do good — many of those companies are run by young entrepreneurs. Still, I think it would be strange to be encouraging people to buy based on people’s age rather than the strength of their product.

Q. But isn’t that the cause that brought you to Washington?

A. I came to Washington primarily to meet other entrepreneurs. That being said, I was also curious to hear how our federal government was thinking about entrepreneurship.

Q. What do you make of the economic turmoil we’ve been experiencing?

A. It highlights that it might be too much to ask Washington to help with entrepreneurship when they can’t even get the basics right, like maintaining a decent credit rating.

Q. Is your company doing anything different because of the economy?

A. We are not right now, but we do fear our ability to get working capital and debt. It’s something we are monitoring closely.

Article source: http://feeds.nytimes.com/click.phdo?i=7a54ce7a764a031d4d8cad7e91bfa8f7

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