The New York Times has a helpful article today on a few tax breaks that small business owners are in a special advantage to exploit--provided they act on them soon, since most of them apply to this year alone.

Foremost among these special one-time-only rules is a deduction of up to $250,000 on new equipment--that's twice 2007's ceiling--and 50% depreciation on equipment purchases after that.

The same law that provided the equipment deduction--which was also the law that told the government to send you that $600 check you got a few months ago--also established an extra-high first-year depreciation allowance on business vehicles, allowing you to write off over $10,000 on a car bought for your business.

Not entirely small business-related but still a great deal, and again applicable this year only, is the $7500 tax credit for certain first-time home buyers. And we hear housing prices are lower than ever! (A bit of gallows humor.)

Finally, the Times points out this may be the final year before the capital gains tax is raised from its current, historically low rate of 15%. Sen. Barack Obama has pledged to raise it if elected, and popular attitudes right now likely will go along with him, given the general lack of sympathy for people who derive their prime income from capital gains, who tend to be hedge fund managers and other professional investors. So small business owners may want to pay out dividends or even consider selling altogether under this advantageous tax circumstance.

The one thing we'd add, though, is that just as these various tax breaks were passed in response to what looked to be a sluggish year economy-wise, so next year--which could make the economy of the first half of this year look like a boom time--will likely see a push for more legislation along similar lines. And, oh look! The version of the bailout plan that the U.S. Senate will attempt to pass today includes extensions of several expired tax breaks. We predict that won't be the last such extension.

Just yesterday we asked, of the proposed bailout, "What's In It For The Small Businesses?" The answer, among other things (firming up the credit markets, as the $700 billion asset-purchase program is intended to do, would most definitely be good for small businesses) is a raised cap on federal insurance of bank deposits. In the bill being considered today by the U.S. Senate, the Federal Deposit Insurance Corp. would be required to insure, for now temporarily, all bank deposits up to $250,000--a sharp jump from the current $100,000 limit.

And what sort of depositor frequently has over $100,000 in one account? That's right, small businesses.

In fact, this provision--which has been full-throatedly endorsed by FDIC Head Sheila Bair--is the prime result of extensive lobbying by the Independent Community Bankers of America, which represents 8,000 community banks, those locally-focused institutions that have under $1 billion in assets. And, as we've written before, what's good for the community banks is likely good for small business: many entrepreneurs were looking to them as being able to provide small amounts of credit without the punitively high rates typical of, say, credit card loans.

The idea behind bolstering the deposit cap is to help these banks, protect small businesses whose deposits are that large, and generally work to restore confidence in the country's banks. According to the Times, companies that rely on investment vehicles other than bank accounts--investment firms, mutual funds, and the like--oppose raising the deposit insurance ceiling, arguing it gives banks an unfair advantage.

The other prime thing the bailout plan appears to have for community banks--and therefore, by extension, for small businesses--is a tax break designed to help these banks where they were hit hardest: the preferred shares of Fannie Mae and Freddie Mac that community banks (especially, for some reason, Massachusetts community banks) disproportionately own. Specifically, according Rep. Roy Blunt (R-Mo.), the House Minority Whip and lead House Republican negotiator on the plan this past weekend, community banks will now be able to consider their losses on preferred shares of Fannie and Freddie as business losses rather than capital losses. This alteration, Blunt estimated, will reduce the ultimate damage that these preferred shares' collapse caused to these banks by roughly 25%.

Probably one of the reasons why the National Federation of Independent Business, the National Small Business Association, the Small Business Administration, and others have all endorsed the plan.

"Small Businesses Frozen by Crisis" is the headline. “Small businesses are sitting on their hands. Either they can’t get the capital or they don’t want the capital. They read what is happening, and frankly they are scared,” is what the Small Business Administration's chief economist has to say.

Read it and, er, well don't weep anyway. We'll get through this. It's just going to be lean for a bit.

The American Small Business League, a nonpartisan group (it has endorsed Sen. Barack Obama for president) that represents 100,000 small businesses nationwide, has been hammering away at a very specific aspect of the $700 billion bailout bill, which was passed yesterday by the U.S. Senate and now heads back to the House, which rejected an earlier version of it this past Monday.

Though the ASBL has not come out straight and said the bill ought to be defeated, period, it has made a substantial critique of the bill, asserting that its vague language could disadvantage small businesses in terms of receiving federal government contracts. According to the ASBL, the bill would authorize the Secretary of the Treasury to waive provisions of the Federal Acquisition Regulation that stipulate that some federal contracting go to small businesses, minority-owned businesses, veteran-owned businesses, and woman-owned businesses. "The federal government’s ability to exclude small businesses could last years, and middle-class firms could continue to lose billions of dollars in government contracts and subcontracts," the group said. It also ties it to what it said is a larger pattern of the Bush administration's trying to circumvent the law in order to steer maximum government contracts to big corporations.

Wisely, the ASBL advocates not just taking the damaging language out and securing the relevant provisions of the Federal Acquisition Regulation, but also changing an important aspect of the current law so that it more accurately reflects its initial intent: to ensure that an adequate percentage of federal contracts are awarded to small businesses. The problem appears to be that, right now, the government can award contracts to large businesses under certain circumstances and still report them as small-business procurements. The ASBL's proposal would adopt the Small Business Act's definition of a small business as one that is "independently owned" and would include in the bailout bill the sentence: "As of January 1st, 2009, the federal government will no longer report awards to publicly traded firms as small business awards." The addition of that one sentence and its subsequent enforcement could redirect as much as $100 billion per year in federal contracts to true small businesses, the ASBL estimates.

Given that, according to ASBL President Lloyd Chapman, a number of reported small-business procurements have recently gone to such tiny firms as Home Depot, John Deere, and Starwood Hotels, this proposal seems sensible to us.

"I had heard that there was not much in the bail out bill for small businesses, so I hope you are right," a commenter writes on our earlier post, "How The Bailout Would Help Small Business". A good post on Independent Street confirmed the small business community's ambivalence about the bailout proposal, especially when contrasted with the enthusiastic embrace it has received from big corporations across industries. Certainly there appears to be little, if anything, in the bill that was clearly put there precisely to help out small businesses specifically. As the bill passed Wednesday by the U.S. Senate goes to a House vote today, it's worth adjudging whether small business owners should support it.

On the one hand, we were able to highlight the raising of the federally insured bank deposit ceiling to $250,000, which should disproportionately help small businesses, who are more likely to have accounts that large; we could also point to the tax break for community banks that were hard-hit by the collapses of Fannie Mae and Freddie Mac and that are going to be an important source of small business loans in the coming months.

On the other hand, these are all things that, even in a best-case scenario, would help small businesses at most indirectly: it is hard not to feel that small businesses have been overlooked, especially when the small business lobby's concerns, such as those having to do with federal government contracting, have apparently gone unaddressed. The one exception here is the help being sent to community banks, which frequently would themselves qualify as small businesses; and indeed it is worth pointing out that, fundamentally, though the bailout is ultimately intended to boost the economy as a whole, its target is pretty specifically the financial industry.

Still, in the end, we would echo the title of a statement recently put out by National Federation of Independent Business CEO and President Todd Stottlemyer: "This is Not About Wall Street, It's About a Firewall for Main Street". Now, of course, it is also about Wall Street: put simply, some workers and executives there and some companies there are getting a better shake than their performance probably deserves. And while Stottlemyer does mention the community bank tax break, the change in deposit insurance, as well as an Alternative Minimum Tax patch and a couple of other items, these are secondary items in terms of the bailout bill--it is not the community bank tax break that involves the addition of $700 billion to the national debt.

But fundamentally, we are all in the same economy. And due to the mechanics of the current situation, something needs to be done to create a market for the toxic mortgage-backed loans that remain held by Wall Street firms. Dealing with that problem should help loosen the credit markets, and that should in turn help, well, you. A failure to deal with it would hit Wall Street first, it is true; but the fire would spread to Main Street, and it would burn no less ferociously there.

So in answer to our commenter: you didn't exactly hear wrong when you heard that there wasn't much in the bailout bill for small businesses, at least specifically. but we don't think we're exactly wrong to say that, ultimately, it is good for small businesses nonetheless.

And we, too, hope we're right.

Just because it's harder to obtain credit now--and, by the way, the bailout bill passed the House and was signed into law today--doesn't mean you won't still owe your pre-existing lenders for your pre-existing loans. (This dynamic is sort of the root of the whole problem, in fact.) The first prong of how you should deal with your credit situation is to branch out and find alternate ways of borrowing money: we've given some suggestions on this score.

The other thing you can do in these tough times, however, is more wisely and rigorously manage your cash flow in order to make the same amount go a little longer way in terms of satisfying the bank. Via Independent Street, cash-flow software analysis firm SurvivalWare has some tips; so does the National Federation of Independent Business.

Our favorites:
Make sure your credit report is accurate. There are only three major credit rating bureaus--Equifax, Experian, and TransUnion--so this shouldn't be too difficult. Having a solid credit score is pretty much the be-all end-all, so if there is anything you can do to make yours better immediately, such as correcting an erroneous one, that should be first on your priority list.
First, payroll; negotiate the rest. You can't put payroll off. But maybe you can schedule a later rent payment with your landlord; maybe you can get away with putting off utilities for a little bit.
Collect what you're owed, early and often. This is both a matter of sending out invoices as soon as you can--hey, why not simply invoice more frequently?--and enforcing on overdue payments from customers. Better yet, call up customers whose payments aren't due yet and just remind them, friendly-like, of their impending obligations, and maybe ask them if they could possibly get you their payment earlier.
Get cash upfront. Whether this means changing your policy altogether or just increasing the percentage of a purchase that must be paid money-down, this will help you make your payments.
Trim your workforce. Yes, we mean what you think we mean. We're not in favor of you shirking what payroll expenses you do have(see above). But you may need to cut back on payroll expenses altogether, and there tends to be only one simple way to do that.

The NFIB's first piece of advice is, as Douglas Adams fans know, the motto of The Hitchhiker's Guide to the Galaxy: Don't Panic. Well, don't. Or try not to, anyway.

A lot of you out there are not feeling overly optimistic right now (it's admittedly hard to blame you). According to Discover, 51% of small business owners said their business's conditions were getting worse; Silicon Valley and its attendant venture capitalists are freaked out by last week's events too, which from their perspective included Apple's losing over 15% of its market capitalization and AMD allegedly having trouble raising enough money for a planned spin-off.

MSNBC has put together a good, brief segment on what the economy of the next twelve months likely holds for small businesses.

(Our favorite interviewee is Fred Belinsky, a "Hat Shop Owner"--this appears to be his store--who is sporting a very natty, well, hat).

Takeaways:
-Pessimism is probably not inappropriate--which should clue you in to what your assumptions of what the next several months will be like should be.
-Keep up on stats, especially consumer confidence indices, retail spending, and the credit markets' statuses. So read the business section of your daily paper. May we also suggest a good blog for small business news?
-Hoard cash. To be frank and blunt: you need to operate on the assumption that revenues won't be what they should be, and that you can still fulfill your credit obligations.
-Apres le deluge, stronger companies and entrepreneurs. One person they talk to points to the aftermaths of the most recent severe economic downswings to demonstrate that at the other end of them, the fittest companies come out stronger than before and a ton of space is created for new entrepreneurs and new ventures.

Well, for one thing, a healthy dose of skepticism is what's next. Will it work--will we see a sufficient loosening of the credit markets? Many aren't so sure.

The Washington Post points out that where some have seen cause for confidence and hope in several recent consolidations as well as Warren Buffett's massive investments in Goldman Sachs and General Electric, others see an exposure of the dire situation: "One of America's premier companies couldn't roll over commercial paper without selling a big chunk of equity," said Peter R. Fisher, a former Treasury Undersecretary. "That means the cost of short-term borrowing for every company in America went way up."

In the wake of the bailout's becoming law last Friday, the National Federation of Independent Business, which had been a staunch supporter of the bailout on the grounds that it was "not about Wall Street, but a firewall for Main Street," unsurprisingly praised its passage: “Small business owners, whether or not they use credit to run or expand their own businesses, know that access to credit and a fully functioning financial market are important to them and to their customers, suppliers and vendors," the group said.

On the other hand, there was nothing in the bailout about some of small business's largest, and most fixable, concerns, such as those concerning government contracting, which we covered here.

Certainly talk of commercial paper and TED spreads (here's a good glossary), crucial indicators for where the credit markets are, are going to become common parlance over the coming weeks and months as everyone watches eagerly to see whether the bailout does what it was intended to: enable Americans, from the biggest corporations to individuals and, in between them, small businesses, borrow money more easily again.

It is worth taking an extended look at a new Forbes piece that showcases several companies who appear not to have a need to face the current credit crisis with too worrisome a countenance--who, in the magazine's words, "appear positioned to get through the borrowing crunch without too much pain."

Though this goes last on Forbes's list, in fact the type of company that it cites as sitting relatively pretty is, yup!, small businesses. The magazine speaks with the president of American Express's small business-serving unit Open--which, in case you hadn't noticed, is BizBox's sponsor--who points out that small business' being typically less leveraged compared to larger ones leaves them in a comparatively good position. (Michael Taylor made this argument on BizBox a few weeks ago.) “Entrepreneurs are nimble and have strategies in place to manage business challenges. They are decreasing investments, adjusting expansion plans to capital on-hand, cutting expenses and focusing on adapting to customer demand,” the president, Susan Sobbott, adds.

As for the large companies Forbes cites, we can extrapolate from some of the examples and derive some general lessons for how best to position yourself to survive a period during which borrowing will be incredibly difficult; in other cases, you can chalk the companies' enviable situations up to combinations of extreme luck and extreme skill.

Kohl's The "budget-friendly retailer" has continued with its plans to open several dozen new stores in 2008 and 2009. Lesson: as we've written before, discount to thrive during tough times (and don't forget to offer coupons!).

IBM The old giant--which was a tech company before you called them tech companies, yet has managed to remain in the game after the Silicon Valley boom--reports a secure fiscal situation despite a near-$200 billion annual balance sheet. Forbes has a company spokesperson swearing to a “very strong cash position, credit markets rate our credit profile highly, and that the company does not use overnight commercial paper markets." In other words, IBM isn't overleveraged, and you shouldn't be, either.

MetLife This seems like a surprising pick, since maybe the most spectacular corporate flameout of the past several months was that of AIG, MetLife's fellow insurance company. So what's keeping Snoopy's favorite business afloat? According to Forbes, the company says it's “financially sound and has high ratings from all of the major insurance ratings agencies” and is “fully able to meet all its obligations.” Probably it just played it smart and did not get enmeshed in partaking of credit default swaps against the defaults of bad loans and the securities made up of them--which was AIG's Waterloo.

Southwest Airlines This is a special case, of Southwest having possessed the foresight and savvy that probably deserves to be called "genius". Basically, it bet that the cost of fuel would rise, and won big. It hedged years ago by buying futures contracts that, essentially, allows it to buy about 70% of its fuel at a rate of $51 per barrel. By contrast, right now oil futures are trading slightly below $90 per barrel--and that price is, by leaps and bounds, the lowest it's been in months. So Southwest is paying significantly less for fuel than just about all of its competitors. Combine these lower costs with its pre-existing commitments to low fares, and you see Southwest able to underprice all of its competitors vastly. Those low prices would give it a leg up even in good times; in bad times, it's a checkmate move.

Calpine and Sun Healthcare Group Lesson: be an energy company or a healthcare company. You're talking about the two industries whose fortunes have gone into the stratosphere over the past few years. Incidentally, if you had a choice (which of course you don't--we all tend, and for good reason, do what we want and what we can, not what macroeconomic conditions tell us are best), we'd bet on healthcare, whose demand is only going to shoot up, over energy, whose long-term future is a bit less certain and which anyway is tied heavily to the unpredictable and erratic values of a few commodities.

We actually were waiting to post on this until we heard back from Sen. Chuck Schumer's office, which we called yesterday, but it's been a day and we haven't yet, so you should be aware that Schumer held a press conference Sunday calling for the federal government to make direct loans--"tens of billions" of dollars' worth--to small businesses through the Small Business Administration. The thinking being that, as we've written, even though the recently passed $700 billion bailout is aimed at loosening the credit markets, which should soon help small businesses as well as big corporations borrow money, in the meantime the small businesses are really feeling the hurt and need quick, short-term credit.

It's worth pointing out that Schumer is probably one of the top five most powerful senators: he's the senior Democrat from the third-biggest state, and has headed the Democratic Senatorial Campaign Committee, with much success, for several years. In other words, this is a loud voice advocating for this policy.

Obviously the direct loans would be great: even in a best-case scenario, it is going to take a month or two for the credit markets to respond to the bailout, and this is exactly what small businesses need to tide them over. From the government's perspective, establishing such loans could shore up the small business community's support for its broader policies, which has been shaky given the bailout legislation's failure to remedy problems with federal government contracting and other small business concerns.

Tell Schumer to keep fighting this fight.

We've written about the small business community's concern over the federal government's alleged failure to give the proportion required by law of its own contracts to small businesses. A New York Times article explores a more specific group that has allegedly been left out: small businesses owned by women, which have their own quota of federal contracts they're supposed to receive--5% of all federal contracts, to be exact. Instead, last year such businesses received only 3.4% of federal contracts. And, according to the U.S. Women's Chamber of Commerce, even that number is likely overstated since many companies with male CEOs were included in that data.

The Times as well as Sharon McLoone reported that the Small Business Administration has issued a final rule to expand from four to 31 the number of industries to which the 5% rule applies. While that's better than the four-industry status quo, the Chairman and Ranking Member of the U.S. Senate Small Business and Entrepreneurship Committee, Sens. John Kerry (D-Mass.) and Olympia Snowe (R-Maine), want female-owned small businesses in every industry to be eligible. The interest group Women Impacting Public Policy (WIPP) has endorsed that proposal.

Additionally, WIPP and American Express OPEN (which is BizBox's sponsor) have established Give Me 5 (as in 5%) to educate women CEOs on how to stake claim to federal contracts.

We're talking 10.1 million women-owned small businesses employing 19.1 million people and contributing nearly $2.5 trillion to GDP, and that's according to the Small Business Administration itself. What say we give those businesses 5% of federal contracts? It seems like the fair and right thing to do. Also the legally mandated thing to do.

BizBox is thrilled to be hosting Scott Cooney, author of Build a Green Small Business, our next BizBooks discussion tomorrow. If you have any questions about eco-preneurship, go post them now! And don't forget to check in for the responses afterwards.

by Jerry Kalish

Last week, BizBox advised you to get your tax breaks while you can. Here’s another one you that you may be able to take advantage of before 2008 becomes 2009. If you are a small business owner who has established a retirement plan this year, you may be eligible to receive a tax credit for the cost of implementing a plan.

And this tax credit can be better than a mere tax deduction. The same legislation that Congress passed in 2001 that increased retirement plan benefit and contribution limits - which the Pension Protection Act of 2006 extended - provided a tax credit to encourage small businesses to establish retirement plans. This tax credit is in addition to the tax deduction you may receive for the contributions to the plan. The tax credit may be claimed for a maximum period of three years for retirement plans established for the 2002 plan year or later.

And as for the other questions you may have...

Who is an eligible employer?
The tax credit is available to employers with no more than 100 employees who earned at least $5,000 in the previous year.

How much is the tax credit?
The credit is limited to 50% of the first $1,000 in expenses; therefore, the credit cannot exceed $500. The credit is nonrefundable, i.e., you may not generate an income tax refund for the credit.

What expenses are eligible?
Expenses eligible for the tax credit include those defined as the plan's start-up costs, which are ordinary or necessary for the establishment of the plan. These include expenses incurred to establish the plan, administrative fees and costs incurred to educate employees about the plan.

What plans are eligible for the tax credit?
Eligible plans include SEP IRAs, SIMPLE IRAs and qualified plans, such as 401(k) plans, profit-sharing plans, and defined benefit plans. The plan must cover at least one employee who is not classified as a highly compensated employee.

How do you claim the tax credit?
You must file IRS Form 8881 - Credit for Small Employer Pension Plan Startup Costs. Check the fine print with your tax adviser to see if you are eligible to take advantage of the tax credit this year.

Jerry Kalish is founder and President of National Benefit Services, Inc., a Chicago-based employee benefit consulting and administrative firm that serves private-held companies, publicly traded companies, and public sector employers. He blogs at The Retirement Plan Blog and can be reached at jerry@nationalbenefit.com.

There's something new about us. No, we didn't get our hair cut. But take a look around and you will notice quite a few changes.

You'll at first see the sheer difference in our appearance, and of our homepage. We hope you like the new look. As for the fact that going to BizBox now takes you directly to our blog, yes, we have combined our two previous blogs--"Topic of the Week" and "Small Business Blog"--into one. Moreover, we have put our blog front and center, because we are redoubling our commitment to providing small business coverage that is not just interesting and useful but also timely. After all, if the events of the past few weeks have shown us anything, it is that the smallest businesses are profoundly impacted by what is happening to the biggest.

On the top of the page, you'll notice a long-overdue "About Us" page as well as our latest Tweet. (BizBox's Twitter is not new: you can visit it at http://twitter.com/bizbox--and don't forget to follow us!).

On the left-hand side of the page, you will find it hard to miss a link to our Feedburner page, as well as a variety of ways to let other readers know if you've liked a particular post. Speaking of referring readers to others: you can see your new blogroll, a list of the small business Websites that we find illuminating and insightful and that provide our daily sustenance; a list to which we hope to add constantly.

Meanwhile, on the right-hand side you will see our Featured Articles. This will contain links to some of our most original recent posts. At least for now, we don't intend to post anything exclusively there; if you keep up with every single post on the blog (say, with an RSS feed!), then you will see our Featured Articles when they first appear. But if you find yourself short on time and want to see some of our best work, or if you want to reread an old post, then is the place to go. We'll also have a link to our most recent BizBooks (currently Scott Cooney's discussion on ecopreneurship) as well as to choice articles from our sister sites Slate and The Big Money. Our topics cloud remains a great way to sift posts by what's in them.

Do let us know what you think, whether in the comments or by emailing us at bizboxonslate@gmail.com. We really hope you enjoy. Keep on reading!

Scott Cooney, author of Build a Green Small Business, joined us yesterday as a part of our BizBooks author discussion series to field questions from ourselves and from readers. We think it went splendidly: do check it out here.

A couple highlights:
Redlands, Calif.: I am a international business major. What is a good start for a small green business?

Scott Cooney: Sustainability consulting is really hot right now, and with an international focus, you can really tie into multinational corporations, especially medium sized ones, that are looking for help as they try to deal with some countries that are greener than others, and some that are shifting regulations. Take a look at that chapter in the book, and realize that if you get in good with a couple of companies and help them through some tough international laws and different types of customers, you will become indispensable and make oodles of money! Ecotourism, also a terrific option. Sustainable travel agencies as well as on-the-ground ecotourism operators are really a booming field in a shrinking industry.

BizBooks: Is there a particularly good way to sell yourself as a green brand?

Scott Cooney: This is a terrific question. This is particularly dangerous ground for a company. They really have to really walk the walk. Green consumers are too smart for greenwashing. Exxon has been trying forever to promote themselves as good for the environment. BP, Shell, General Motors. They're all on the bandwagon now, but who believes them? It won't translate into sales until people believe it. Apple, a truly hip brand, is being very careful not to brand themselves as green right now, because they're not. They're one of the worst offenders in terms of waste and in terms of the toxic components in their consumer goods. If they were to call themselves green, many people would believe it right away, but then slowly the truth would come out and they would face serious repurcussions.

So to brand yourself and your business as green, I would recommend that business entrepreneurs spend some time in my opening chapters of my book, which introduces the green consumer, the 5 golden rules of choosing a green business to start, and how to effectively market your business in this rapidly growing market. I talk a lot about the dangers and pitfalls, and about savvy customers and how to truly communicate with them.

Santa Barbara, Calif.: With the economy in the position it's in, I'm hesitant to start any small business-- let alone a green one. Do you have advice for people with big dreams but small pockets?

Scott Cooney: The book is riddled with ideas of green businesses that can be started on a shoestring. I give an idea in each chapter about how much it might cost to start each one, and I was surprised interviewing many ecopreneurs at just how little it cost them to start their business. Green costs more in some ways, but it also generates a lot of savings in some ways by cutting waste, buying things second-hand when possible, etc. Traditional businesses are going to have to continue to contend with increasing costs of fuel and energy. Your streamlined and eco-friendly business will be ahead of the curve, meaning better opportunities for profitable years.

BizBooks: Is green just a fad, or is it going to be hip for a while to come?

Scott Cooney: It's great that the popularity of environmentalism and sustainability has grown, but I think it's just a matter that the time has come. We're simply running out of resources (fresh water, arable land, energy, etc.), and people are waking up to the chemical influence in their lives, largely thanks to the "ah-ha" moment many of us get when we learn about organic food.

Consumers are starting to read labels and watch out for bad ingredients. They're starting to be concerned about the chemicals in the food they're feeding their children and themselves. They're starting to realize that the planet truly is in trouble. And they're starting to realize that maintaining the status quo of oil being the primary driver of a global economy is a really dangerous scenario. It may hit home for some just because of gas prices. For others, it's their kids, regarding choices like infant formula or bad food leading to diabetes, or increasing incidences of autism which may be linked to increased levels of mercury in our air and food supply, especially fish. For others, it's simply a matter that they've gotten over the antiquated view of the American Dream of the white picket fence and the yard, and realized that a walkable community where you know your friends and neighbors and have access to nightlife, restaurants, work opportunities, public transit, parks, bike lanes, etc., is a pretty spectacular lifestyle.

But whatever it is, I don't see those people ever going back to the exurbs, going back to junk food, going back to spending 2 hours a day in a car... There's just more important things in life, and this sustainable lifestyle that everyone is talking about is really hitting home with people.

More and more small business owners are going to have start using credit cards to take out loans on their business' behalves. No one's saying this is an ideal situation: credit cards tend to have high interest rates, with both rates and limits that can be changed almost immediately and almost entirely at the issuer's whim. In a perfect world, you would be able to secure credit through other means. But...well, you know. Now is not the time to expect the bank to offer you a new line of credit.

Instead, you should at the least be prepared to start borrowing with your credit card, and everything about that will be easier if you have a good credit score. The New York Times runs a good credit score primer, and though it's targeted at consumers, there are some great lessons for entrepreneurs who may be using their personal cards to secure money for their businesses. In most cases, it's easier than you'd think, and the payoff, in the form of lower rates, higher limits, and general ease, could be significant.

A median credit score--the FICO Score, generated by Fair Isaac--is 720. Especially in the current environment, you should be aiming for a bit higher: at least 750. Get your free annual report from one of the three consumer credit rating bureaus: Equifax, Experian, and TransUnion. What's next?

Check accuracy. Doesn't get more basic than this. How silly would it be if you were subject to confiscatory interest rates because someone somewhere made an error that wound up unfairly lowering your credit rating? Make sure all the bank accounts listed on your credit reports as yours are yours. Next, look at the tally of things that count against you--late payments, for example--and make sure they are accurate. In all cases, when you see something, say something--report it immediately to one of the bureaus, which are required to respond within a month.

Game the debt system. Little idiosyncrasies of the rating process can undeservedly damn you. For example, the system considers your end-of-the-month credit balance prior to payment--even if you pay in full and on time--and places some emphasis on how near you are to your limit. The Times uses this example: if you have one credit card with a $5,000 limit and put $4,000 a month, that is worse for your score than having two $5,000-limit cards, each of which has $2,000 on it. This is a stupid inefficiency, but it's how it works. Generally, know exactly what the bureaus are looking for, and do everything to give them what they want.

Preventive measures. One credit score trap the Times cites are retail cards, those store-specific credit cards that you can usually initiate in exchange for receiving some sort of discount at the store in question. These are bad news: it doesn't look good if you've opened up a bunch of new credit cards recently, and these cards' lower limits mean you're more likely to approach them, which, as we've said, the bureaus don't like. More broadly, and most importantly: pay your bills on time. Your history here represents 35% of your score at least. It's so simple. Just do it.

Of course, the real lesson, as the Times piece makes clear, is to use cash wherever possible right now. Since your consumer credit card is now doing double duty for your small business, that means trying to keep most of your personal purchases in cash, if you can manage it.

by Dave Logan, John King and Halee Fischer-Wright

After a ten-year, 24,000-person study, we discovered that the success of a company is not a function of the leader, but of its "tribes": naturally-forming groups of between 20-150 people. A leader without a tribe isnʼt a leader; the tribe is the context in which leadership happens. In other words, great leadership must be understood as, essentially, tribe management. Tribes are more powerful than teams, companies, or even superstar CEOs, and yet their key leverage points have not been mapped—until now.

Great leaders know they can’t instantly change the culture of 100,000 people, or even 50 people, with gimmicks or trendy initiatives. Successful executives instead focus on developing their culture one tribe at a time. The heart of leadership development is helping leaders to upgrade the effectiveness of their tribes, taking these groups from “adequate” to “outstanding.”

Tribal Leaders focus on building the tribe—or upgrading the tribal culture. When they succeed, the tribe recognizes them as the leader, gives them discretionary effort, loyalty, and a track record of success. Divisions and companies run by Tribal Leaders set the standard of performance in their industries, from productivity and profitability, to employee retention. They are talent magnets, with people so eager to work with the leader that they will take a pay cut. Their efforts seem effortless, leaving many people puzzled by how they do it.

To own your role as a Tribal Leader, and to develop other Tribal Leaders, you must first understand what we call the Five Stages of Tribal Culture. Tribes come in five flavors, marked by differences behavior and defined by the basic way their members speak. Tribal Leadership starts with recognizing which stage you have, and doesn’t stop until you reach Stage 5.

Stage 1: "Life Sucks" Stage One runs the show in criminal clusters, like gangs and prisons, where the theme is “life sucks,” and people act out in despairingly hostile ways. We have found that this stage shows up in only two percent of corporate tribes, but leaders need to be on guard, as this is the zone of criminal behavior and workplace violence. The best way for a leader to intervene with such tribes is to get individual members out of the group and into another.

Stage 2: "My Life Sucks" The dominant culture in 25 percent of workplace tribes, says, in effect, “my life sucks". The mood is that of a cluster of apathetic victims. People in this stage are passively antagonistic, crossing their arms in judgment yet never getting interested enough to spark any passion. Their laughter is quietly sarcastic, resigned. Tribal Leaders intervene in Stage 2 by finding those individuals who want things to be different and mentoring them—one at a time. Tell them that you think they have potential. Over time, some will start to talk the Stage 3 language. At that point, the smart Tribal Leader invites them to mentor another member of the tribe.

Stage 3: "I’m Great" The dominant culture in half of U.S. workplace tribes, this theme is “I’m great” or, more fully, “I’m great, and you’re not.” In this culture, knowledge is power, and so people hoard knowledge, from client contacts to gossip. People at this stage have to win, and winning is personal. They’ll out-work, -think, and -maneuver their competitors, including those within their own company. The mood that results is a collection of “lone warriors,” wanting help and support and finding themselves disappointed when others don’t have their ambition or skill. What holds people at Stage 3 is the “hit” they get from winning, besting others, being the smartest and most successful. Tribal leaders intervene in Stage 3 by identifying people’s individual values and then seeing which cut across the tribe. Highlight the values that unite people, and then construct initiatives that bring these values to life.

Stage 4: "We’re Great" Stage 4 represents 22 percent of tribal cultures, where the theme is “we’re great"--and another group isn’t. With Stage 4 tribes, the Tribal Leader upgrades the tribe as the tribe embraces the leader. The leader transforms tribes of individuals into Stage 4 groups, and the tribal leaders in these groups focus people on their aspirations, and define measurable ways to make a worldwide impact. As the tribal attention shifts from “we’re better” to “we can make a global impact,” their culture shifts to Stage 5.

Stage 5: "Life is Great" Stage 5 is the culture of two percent of the workforce tribes, where the theme is “life is great” and the focus is on realizing potential by making history. Teams at Stage 5 have produced miraculous innovations. The team that produced the first Macintosh was Stage 5. We’ve seen this mood at Amgen. This stage is pure leadership, vision, and inspiration.

At first, you must just isten to what your employees are saying, how they talk, and then identify which of these five cultures dominates your tribe. Then, start bumping your tribe to the next stage by noticing the social groups that exist in your company. Remember: a tribe can only be upgraded one stage at a time. If you speak at a level higher than one stage above, your message will not be heard.

For specific examples and coaching tips, check out our book, Tribal Leadership. These steps will help you move from adequate to outstanding, and produce tribes that want to change the world.

Dave Logan, John King and Halee Fischer-Wright are coauthors of Tribal Leadership (HarperCollins) and partners of the management consulting firm CultureSync.

On the heels of last week's BizBooks discussion with Scott Cooney, this Friday we will be hosting Judy Estrin, author of Closing the Innovation Gap. Her book is nothing short of a call to arms for the United States, which, she warns, is in danger of losing its status as the world's premier economic power unless it cultivates an environment conducive to continued innovation. Given that much of the country's innovation is driven by start-ups and other small businesses, we are especially thrilled to have her. Don't forget to post your questions here!

Via Independent Street, financial services industry researcher Sageworks has done a study on which industries' small businesses have been hit hardest by the recent economic downturn, and which industries' small businesses are best set to ride out the current and, it looks like, future credit crunch.

For the former measurement, Sageworks uses the percentage change in the given industries' small businesses sales (Sept. 2007-2008), which is logical. For the latter, however, they interestingly examine the somewhat obscure statistic known as EBITDA. The measurement, which is favored by private equity firms, does a good job measuring cash flow--after all, what could be more essential to survival in today's credit climate? Numbers, and some thoughts, after the jump:

The most negatively impacted industries were:
-Residential construction (-1%)
-Furniture stores (-1%)
-Cement/concrete manufacturing (-5%)
-Lumber wholeselling (-7%)
-Real estate agents/brokers (-8%)

And the ones best set to thrive, by EBITDA margin, are:
-Oil and gas extraction (18%)
-Dentist offices (18%)
-Accounting/tax preparation services (19%)
-Traveler accommodations (24%)
-Lessors of real estate (27%)

Well, the lesson from the first list is pretty much the definition of blatant: any industries that relied upon the housing market did not have a good year (you know, in case you hadn't heard). If you're a small business in that arena, you don't need us to tell you of your troubles, but still: unless you are wisely flush with cash, you really may want to consider something else.

The second list is more illuminating. Paradoxically, the industry whose small businesses are best set to thrive is also housing-related: except it's based not upon the selling of housing but upon the renting of housing. This makes sense: as buying a place to live became a poorer investment, renting--which isn't an investment but is both cheaper and requiring of less credit than buying--became a more attractive option. It should be surprising to see oil and gas extraction on that list: energy's rise has been the story of the past year (although oil's fall over the past several weeks has been precipitous, to say the least: futures are currently trading at $82 per barrel. Dentists' offices is perhaps the most interesting one. But it makes sense: no matter what the economy or the state of the credit markets, you're always going to need to go to the dentist (and so are your kids). It is industries like that--truly old reliables--that are set to make it through this storm just fine. Sometimes, slow and steady really does win the race.

November 1 is an important deadline if you offer a SIMPLE for 2008 but would like to have a 401(k) plan next year. That's because it's the final date for the required 60-day notice that you must give to employees that the SIMPLE will not be maintained in 2009.

SIMPLE--Savings Incentive Match Plan for Employees--was created by the Small Business Job Protection Act of 1996. (Don't you just love the names Congress gives to tax legislation?) It's called "simple" for good reasons. It's easy to establish, relatively inexpensive, and also easy to maintain since it is exempt from the more complicated rules governing other types of retirement plans.

But in many cases, a SIMPLE just doesn't do enough.

So if you want to:
-Not cover practically all employees
-Make larger contributions
-Favor owners and highly compensated employees
-Not have 100% vesting of employer contributions
-Maybe have better investment options
-Have the Roth option
-Allow for plan loans
-Be able to buy tax-deductible life insurance
-Have better creditor protection
then you need a 401(k)/profit sharing plan. And yes, it is more complicated to maintain and accordingly more expensive.

But retirement planning is a lot like life. It's a series of trade-offs. And depending on your situation, this one could very well be one worth making.

Side Note: A SIMPLE can be rolled over to a 401(k) plan after a "two-year period" beginning on the date on which the individual first participated in the SIMPLE.

Jerry Kalish is founder and President of National Benefit Services, Inc., a Chicago-based employee benefit consulting and administrative firm that serves private-held companies, publicly traded companies, and public sector employers. He blogs at The Retirement Plan Blog and can be reached at jerry@nationalbenefit.com.

Entrepreneur.com runs a good article on young entrepreneurs trying to cash in on the New Big Thing: socially-conscious business. In other words, companies that aim both to do good while also very much turning a profit. Our latest BizBooks forum, with Scott Cooney, sort of barked up this tree: Cooney is a booster for ecopreneurism, which trumpets the notion of businesses that are sustainable both economically and environmentally. (There's also a very interesting Website about the notion of simultaneously doing good and doing well called Creative Capitalism.)

Lots of the profiled businesses' prime avenue for doing good is "green" in one way or another. But the article cites reasons for the increased popularity, among young people in particular, of do-good entrepreneurship that go well beyond the hipness of eco-consciousness. Did you know, for example, that each of the top ten U.S. business schools have at least one faculty member who teaches social entrepreneurship? The article also points to the prominence of philanthropic entrepreneurs such as Bill Gates and a recently increased emphasis in our society on seeking out of your occupation not just money but also intangible personal fulfillment as further reasons for the rise of this sort of entrepreneurship.

One other point we love is that one advantage to having a business that makes an important social contribution is that your business's counterparties--whether investors, suppliers, distributors, or what-have-you--are going to be more amenable not only to cutting you slack but even to helping you out, which in turn enables you to work within otherwise narrower profit margins. "Everybody feels invested," says one entrepreneur whose water company donates ten cents to charity for ever bottle sold. "We have retailers who feel like it's their product. Distributors feel like it's their product. Everyone takes ownership in it all the way down to the consumer, which is what I think makes it work."

You heard the man: make it work.

The National Federation of Independent Business has released the results of its monthly Small Business Optimism survey for September and--surprise!--the group's confidence index remains "recession level". More dishearteningly, fully half of the survey data was taken before Lehman Brothers's collapse in the middle of last month kicked off the present troubles; when you divide the month into the before and after, it becomes clear that these events have eroded small business owners' confidence only further.

The good news? Believe it or not, September's confidence index was higher than August's, which itself was higher than July's. (The index is seasonally adjusted.) "Dramatic improvements in the percent of owners expecting the economy to improve over the next six months and solid plans to invest in new inventories accounted for the early surge, but the bulk of the gains were erased by events from mid-month on," the group's chief economist explained. Slightly more, if slightly under half, of small business owners are hiring. Almost double the percentage of respondents said that the next three months were a good time to expand as compared to August; unfortunately, September's percentage was still an abysmal 11%.

More stats:

49% of small business owners tried to hire; 78% of these found minimal qualified applicants. 12% hope to add employees over the next three months; 10% plan to decrease their workforce.
21% are planning capital expenditures, a figure the report calls "historically weak," and which represents a slight decrease from August.
Net -12% reported inventory gains, indicating a trend towards liquidation.
Net 20% reported increasing their prices--not a good sign as we enter a period where consumers are going to have much less spending power.
Net -5% reported earnings gains. Uh-oh.
Net -11% said borrowing was easier than it was. No surprise here: the lifeless credit markets are the big story of our current macroeconomic circumstance.

Well, in fairness, while the Lehman/Merrill/AIG/everything else debacle did clearly decrease confidence in the September survey, who knows--maybe the federal government's decision to inject $250 billion directly into banks, which had such a salutary effect on the Dow, will do wonders for the survey the NFIB gives us in November. Stay tuned.

What’s causing the credit crunch? Blame the Woozle!

My three year-old daughter knows that when Pooh and Piglet go searching for the Heffalump, or, on another occasion, the Woozle, they--Pooh and Piglet --are so confused about the causes of footprints in the snow that they run around in circles scaring themselves half to death at their own tracks.

If I explained to my three year-old the real causes of the credit crisis, I get this sneaky suspicion she would see right through the fear and confusion. She’d shake her head just like she does at Pooh and Piglet, and wonder what all the fuss is about. Because, really, the answer is simple (and no, it's not the Woozle who is to blame).

Real people, just like you and me, borrowed more money than they could reasonably pay back. End of story.

To listen to our political leaders or television commentators on the crisis, you’d think a mysterious creature, a frighteningly greedy malevolent force, was preying on poor indebted victims.

For some reason, political figures and the pundit-ocracy happily blame the following, in varying order:
1. Greedy Wall Street Executives
2. Predatory Lenders
3. Asleep-At-the-Switch Regulators

Yes, each can be blamed, and each makes a simplistic target for righteous anger. But I’m sorry: is it only obvious to me and my three year-old daughter, that none of the people in the list above defaulted on their debt?

I’m pretty sure the credit crunch was caused by people not paying back money they owed.

In my own small business, there’s no mysterious Heffalump frightening me. There’s no Woozle-shaped credit-eating monster. There’s just folks not paying their debts. Nobody forced them to borrow. They signed on the dotted line and they took the money on loan. Only, they’re not paying.

And here’s the worst of it: While I can not prove it, I'd bet that the majority of borrowers defaulting in 2008 knew when they took out their loan that they did not have a sound plan for paying it back. You know what I call that? A predatory borrower.

The Federal Deposit Insurance Corporation, the New Deal-created entity whose mandate is to insure all U.S. bank accounts up to a given amount in the case of bank failures, has been one of the brightest spots in terms of government intervention in the current crisis. Its head, Sheila Bair, has received plaudits for her nonidelogical, hypercompetent stewardship. From the perspective of small business owners, Bair and the FDIC full-throatedly endorsed the idea, instituted by Congress a few weeks back, to insure at least for the time being all bank accounts up to $250,000--a sharp jump from the prior $100,000 limit, and one likely to apply disproportionately (in a good way) to small businesses.

Now there is more news, directly from the FDIC, and it appears to be possibly the most direct help the federal government has offered to small business owners yet in its response to the current crisis. Yesterday, the FDIC announced that through the end of 2009 it will similarly insure all the money--up to a theoretically unlimited amount--in all non-interest-bearing bank accounts. Guess what sort of entity most frequently utilizes non-interest-bearing accounts with over $250,000 in them? Yup: small businesses.

According to the FDIC, "These are mainly payment-processing accounts, such as payroll accounts used by businesses."

The FDIC noted that the funds for this additional obligation will be raised via special fees, not ordinary tax revenue.

The program, Bair said in a statement, "allows bank customers to conduct normal business knowing that their cash accounts are safe and sound. This is the fundamental goal of deposit insurance, safeguarding peoples' money, and vital to public confidence in the banking system."

Just as much, this new move may prove vital to entrepreneurs' confidence in the government itself, and in its claims that it is looking out for them, too.

Several months ago--before the latest round of federal government rescues--our own Michael Taylor asked, "Where's My Bailout??" Writing in the wake of the Bear Stearns, Fannie Mae, and Freddie Mac actions, Michael said, "as a small business owner, I can’t help but be a little resentful when I read about what the government is doing to make up for massive financial errors made by large businesses. I’m bothered by the asymmetrical risk borne by large company owners versus that borne by small company owners."

A good Washington Post article from yesterday demonstrated that Michael is not the only owner of a small financial services business (Michael runs Cedarcrest Capital) who is not a little miffed at the astounding mercy big banks that screwed up are finding at the hands of the federal government. Specifically, many owners of and executives at community banks--those locally-focused institutions that have under $1 billion in assets--are up in arms over the Treasury Department's new plan to take the $700 billion Congress has famously allotted it and inject it directly into struggling banks in exchange for preferred shares, including planned $25 billion investments in each of four of the country's biggest banks. Many of these small business owners, in the article's words, "don't need the money, resent the intrusion and feel it's unfair to rescue companies from their own mistakes."

A theme of the complaints is that the bailout package is upending the natural meritocracy of the free market: banks that traded risky (and lousy) mortgage-backed securities and engaged in other suspect financial transactions and loan underwriting are being rescued from their bad behavior, while, meanwhile, many community banks who spent the past few years playing it wise won't be getting that government money precisely because they played it wise. As the chairman of a McLean, Va.-based community bank put it, "We will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government."

It is worth pointing out that, as we have reported, community banks are not being entirely left out of the federal government's actions: a new tax rule--designed for precisely this purpose--is going to lessen significantly the losses that many of them incurred after their preferred shares of Fannie and Freddie plummeted in value once the two government-sponsored entities were renationalized this past summer.

Half of the $250 billion initially being invested is essentially being forced upon nine of the country largest and most prominent banks: JPMorgan Chase, Bank of America, Goldman Sachs, and the rest of that club. According to the Post, the other $125 billion will go to banks who apply for it.

Which, if the American Bankers Association and the Independent Community Bankers of America are to be believed, will not include many community banks. An ICBA spokesperson told the Post, "I'm not sure we've heard from any that want to participate. That said, if any community banks do enroll, we anticipate it will be just a small minority."

The paradox is this: if you're a bank that is desperate for capital because of a massive hangover after the binge of the past few years, then the government money is a tremendous help, particularly in the current credit-crunched economy. It really is something of a bailout. But, if you were smart and more moderate and, after the past few years, are not capital-starved, taking the government money is actually a bad deal: the deal, which gives them preferred shares that pay 5% interest for a time, and then tick up to a very high 9%, is a very good bargain for the government, and a pretty poor one for the borrower. (Of course, as taxpayers, we should all be pleased about this aspect of the program). So the result is a program that is designed to attract those whose poor decisions (although that is a more complicated question) have made them desperate as well as those who are simply large enough not really to have a choice while repelling those whose good decisions have left them with sufficient capital, which are frequently the smaller ones.

Clearly, owners of these small banks feel left out; and equally clearly, this seems to be not just a case of chips on shoulders. For the sake of the economy and fairness and its own reputation, we suggest the feds look into Sen. Chuck Schumer's proposal to loan directly to small businesses through the Small Business Administration.

20 days 'til Election Day. If you're like us, you've been near-obsessed with the news; you track the polls; and you're figuring out whom to vote for or enthusiastically advocating for whomever you've decided on.

But if you're a small business owner, Election Day presents you with a different decision: what should your policy be for your employees? Should they have the day off? Should they not? Do you even have a choice in the matter?

Thankfully, the National Federation of Independent Business has put together a great little guide for you.

There is no federal Election Day employment guideline, although many have pushed to make the first Tuesday after the first Monday of every fourth November into a national holiday. But it turns out that several states--most of them, in fact--have some sort of requirement, frequently involving some sort paid leave. The NFIB lists 'em all.

We'd only add the following. There is a great deal to be said for civic participation, of which voting is the most important, because universal, manifestation. And anyway, we're talking about a couple hours on one day that is at most every year or two (Congressional and some senatorial elections are every other year; gubernatorial and other state government races sometimes fall on off years). We hope you'll do what it takes so that, given the way voting works in your states, your employees feel like they can cast their ballots without costing themselves your good graces or any money.

If you watched the third and final presidential debate, you may have been forgiven for thinking that one of the candidates was named Joe the Plumber--so frequently was Ohio resident Joe Wurzelbacher referred to. The story is that Wurzelbacher approached Sen. Barack Obama a few days ago and confronted him on the fact that, under Obama's tax plan--which would cut taxes for those making under $250,000 but let expire the Bush tax cuts for those making more than that (effectively raising their income tax rates)--he would likely be subject to a higher tax rate should he go through with his plan to buy a small business for somewhere in the neighborhood of $275,000. Obama conceded this reality while defending his plan, listened to Wurzelbacher advocate for a flat tax--at which essentially everyone would be subject to a common tax rate--and wished him well.

At the debate, Sen. John McCain pointed to Joe the Plumber and the others like him as a reason for why his plan to cut everyone's taxes is superior to Obama's, particularly from the perspective of--yup--small business owners. The "others like him" is crucial: Wurzelbacher may be a voter in Ohio, but he's only one voter in Ohio, and so presumably the important question is whether there are others like him, that is, other similarly situated entrepreneurs (and anyway, any proponent of a flat tax--a policy that would by definition eliminate progressive taxation and is therefore the reserve of strong economic conservatives--is likely to be a McCain voter anyway). Well: are there others like him? Are there, as McCain said, "millions of others" like him?

The New York Times delves in, and the answers, in short, are: not many, and probably not. "There are fewer than six million small businesses that actually have payrolls," the paper reports, citing Small Business Administration data. "The rest are so-called nonemployer firms that report income from hobbies or freelance work done by their registered owners, earning as little as $1,000 a year. Of these, according to a calculation by the independent, non-partisan Tax Policy Center, fewer than 700,000 taxpayers would have to pay higher taxes under Mr. Obama’s plan. But even some of these," the Times adds, "are not small-business owners in the traditional sense; they include lawyers, accountants and investors in real estate, all of them with incomes that put them in the top tax brackets."

None of this is to suggest that small business owners who make under $250,000 now ought to vote for Obama; nor, for that matter, that those few who do make over that amount--and would, if Obama enacts his tax plan, see a small rise in their income tax--ought to vote for McCain. Best to point out that both candidates recognize the engine of the nation's economic (and particularly job) growth that small businesses represent. In other words, though their policies most certainly do differ, both candidates at least appear to have small business owners very much in mind. Certainly that should be of comfort as Election Day approaches.

We have to admit, as small-business-news junkies, we're a bit excited. The New York Times has decided that how the recession, the credit crisis, and the rest affects small businesses is news fit to print, and will be following the owners of six New York area entrepreneurs and their businesses over the next several months to see how they're doing. The introductory article is here; an accompanying video is here.

Let's meet our contestants:
Mouhamad Shami owns a Middle Eastern restaurant in downtown Manhattan's Financial District. Interestingly, of all the examined owners he may be the one most directly affected by the financial meltdown: it is, after all, employees at collapsed and weakened financial companies--Shami specifically cites AIG, Citigroup, and Goldman Sachs--who are ordering all that hummus for lunch every day.

Michael Menna owns a meat market in Throg's Neck, a neighborhood in the eastern part of The Bronx. Rising energy costs have already hurt him, but the new bad economy is only making matters worse; he guesses that business is down 20% this year. “I noticed they are staying away from the good steaks, like a rib-eye that is higher, like $11.99," he tells the Times. "They’ll buy something that is cheaper, a sirloin or the boneless club steaks for $5.99. Everyone loves the rib-eye, my favorite as well, but you buy four of them for a family of four, it could be expensive."

Ruben Villasante runs a Ditmas Park, Brooklyn-based construction firm. He's had to slash his workforce in half this past year to make ends meet.

Georgette Blau owns a company that runs bus tours, especially ones focused on taking people to real-life sites from famous TV shows or movies--her most popular tour involves Sex and the City. Consumers have less money--that means fewer vacations to New York and less revenue for Ms. Blau.

Lawrence Vayda owns a Saab dealership in New Jersey. Saab is owned by General Motors. Hear how they're doing? Yeah, that badly, and for the same reasons--high gas prices, a bad credit climate for auto loans, the general economy--that Mr. Vayda's dealership is.

Al Venditti's company manufactures heavy-duty bicycles and tricycles. He's had to cut overtime, and is installing solar panels in an effort to reduce energy costs.

Rest assured we will be following these folks as the Times does.

Because videos are fun and it's a Friday afternoon, we wish you a good weekend with this: MSNBC tells us a feel-good story of small business marketing.

Check out TOMS here.

Though we tend to be big fans of journalist and editor Michael Kinsley--he did, after all, found our sister site Slate--we're going to have to take grave issue with a post he recently wrote on The Daily Beast titled, "Quit Helping Small Business". In short: no, don't.

Apropos of the contretemps over The Most Famous Plumber Since Mario, Joe of Ohio (which we covered last week), Kinsley condemns the fuss that is made over small businesses each time an election rolls around: "Small businesses are businesses like any other, and small business owners are people just like others—except that they tend to be wealthier. Why should the magic words 'small business' entitle them to pay lower taxes?" While we're not necessarily against Sen. Barack Obama's plan to let expire the Bush tax cuts for those making over $250,000 per year (as contrasted with Sen. John McCain's plan to continue those cuts), we think Kinsley wrongly ignores and indeed unfairly disparages the vital and unique contribution that small businesses make to the U.S. economy, and therefore fails to see why the government ought to be making it just a little bit easier on them.

For one thing, small business owners do not "tend to be wealthier". Kinsley forgets what Obama himself said during the debate, and what the New York Times essentially confirmed: only 2% of small business owners make over $250,000 and would thereby not see tax cuts under an Obama presidency. And anyway, as Kinsley himself points out, "That $250,000 a year is the owner's net income, obviously, and not on the business's gross revenue." No one--neither Obama nor McCain--is asking that small business owners be treated differently for income tax purposes, and so it is weird that Kinsley goes out of his way to insist that, no, they shouldn't be so treated.

Kinsley's real beef is with small-business tax breaks, of the sort that we currently have in our tax system and that both candidates advocate continuing and even enhancing. (What would the two candidates do for small businesses? Our summary is here.) "There is no need to encourage risk-taking entrepreneurship with special tax breaks," Kinsley argues. "Risk takers will take risks, and if the risks work out they shouldn't mind paying the same level of taxes as everyone else. If the risks don't work out, they won't have to." This is, as Kinsley himself admits, the standard free-market argument: the alternative would be some sort of "industrial policy," that, history has proved over and over, doesn't work as well.

In fact, Kinsley could not be more correct that a free market is best at encouraging risk-taking. This is not a small point: risk-taking is how innovation comes about; and it is by cultivating innovation that a country attains (or, in the U.S.'s case, maintains) global economic leadership.

But tax breaks for small businesses don't distort the free market as far as risk-taking is concerned; they help to create it, and ensure it. If the a priori taxation playing field were perfectly level, then lone would-be entrepreneurs would have a massive disadvantage as compared to, say, employees at big corporations. What cares the salaried employee if he or she takes a risk? The paycheck will still be in the mail every two weeks. And what cares the big corporation if it pays people to take risks that don't always pay off? It can afford to pay 100 such people, and if only one comes through with a big idea, it still gets an ample return on its investment.

On the other hand, the lone entrepreneur with a big idea does not have a salary to fall back on, or 100 ideas and the time and money to test them. And so, with no incentives and no safety net, the lone entrepreneur may just decide to keep his or her idea in its drawing-room stage. Certainly he or she is going to be less likely to join a big corporation and develop the idea from within it, a gambit that provides stability but sacrifices the chance at an especially lucrative reward.

Tax breaks give this lone entrepreneur both the means and the incentive to strike out on his or her own, which in the long run and over the whole population is sure to increase the total number of innovations than if we didn't have them. And this is the reason--or, at least, a reason--why it is not wrong that there does exist some preferential treatment in federal government policy for small business owners.

Fortunately, Kinsley--who, really, we tend to be huge fans of!--isn't running for president. And the two guys who are both believe in the importance of continuing to encourage innovation by continuing to encourage small businesses.

Last Friday, we hosted Judy Estrin--entrepreneur, former Cisco executive, and author of Closing the Innovation Gap--as part of our of our BizBooks discussion series. Estrin is a big believer in innovation, and in the importance of the cultivation of a pro-innovation "ecosystem". Do go read the transcript here. A few of our favorite answers follow.

BizBooks: In what industries do you see the most promise for the U.S. to establish itself or continue as the lead innovator? In what industries is the U.S. current position the least promising?

Judy Estrin: I believe that looking forward energy and life sciences will be important areas of growth for the US economy if we make the right funding and policy decisions and we adjust our business focus to be a bit more patient and think beyond the next quarter or year. I think we have a real advantage where the entire Innovation Ecosystem comes together, and where large corporations can be complimented by entrepreneurial ventures. We are never going to be the lowest cost producer or out number China in the number of scientist or engineers that we produce. But I learned as an entrepreneur that you don't have to be big to get ahead - but you do have to be innovative, adaptive and learn how to collaborate - how to play well with others (something we as a country have not done as well at as we need to).

Washington, D.C.: In the context of the current political campaigns, do politicians' views on social issues--say, on abortion, or on the validity of evolutionary theory--have an impact on the innovation climate?

Judy Estrin: I do believe that these "social" issues have an impact on the innovation climate. Science is such an important part of the Innovation Ecosystem and one of the reasons we have been able to thrive is our "First Freedom" or separation of church and state. This separation has been threatened over the last 8 years which has had a chilling effect on scientific research. We also must make sure that our children know what is science and what is not science. Faith of all types play an important role in our society, but religion should not be confused with science.

Also, innovation requires an open mind - anything that culturally encourages dogma as opposed to openness and questioning will have a tendency to discourage innovative thinking.

Washington, D.C.: Is innovation more difficult in today's risk-averse environment, i.e. with job security and the country's financial woes top of mind?

Judy Estrin: One of the problems that the country has is that we have become significantly more risk-averse, in businesses large and small, in the way venture capitalists or wall street invests and the way politicians behave. This is a big problem for innovation which requires intelligent risk (not the type of blind risk that created the current crisis) - I do worry about this and is one of the reasons that wrote the book and continue to speak about the topic. People need to understand the consequences of being so risk-averse.

BizBooks: Which of the two presidential candidates do you see as more likely to cultivate a better ecosystem for innovation? Which of the two parties in Congress?

Judy Estrin: When I began writing my book I was really not very political, having spent 25 years very focused on building companies (and raising my son). But through the process of writing the book - through research and interviews with over 100 people - I took a harder look at what was going on throughout the country. At the end of the journey I was convinced that Barak Obama is the type of leader that we need to move this country forward. He has a strong commitment to science and innovation and he has the leadership style that is required to inspire and rally the nation. In the end innovation is about turning on the leadership in each one of us. I do not see the same understanding of the need innovation, the respect for science or the leadership style coming from the McCain ticket. I could go on for pages on this topic but will stop here ;-)

We've been praising Google for promising to make the application store for its new Android mobile-phone operating system--whose first active phone, the G1, drops tomorrow--as open-source as possible. This distinguishes Google and Android from its main hip smartphone rival, Apple's iPhone, whose app store is notoriously closed, to the point where Apple has been accused of being extraneously capricious and exclusionary. (We have identified smartphone applications as prime ground for tech start-ups and small businesses.) The general consensus--though there are dissenters--gives the advantage to Google on the theory that open-source tends to do a better job of encouraging innovation than closed source. More clearly, from a branding perspective, open, friendly, underdog Google beats closed, tyrannical, oh-so-cool Apple hands-down.

So we were at first a bit surprised to learn, via The Big Money's all-Google-all-the-time blog "Feeling Lucky," that the G1 will contain a "kill switch" that lets Google erase from all Android phones any applications that it wants--a very Apple-type of feature (yup, iPhones have a similar thing too, not that Apple took the trouble to announce it when the iPhone was launched).

Looks like Google's not so open-source after all. "It would actually be quite funny," "Feeling Lucky" quotes CNET's Matt Asay as saying, "to see what Google would do if Microsoft or Apple put an application on the Android Market that installed Windows Mobile or Apple's iPhone software over Android. Worthy of the kill switch?"

Except here's the thing: the Android app store is still, basically, open source, and is certainly, at least assuming Google lives up to its word (on which its track record is far from poor), more open than Apple's app store. Google was never going to be literally open source, a somewhat terrifying prospect when you really stop and think about it (you want a developer to be able to make anything--but anything--available to any kid who's lucky enough to own a G1?). So the kill switch makes sense from that perspective, and Google does get points--or at least gets fewer points subtracted--for coming right out and announcing its existence. The announcement's attendant honesty furthermore provides reason to believe Google when it offers assurances that it is only limiting applications for fairly obvious, common-sensical reasons, and not either to limit competition or just (as people have accused of Apple) to be capricious for capriciousness's sake.

The real lesson, though, again, comes in the realm of branding. The fact is that this won't hurt Google's brand much, we suspect, because absolutely no one is viewing this issue, or even viewing the G1 itself, in a vacuum. Rather they're viewing the G1 and Android in context, and context means they are viewing them in light of their obvious predecessor and most formidable rival. So Google will get away with this, brand unharmed, and for that the Google higher-ups owe the Apple higher-ups a positively gushing thank-you note.

I'm not going to ask you to say that headline ten times fast, Peter Piper-style (although feel free to try!). Rather, it’s my alliterative way of pointing (sorry about that) out that waiting until the last minute to establish a retirement plan can be costly. And by last minute, I mean year-end.

The conventional wisdom is that you can wait until the end of the year to put a retirement plan in place since you can still get the tax benefits for the whole year. But here are a few considerations to keep in mind, particularly if you're a shareholder-employee--in other words, if you own your company, but for tax purposes you pay yourself a salary:

Let’s say you’re a shareholder-employee of an S-corporation. An S-corporation is one that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code, under which the S-corporation does not pay any income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders--such as, say, you, if you are the owner of an S-corporation. The shareholders must then report the income or loss on their own individual income tax returns.

And maybe you’re one of those shareholder-employees who has minimized your W-2 compensation for payroll tax reasons so that the balance of your income goes on a K-1. The problem with this, it's worth noting, is that only W-2 compensation counts for retirement plan purposes, and so minimizing W-2 income also minimizes the basis upon which retirement benefits can be provided.

Or maybe you want to set up a 401(k) plan for the year. If you do, there may be enough time for you to maximize your 401(k) contributions as an employee of your corporation. Remember 401(k) contributions must be elected in advance and withheld by the employer. A December plan adoption, by contrast, provides only December payroll as a basis for employee deferral.

Instead, by making regular, systematic investments throughout the year, you get the benefit of “dollar cost averaging," and don’t have to worry about timing the market. Contrarian thinking today is that the market meltdown is a wonderful opportunity because stocks are ‘on sale’. If you are making regular 401(k) contributions, you are buying more shares than you could’ve bought previously.

So think of this as an alarm: get done what you can with what remains of 2008. And is it too early to start planning new year's resolutions?

Jerry Kalish is founder and President of National Benefit Services, Inc., a Chicago-based employee benefit consulting and administrative firm that serves private-held companies, publicly traded companies, and public sector employers. He blogs at The Retirement Plan Blog and can be reached at jerry@nationalbenefit.com.

The New York Times runs an article not for its Business but rather for its Metro section on main street banks, today's Bailey S&Ls.
These small institutions are important for small business owners to watch for two reasons. First, community banks--which have assets under $1 billion and tend to be locally-focused--may turn out to be a crucial source of credit for small businesses. And second, they themselves tend to be small businesses--in maybe the hardest-hit industry--and therefore are good bellwethers for how other small businesses could expect to fare.

The fact is, the very things that kept small banks small over the past few years--a combined unwillingness and inability to engage in the exotic trading strategies and invest in the sketchy assets like the big boys in downtown Manhattan--are what are now keeping the small banks above water. (It helps that, as we've reported, they are getting a cushion to the blow dealt by the decline in Fannie Mae and Freddie Mac preferred shares that many of them own--still a pittance compared to the bailout the big banks are getting.) Lehman Brothers seems like the hare to these banks' tortoise.

You also see in the article what appeals about small banks: their down-home-ness, their ability to provide a level of personal service that larger companies would have a difficult time matching--the classic small business advantages. A pharmacy owner in constant need of credit to bide the time between when it pays for medicine and when insurance companies reimburse it switched to New Jersey's Freedom Bank from Washington Mutual because of that service: “We explained it all, and they could tell we knew what we were doing.”

Perhaps the best way to see the advantages of being a community bank in this economic climate is to look at their rate of growth: Freedom Bank isn't even a year old, and four other community banks have been started just since April in New Jersey alone, according to the Times.

The irony (and it is not a pleasant one) is that because community banks are sitting comparatively pretty, they got less out of the bailout; and few are expected to take the Treasury Department's cash. Still, it's good to know that that they are thriving.

We are proud to say that it is our corporate brother, The Washington Post, that has broken a very important, front-page story: of the $89 billion worth of contracts that U.S. government agencies reported giving to small businesses last year--an amount dictated by a legal mandate that a little under one quarter of all federal contracts go to small businesses--at least $5 billion was awarded to Lockheed Martin, Dell, Northrup Grumman, and other companies and subsidiaries of companies that are absolutely no one's definition of "small". The federal government is not giving small businesses the share of contracts that Congress has required it to.

No wonder the American Small Business League and other interest groups are furious that this problem went unaddressed (and indeed may have been exacerbated) during the crafting and passage of the $700 billion big bank bailout. The Post nicely sums up the central problem with this huge, chronic misreporting (besides the fact that it's against the law, of course): "Advocates for small businesses contend that the mistaken agency claims are more than a numbers game," the Post says. "When agencies take credit for awarding contracts to companies that are not small, they penalize legitimate enterprises that need government help." In other words: the mandated quota is there for a reason; misreporting cheats small businesses out of their rightful and legally required share.

The Post examined the government's own information, kept in the General Services Administration's Federal Procurement Data System. Contracts that are awarded to small businesses are reported as such, and have been at least since 1997, when Congress mandated that 23% of all federal contracts go to small businesses--the companies that (as Sen. John McCain has been only too happy to remind us over the past week or so) employ over half of all U.S. workers.

For the record, the fault at least appears to lie with the goverment agencies themselves. The Small Business Administration, whose ostensible job it would be to catch misreporting, is understaffed and has little power to sanction agencies who report contracts that go to big corporations as having been awarded to small businesses. "It is clear that more needs to be done and that contracting offices need to be held accountable for accurate reporting," the Post quotes the SBA's "frustrated" acting inspector as complaining.

In fact, the SBA is expected to issue a report, likely today, revising its earlier $89 billion estimate down to $83.2 billion. In other words: nearly $6 billion misreported. And, at the end of the day, well under 23% of federal contracts awarded to small businesses.

For their part, the companies all at least claim, and not un-credibly, that they never advertise as small.

In case you were wondering, the biggest misreporters, together responsible for over two-thirds of the misreportings, are the Departments of Defense and Homeland Security as well as the General Services Administration--yes, the federal government's own acquisition arm, charged with keeping these very stats!

(To digress quickly, please don't get us started on the lack of sufficient procurement from woman-owned small businesses, either.)

What makes this all the more remarkable is that typical definitions of what constitutes a "small business" for federal procurement reporting purposes actually include plenty of companies that most people would consider big: usually, and depending on the industry, companies with up to 500 employees and $17 million in annual revenue count.

Some of our "favorite" misreportings (with the reminder that the companies tend to assert, believably, that they never represent themselves to the government as small; that, in other words, this is likely the government's fault, not theirs):
-The winner is Science Applications International Corp. (SAIC), a San Diego-based IT firm, which received $258 million in small business contracts, nearly all from the Pentagon. It is estimating 2008 revenues of $9 billion.
-Prototypical defense contractor Lockheed Martin and its subsidiaries (which would not qualify even if they happened to be themselves "small") got $143 million in small business contracts.
-Dell, the old-line Silicon Valley powerhouse that may make the computer you're currently reading this on, received $89 million in small business government contracts.
-$62 million in such contracts went to a subsidiary of L-3 Communications, a $12 billion company.

2008 is probably a lost cause: we can only hope that the inevitable revelations of how many "small business" contracts awarded this year went to immense multinationals are not quite as huge as the 2007 numbers.

However, we will be watching the new administration. They must take quick and decisive action to insure that small business procurement is reported honestly and accurately by all U.S. agencies (though it might pay to start with the Defense and Homeland Security Departments).

Not only that: the inevitably smaller numbers of small business contracts awarded to actual small businesses mean that agencies must be made to make extra efforts to up their small business awards so that they can meet their legally required quotas. Frankly, given how small businesses have been cheated out of their rightful share over the past several years, giving them a little more than the law requires would be far from out of order.

It was just three months ago that the New York Times reported on two federal government reports--one by and detailing the Department of the Interior, the other by the Government Accountability Office--showing numerous instances of, yes, small business contracts going to companies they shouldn't.

And, as during the current scandal, in July the American Small Business League and its president, Lloyd Chapman, were on the scene decrying the millions in government contracts that small businesses were being cheated out of. Crucially, according to the Times Chapman asserted that the mistakes were made not due to innocent human error--which is the defense being proferred this time around as well--but rather due to deliberate decision-making: “the intentional diversion of federal small business contract dollars to Fortune 500 firms.”

Two companies who received Interior Department small business contracts (such contracts purportedly made up over half of the department's total), the oh-so-small John Deere and Xerox, said essentially what the numerous defense contractors and other big businesses said in response to today's Washington Post revelations: that they gave the government accurate information and never sought to portray themselves as small businesses.

In fairness, the Interior Department was not a tremendous offender: roughly $5.6 million in contracts were misdirected in 2006 and 2007--something of a pittance, if still an unacceptable pittance, in the context of the nearly $3 billion total small business contracts awarded by the department during those two years.

The other scandal--the one detailed in the GAO report? Companies deceptively setting up mailboxes in economically distressed areas in order to claim eligibility for the Small Business Administration's Historically Underutilized Business Zone, or HUBZone, program. By doing this, ten companies in the Washington, D.C. area alone were able to secure over $100 million in contracts that should have gone to businesses who actually did business, and didn't just receive mail, in a HUBZone.

In July, the Times noted, "several inquiries, including one by the GAO in 2003, have raised questions about the accuracy of the S.B.A.’s reporting." $6 billion worth of accuracy, apparently.

We just wanted to point your way to the American Small Business League's Website, which contains a perpetually updated tally of what it says is the amount small businesses have lost to big corporations in federal government contracts: a tally it currently places at over $80 million (and counting). The number is so huge because it includes not just misreporting but also many loopholes and other alleged problems with the apparatus for determining federal procurement.

The site also contains a rolling list of various companies that have received federal small business contracts. Such local, struggling concerns as Sprint, KPMG, Blackwater (!), Microsoft...well, just go check it out for yourself. Read it and weep.

Sharon McLoone at our washingtonpost.com sister site reports that the Small Business Administration is urging banks who are qualified lenders of so-called 7(a) loans--the basic SBA program, under which loans to qualified small businesses who apply under the strictures of the Small Business Act are in part guaranteed by the SBA--to extend "flexibility" to small business borrowers in the current credit climate. (Most, though not all, banks are qualified 7(a) lenders.)

What does "flexibility" mean? "We are encouraging our lending partners to follow suit by extending three-month payment deferments on their SBA guaranteed loans to qualified borrowers who need relief," said Sandy Baruah, the Acting SBA Administrator. (Banks who are qualified to make 7(a) and the similar 504 loans already have the authority to do so.) Baruah also asked that banks not "broadly call borrower loans due to changing financial variables, such as fluctuations in personal credit scores, declining collateral values, and reduced home equity."

These are good ideas. Small businesses, already largely left out of the government's major bailout efforts, deserve every break they can get these days. It's a pity--well, more like a shame and a disgrace--that the best the SBA can do towards making them a reality is, um...what is it they're doing? Politely asking banks to go easy? Because banks themselves are having such an easy time of it right now, we suppose? The SBA should be able to make policy, what with it being an arm of the federal government and all. That it can't is madness.

As McLoone points out, part of the problem lies with those fees, and that problem in turn has its roots not in the current credit crisis but in the past several years of the program itself. 7(a) fees have been raised four times just since 2005: all in all, they've been doubled to $3,000 for small- and mid-sized loans, and raised to as high as $50,000 for large-sized ones. It should come as no surprise that the total amounts of such loans have been declining.

Sen. John Kerry (D-Mass.), chairman of the Small Business and Entrepreneurship Committee, has the right idea, having introduced a bill last month to suspend these fees. The right idea, because those fees are a major drag, and never more so than now; but also the right idea, because it's the government's job to regulate, not suggest.

Really. You have the government displaying greater activism, with its $700 billion bailout, than it has since roughly the New Deal. And while the benefits of this are certainly arguable, it is fairly unprecedented. Meanwhile, you have the SBA so utterly toothless that the best it can do is--what is it: encourage? request? beg?--banks, who are the ones in such a bad situation that they need the big bailout, to cut borrowers some slack (as if this didn't work against the banks' own business interests, both in the short term and as a matter of setting a precedent).

Congress: pass Sen. Kerry's bill, or something like it, or anything that gives the SBA actual authority over the program it ostensibly oversees.

In this credit-starved environment--in which, generally, the bigger a bank you are, the less money you now have to loan--we are constantly on the lookout for new ways you can secure credit.

Today we look at two: credit unions, and community development financial institutions. Neither of these are, even now, particularly large sources of credit overall: compare the roughly $10 billion credit unions loaned in 2007 to the $287 billion in small business loans doled out by commercial banks. Still, a loan is a loan is a loan. Will you be one of those savvy enough to get your hands on credit union or CDFI cash?

We see via The New Entrepreneur that credit unions--which are non-profit and membership-based--have been making substantially more loans so far this year. Specifically, they together made $6.5 billion in business loans in the first half of 2008, compared to $4.8 billion in 2007's first half--a substantial jump.

And credit unions' business loans are likely only to continue to grow: the rise of credit union loans is stark evidence of liquidity problems at big banks; the two matters are linked. And, as everyone knows, big banks' liquidity problems only got worse in the second half of this year.

CDFIs, meanwhile, make even fewer loans than credit unions, and also exist for a more particular purpose: they target distressed and other less prosperous communities. In 2006, according to Sharon McLoone, they originated roughly $4.3 billion in loans to micro-businesses and small businesses.

McLoone spoke to the CEO of Opportunity Finance Network, a collection of CDFIs and similar institutions, who explained why he sees such lenders' roles as only expanding in the current economic climate. "They are private sector financial intermediaries that have a primary focus on lending to low-wealth communities," he says of CDFIs. "In the current market that purpose has been expanded because we think of lending in terms of distressed markets...So many more people are in distress now, our target markets have expanded. We lend outside the margins of where conventional finance goes."

Really, though, be sure to read the whole interview, which contains some very interesting stuff.

And be sure to check out your local credit union (and to investigate whether you may qualify for CDFI help) the next time you're looking for that elusive loan.

So it looks like the Washington Post (our corporate brother) had its numbers right yesterday when it reported that somewhere in the neighborhood of $5 billion in small business contracts awarded last year by U.S. government agencies in reality went to big businesses like Northrup Grumman, Dell, and others. Reports Sharon McLoone and the New York Times, the Small Business Administration announced yesterday that $83.2 billion in contracts actually went to small businesses: an amount that constitutes roughly 22% of all government contracts, one percentage point shy of the 23% that was mandated to go to small businesses by 1997's Small Business Reauthorization Act.

That's fairly good news, all in all. In fact, $83.2 billion is a record. Now come our major caveats:

-Around $5 billion misreported seems small when there's over $83 billion that was correctly reported, but that's about a 6% error rate. And we happen to agree with Acting SBA Administrator Sandy Baruah that "there are errors out there and we need to do more to correct them."
-These "small businesses" aren't always truly, well, small. The exact definitions vary depending on the industry in question, but generally, a company may employ up to 500 and make up to $17 million per year and still qualify as a small business for these purposes. Plenty of our readers would no doubt have a good, if bitter, laugh at the thought of a five-office, 200-employee, $15 million company being considered a "small business".
-As we pointed out yesterday, the biggest offenders--the government agencies which, together, accounted for over two-thirds of misreported small business contracts--were the Departments of Defense and Homeland Security and the General Services Administration (which, ironically, is charged with keeping these very stats). Still, out of 27 government agencies to which this applied, a paltry four met their legally required numbers in all five contracting categories. (Many fell short in the area of contracting to woman- and minority-owned businesses, a problem we've reported on.)

Still, there is cause to hope that 2008 and beyond will be better, thanks to a rule that went into effect in the middle of last year requiring small businesses to get themselves recertified as small in the event of a merger. Additionally, while the SBA's decision to "scrub the data" starting in 2005 clearly hasn't been successful enough, hopefully those efforts will bear more fruit as the years progress.

One more note: in response to the Post article, which in detail chronicled the misreporting problem along with some of its most egregious manifestations, Baruah said that an article such as that one "helps us get the word out and adds transparency to the situation." Very classy.

Earlier this week, as we discussed yesterday, the Small Business Administration publicly urged banks to, in effect, go easy on small business borrowers who had taken out 7(a) loans, which are partly backed by the SBA, given the current credit market and general economic environment. The SBA said the banks ought, for example, to make three-month payment deferrals and not call in loans whose collateral has crashed during the mayhem of the past month-and-half. We were very warm to this notion, if also fairly incensed that the best the SBA can do is politely ask the banks--some of whom are in the midst of getting the first wave of a $700 billion injection of federal government capital--do this rather than force them to, in the way that, you know, agencies of the federal government generally are able. (In fairness, since most banks participate in the 7(a) program, and since most of those same banks are currently benefiting from that aforementioned bailout package, most are likely to listen to the SBA's, er, suggestion.)

While we still would like to see some slack cut to small business borrowers at this time, The New Entrepreneur comes through with an insightful, counter-conventional wisdom post that wonders if encouraging the banks to go lenient now could backfire in the future in the form of a further, voluntary tightening of credit. If banks are told not to enforce their current 7(a) loans according to the terms under which they were initially made, the post asks, then aren't they less likely to make future such loans for fear that they will once again be asked not to request payment when it is due?

The blog talks to a banking consultant who articulates this fear: "I think a lot of banks will bend under that pressure in order to placate the government and to appear to be good corporate citizens," he says. "But there is an unintended consequence. It could undercut lenders' enthusiasm for using the SBA system."

Of course, the problem with this is the bizarre lack of power the SBA has. Imagine if the SBA had the power not to ask the banks to go easy, but to make them? And imagine if it had the power to make them continue to offer a steady level of 7(a) loans to worthy small businesses? Before you object that that's too much power--that under that scenario the government, in the form of the SBA, is playing too much of a role in dictating how the private banks operate--let's remind ourselves of the absolutely massive and in this country unprecedented role the federal government is currently adopting in this very industry with the bailout package.

In fact, here's an idea: you want your cut of that $700 billion? Then one condition is that a certain percentage go to 7(a) loans. That could go a long way towards helping credit-choked small businesses, and maybe an even longer way towards convincing those small businesses that the federal government is dedicated to getting them through these tough times, too.

If you know us, you know we're nuts for cloud computing (and also, and relatedly, for the paperless office). It's vastly cheaper, it enables bigger things to get done by smaller and more disparate groups, and, if you do it right, it's even more secure.

Of course, one of the few obstacles to going the cloud computing route is lack of technical know-how. Not that it's particularly complicated; it's just that some of us are particularly unsavvy. Which is why we loved this piece on everything you always wanted to know about using Google Docs (Google Docs being Google's cloud-based word processor). Some of our favorite tips follow.

You can upload Microsoft Office documents onto Google Docs via a variety of programs: the article recommends List Uploader among others.
Create a script of all your Google Docs documents for download onto a CD with this Grease Monkey program.
Track who visited your shared Google Docs document and when (really!) by going here and clicking "Track visits to my documents using Google Analytics."

Check the whole thing out.

Since big banks tend to be short on cash right now, we've been trying to show you new and exciting ways to get cash these days.

Today we'll look at a very typical way of securing money--credit cards--and a more untypical way--factoring companies. Each carries its own certain risks and potential rewards.

Small business' use of credit cards had been growing even before the credit crisis hit, reports Business Week, so that, today, close to half of small firms--and probably even more of those in early stages--use them to borrow money. On the flipside, credit card companies have offered small business-specific cards, to the point that one-eighth of mailed credit card offerings advertise such cards (time to note that BizBox is sponsored by American Express OPEN, its small business card).

What's the problem? You should know if you've ever neglected to pay the full balance of even a personal card one month: interest rates tend to be exorbitantly high--the article reports on one business whose rate on its balance exceeded 30%--because the issuers are essentially free to change the terms just about whenever they like. Keep your balance too high, and your small business card rapidly becomes more trouble, and money, than it's worth.

So how a credit card best be used? The structure of credit card payment is of course such that depending on when you take out on a loan on it, you could have close to a month to pay it off in full without seeing any interest charged. Maybe you have certain monthly needs--overhead? payroll?--that you tend to be able to pay off given enough time? If you're currently using some less onerous form of credit to take care of that, it may make sense to divert that to a credit card and use the other form of credit for something more ambitious.

That said, there's no denying that credit's really hard to come by right now. So it may still be a good idea to bite the bullet and genuinely take out a loan on your credit card. Just try to keep that balance small!

Meanwhile, the Washington Post considers the factoring company, a type of firm that will essentially buy a bill from you in exchange for how much you are owed according to that bill immediately--minus a cut, naturally.

If you need cash immediately, it's difficult to think of a less risky way to get it. After all: this is not a loan. You do not borrow money from a factoring company; you don't need to pay it back. Instead you engage in a one-time transaction with them: something for something. In fact, it's something in exchange for the exact amount that that something is worth. Except for that darn fee, wherein lies the rub.

That bill you're selling to the factoring company didn't materialize out of thin air. Rather, you likely sold someone a good or service in exchange for their promise to pay you back--that bill. You are owed what's on that bill; that's at the heart of your business model. When you go to a factoring company and pay that fee on that bill, you are cutting into your own profit, and upending your whole profit structure. And the fees tend to be large enough that, say, bank loan rates are lower.

Of course, bank loans are hard to come by these days. (And indeed, the article reports of one D.C.-area factoring company that most of its clients are referred by area banks.) So you may find yourself in the position of needing that bill paid faster than you had agreed upon and heading to a factoring company. Our advice: don't rule this out. But before you sell the bill, call up whoever's on the other end of that bill and ask if they couldn't manage to pay some or all of it sooner. You just may be surprised and find yourself getting exactly what you wanted in the first place.

Here's a nice video (perfect for a Monday morning!) featuring just some generally sound small business advice. The first expert comes out of investment advising, but sees parallels between what makes a smart investor and a smart entrepreneur--which perhaps will come as little surprise to those entrepreneurs who see their businesses as, essentially, their own main investments.

For the record, we were in favor of the bailout, even though some in the small business community were skeptical. Even though it appeared to contain little specifically geared towards small businesses, it did contain some provisions that appeared to help them a bit. More broadly, and more importantly, though, we agreed with the National Federation of Independent Business that "This is Not About Wall Street, It's About a Firewall For Main Street". That is: the bailout would unfreeze credit markets, which would not just rescue banks and big corporations but also small businesses in desperate need of credit.

That the bailout was quickly changed from $700 billion to buy up toxic mortgage-backed assets to $700 billion to be injected into banks, if anything, shored up our confidence, as we assumed the banks would take that new capital and do what banks do: lend it out to get the economy going.

Silly us! A phenomenal and important New York Times piece lets us in on the "dirty little secret" of the big banks: they're not lending that money out any time soon! Why would they do such a thing when they could use it to buy up other, smaller, struggling banks and enhance their own positions with the taxpayers' money?

Columnist Joe Nocera managed to listen in on a conference call among top JPMorgan Chase brass (you remember JPMorgan, right? the one that was able to buy Bear Stearns at a laughably great bargain thanks to huge federal government backing?). Like three other big banks, JPMorgan is getting $25 billion in government capital as a part of the initial, $250 billion phase of the bailout plan. Mind you, JPMorgan had no choice as to this: the government has essentially forced it on them. Presumably this was with the understanding that their ability to lend is crucial to jumpstarting the shocked economy?

Well, no such luck. Quoth one executive, when asked how the new capital will affect the bank's lending policies, “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers."

He added: "I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

In other words: acquistions, mergers...consolidation. Not more lending. Just ask this same executive: "We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.”

And remember: this is an executive talking to (he thought) only other JPMorgan employees. This is where the executive is going to be the most honest.

This is stunning. And it makes you wonder why the goverment didn't insert a provision that compels banks to use the new capital to help unfreeze the credit markets. One imagines such a provision would not have been too controversial given that the government is already dictating private enterprise to an unprecedented extent. Certainly, as we wrote last week, the government should take a greater hand in ensuring the flow of Small Business Administratin-backed 7(a) loans from private banks.

But, according to Nocera, shyness was not the government's problem; not including a clause compelling recipients of government cash to increase lending was not an accident. Rather, says Nocera, "Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation." He quotes another Times article to the effect that “the government wants not only to stabilize the industry, but also to reshape it," and pithily adds: "Now they tell us."

Outrageous--outrageous from the perspective of the taxpayer and of the economy as a whole. But also, and maybe most of all, outrageous from the perspective of owners of small businesses. The federal government needs to come up with a new answer, and fast, as to why the bailout deserved their support. We'll be listening.

In Great Britain--"a nation of shopkeepers"--they hold small business owners, whose companies overall generate over half of the nation's gross domestic product, in special esteem. Now, the New York Times reports, these men and women are angry because the British government, having taken unprecedented steps and spent boatloads of money to save its big banks from utter failure only to see little to no effect on the credit markets, has not yet taken special steps to make it easier for small entrepreneurs to borrow money and in general have not treated small business owners to a similar bailout.

Remind you of any other country you know?

The Conservative Party--which has been out of power for over a decade--two prominent newspapers, and of course small business interest groups are leading the charge for tax breaks and easier, cheaper credit. The Tories seem to be achieving some success at using the issue to cleave small business owners from their traditional relationship with Labour--apparently, over there, small business owners tend to ally with the party of the right, the opposite of the U.S. political dynamic.

Among the more innovative proposals proferred by one group, the Federation of Small Businesses, are the establishment of a small business rescue fund of one billion pounds (a little over $1.56 billion) backed by the European Investment Bank and the institution of a policy of publicly listing late-paying consumers. That latter idea--inspired by the apparent problem of tardy payors depriving businesses of much-needed cash--strikes us as a bit much, and certainly would never, ever fly in the U.S.'s more privacy-concerned ideological climate.

We'll lastly point out one thing that small business groups and the Tories haven't been advocating: that the government compel banks to take the new government capital and be sure to loan at least some of it out, in order that the ploy has any hopes of actually accomplishing what it's supposed to, namely, unfreezing the credit markets. They haven't been advocating this because they haven't needed to: as a condition of receiving the several billion pounds of capital, the bank-recipients--the Royal Bank of Scotland, Lloyds TSB, and HBOS--were required to return to "2007 levels" of small business lending, according to the Times.

Imagine that--a government that actually wants the banks to use taxpayer money to jump-start the economy rather than just acquire other banks! Now if only they had decent food and decent weather...

As certified cloud computing nuts (hint: it's cheaper!), we can only say: welcome, Microsoft! We look forward to the roll-out of Azure.

Now probably seems like an inopportune moment for us to be harping on you to go green. Caring for the environment, and organizing your business in a way as to be friendly to it, may seem like a nice thing to do when times are good. But right now, you might think, is not the best time to pester you with eco-consciousnesses--you have more pressing matters at the moment.

But--and you should know what's coming next--the truth is that going green will also cut your costs if you do it right. And yes, that's true even now that energy prices have come down from their record highs of a few months ago (and anyway, $60/barrel oil is still historically stratospheric). It's a point Scott Cooney made in his recent BizBooks conversation; and a point made in an Entrepreneur.com excerpt of a new book, 101 Ways to Turn Your Business Green.

A summation of the piece's advice:

Cut down on energy consumption. Obvious, but true--the only argument is whether this is of greater benefit to the environment or to your bottom line, but of them will be very pleased with you. Specifically, the piece recommends that you conduct an energy audit, comparing how much you use (and pay for) with how much you should be able to get by with, and keeping track of not letting consumption growth get out of hand as your business itself grows. Also, use energy-efficient light bulbs.
Plants! Good for the environment, good for your office air quality, and just generally good for morale. The piece has a nice list of recommended plant types for those not blessed with green intuition.
Reuse bags. Not just for Whole Foods shoppers.
Encourage working from home. It will save your employees gas money and the enivronment as well, yes. But it will also allow you to spend less on day-to-day office maintenance.

In the case of several of these things, there actually is an initial extra cost as compared to the same old, non-green status quo. Those nifty energy-efficient light bulbs, for example, do cost more tha the regular ones. But then they last longer and cost you less energy, and you save costs in the long run. And while you're at it, yes, you are doing a good thing.

We reported Monday that from the government's perspective the point of the $700 billion capital injection into big banks is less to encourage the banks to loan out that money in turn and more to give the banks the capital necessary to acquire smaller banks and promote consolidation in the financial industry. (A crack reporter even listened in on an employees-only JPMorgan Chase conference call and heard top brass discussing the government cash they are receiving in exactly these terms.)

Well guess who, according to the Wall Street Journal, is not happy about the government's encouraging of consolidation? The 8,000-strong community banks, those locally focused institutions who each have under $1 billion in assets--really, when you think about, these are the industry's small businesses. Their objection is that the big banks have faltered because of dumb decisions they made, while the community banks have not because of their own wisdom and sound practices; now, the goverment is not only bailing out the big banks but actually encouraging them to buy up the small ones.

Fortunately, community banks have a lobby called the Independent Community Bankers of America. "It will be a battle royal from day one in Congress" said the group's chief executive. "The one part of this system that has functioned well has been the community banking system...We're going to be screaming every step of the way."

We've covered the community banks extensively, both because they seem a particularly promising avenue for small businesses to borrow money during the current credit crisis and because they are themselves mostly small businesses--the small businesses in the hardest-hit industry who nonetheless appear, for the most part, to be doing just fine. The bailout was not without help to them--it changed the tax system in order to cushion the blow dealt by the fall of preferred shares of Fannie Mae and Freddie Mac, which many community banks held. But this is nothing compared to the massive help the government has pledged to give to big banks.

In fact, consolidation encouraged by government capital has already begun: late last week, PNC announced that it is purchasing a Cleveland community bank for a little over $5 billion. The acquisition was helped along by the $7 billion PNC is receiving from the federal government (which is to say, from you, the taxpayer) as part of the first, $250 billion phase of the capital injection.

The lobby may seek not just to prevent the government from encouraging consolidation, but even to have the government to force the largest institutions to divest some assets. If predicted Democratic gains in both houses of Congress come to pass, they may find a yet more sympathetic ear. "I remain especially concerned that, in the Treasury's zeal to make the capital-injection program easily digestible for the banks, we're feeding them a little too much dessert and not making them eat enough of their vegetables," remarked Sen. Charles Schumer (D-N.Y.), quite possibly the most powerful member of the chamber.

This isn't just about fairness or moral hazard--although, really, giving the banks that screwed up a lot of money to buy up the banks that didn't screw up isn't the best way to encourage future good behavior. This is about convincing skeptical small business owners that the federal government has their best interests at heart, too. How it deals with the community banks could serve to reassure small business people...or confirm their worst fears.

As with our importuning you to go green, you may initially respond to our plea to do what you can to avoid laying off any employees with a little bit of skepticism. We will do what we can in good times, you may say; the current economic situation, on the other hand, requires any means necessary.

But, as Independent Street argues in a helpful post, lay-offs may more than ever not be in your interest: they require a ton of paperwork and usually a little bit extra immediate cash--think severance, think unemployment benefits--when you really don't have the time or cash to spare. And, of course, they are absolute morale-killers, and right now you need to squeeze every last drop of productivity out of your employees.

Okay, you say, but you still really are hurting, and if now maybe isn't the time for lay-offs, it's also not the time for business as usual. What do you do? Some suggestions:

Freeze new hiring. A no-brainer, but still, don't forget to do this for a time even if it is apparent that you do, eventually, need to shed employees.
Cut time/cut benefits. Whether its fewer hours per week or unpaid vacation days, cutting paid time is a way to save cash on payroll without wrecking morale. This is an especially good idea if you determine that the economy and your industry are such that the next serveral months are a time just to hunker down and survive--you're less likely to miss the extra man-hours, if so. Cutting benefits is a more straightforward to make your payroll more affordable without letting anyone go.
Offer buyouts. This is especially popular with newspapers (er, especially right now, as advertising revenues have plummeted.) It does cost a bit more cash up front, but it saves you in the long run, and shouldn't substantially harm morale.

A thing to understand is that your employees aren't dumb (well, hopefully not). They know what kind of economy we're in, and are looking at for the next several months; they understand the position you're in. You'll probably be surprised just how willing to work with you (literally) they are, as long as you are clearly always conscientious of their needs and their morale. So ultimately, do what's necessary. But do it wisely.

Credit card company Discover has released the results of its monthly small business owner survey, and the outlook--and these entrepreneurs' outlook--isn't brilliant. (Time to note that BizBox's sponsor is also a credit card company, American Express OPEN.) The survey's confidence index has reached its lowest rating in its admittedly brief, two-year history. 64% of those surveyed said the economy is "poor". And that's up seven percentage points from last month alone.

Just as important, and perhaps more surprising, is the results where the survey asks small business owners about the bailout--those $700 billion of government (read: taxpayer) money you've been hearing so much about. Guess what! A majority--57%--say they "disagree" with it! Shocking, really, what with the government not including things the small business community had asked for and then turning around and, apparently, telling recipients of the cash not to lend it out but to use it to buy, yes, smaller businesses.

Sigh. Stats after the jump.

53% say business conditions are worsening.
We said that 57% think the economy is poor; but a full 74% think the economy is getting worse. This is probably a better marker of actual optimism (which is forward-looking), and so a particularly dispiriting figure.
38% said they'd had cash flow problems over the past three months. This is an important metric to watch as we try to gauge how badly the credit crunch is affecting small businesses. This figure is actually four points lower than last month's.
23% plan to increase spending, as compared to 42% who plan to decrease it.

And the bailout numbers...
69% did not express confidence that the federal government can take care of their needs.
While roughly equal numbers believe that the bailout will respectively help and hurt their businesses, a true majority--53%--believe it will have no effect. $700 billion is a lot to spend for no effect.
Decent news is that 77% say they haven't needed to borrow money to pay their bills; bad news is that of those who did need to, 70% said it was harder than usual.
55% reported taking home less money in October. Ugh.

You could have predicted the optimism rating would be poor. But attitude toward the bailout? 57% against? This is really a pity, and a shame. It is also worth pointing out that the bailout didn't do literally jack-squat for small businesses (the Federal Deposit Insurance Corp. deserves small business owners' MVP award); and that the argument could have been made--and was made by none other than the National Federation of Independent Business--that the bailout, by (hopefully) unfreezing the credit markets, did offer help to starved small businesses.

It's furthermore worth mentioning one other statistic from the survey: 56% say "that they do not believe that government action can help the economy enough to benefit their business." That figure is for all intents and purposes identical to the one representing those who are against the bailout. Who is making up that a-bit-over-half? Some of them are, no doubt, just cynics who for ideological or temperamental reasons simply think the federal government is not powerful enough to help their business. These folks will never be won over, and so be it.

But there is no way that diehard cynics form a majority of 1000 randomly chosen small business owners. Some of these people do think the federal government is capable of taking action to help them; they just also think that, in this instance, it did not. And for that, the government should probably be ashamed. It should also realize that its massive capital injection will, eventually, help unfreeze the credit markets (that is, if it's lent out, not used by the big banks to acquire the small banks under tacit government encouragement) and thereby will end up helping many small businesses. Maybe the problem is in part one of marketing. Regardless, these are some sorry numbers.

It seems natural, during a bad time (and this is a bad time: we can frankly start dusting off the r-word), to cut costs. What could be more obvious? And while it might be nice to cut costs in a wise manner--by going green; by being wise in terms of lay-offs--the fact remains that with less revenue coming in due to lower consumer spending and a generally contracting economy, for now it's probably best to be spending less too.

But a column at AllBusiness's Small Business Blog offers the caution that, if you perhaps should be spending a bit less, spending too little will simply run your company into the ground.

The column warns against slashing new technology spending: the new technology you can acquire will save you money in the long run. It warns against slashing from your sales staff: that will, yup, slash sales as well. It warns against slashing from your marketing budget; in fact, it counterintuitively argues that now is the time to increase marketing.

"Don't be a penny-wise and pound-foolish business owner," the author says. "You may think you can trim the fat by eliminating the morning donuts or the company parties, but the money you save will quickly be replaced by lowered employee morale."

So be smart, stay on the balls of your feet, and try to avoid cuts where possible.

A few days ago, the New York Times's Joe Nocera reported on big banks' plans to take the billions in government money they are getting from the $700 billion bailout package and use it not to increase loans and unfreeze the credit markets but to acquire smaller banks--this is, in fact, what the Treasury Department itself wants them to do, according to Nocera.

Today, on his blog, Nocera prints an email from a "small business banker and credit underwriter" at "one of the country’s biggest banks". His argument? The government needs to start lending to small banks--the community banks--specifically in order to make sure that small businesses can get loans. As he puts it (he's identified as a he), "The government has already done plenty for the big banks. It needs to stop worrying about them now. Instead, it need[s] to pump money into the local community banks because those are the bankers who understand their markets, and know the businesses in their markets."

And: "If we make the bailout funds available to the community bankers, I promise they will know what to do with the money. They will lend it and they will make prudent lending decisions, based on direct and comprehensive knowledge of the borrower. So what are we waiting for?"

...well??

We've written extensively about the community banks since the economy first cratered in September. They're crucial to BizBox's beat right now, for they are at once the small businesses of the all-important financial industry as well, we believe, a vital place for small businesses to turn to for credit in the coming months.

Anonymous Big Banker's point is that the big banks, who don't have strong community ties and instead rely on impersonal metrics like credit scores, are not going to be lending to small businesses as long as the credit markets are remotely this bad (tell us something we don't know). He says, "Big banks like the one I work for typically have an aversion to lending to companies whose sales and profitability trends are deteriorating, even in tough times like these. Thus, very credit-worthy businesses are having their lines cut back or closed down." The community banks, by contrast, know the local entrepreneurs and will be willing to lend if they have enough capital to do so. Enter the government.

Politely asking big banks to lend to small businesses won't get the job done, according to Anonymous Big Banker. (We made this same argument when advising that the government compel small businesses to use some of their newfound capital to ensure a steady stream of Small Business Administration-backed 7(a) loans.) Instead, he suggests that the government--which has a just a teensy bit of leverage since it is giving these banks hundreds of billions of dollars, and is also, you know, the government--compel the big-bank recipients of government capital to use fairer lending standards that will result in increased loans to small businesses. He also advocates making more of the government funds available to small businesses.

While we're quite sympathetic to Anonymous Big Banker's perspective, we do have a couple quibbles.

First off, his email to Nocera seems to have been written under the assumption that the feds would like the big banks to use the capital to increase their lending, and that they're simply going about achieving this goal in an unwise way. But Nocera himself, in his column, alleged, "Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation." In other words, it's entirely possible that the government does not want increased lending, at least as compared to how much it wants increased financial industry consolidation. Which is a huge problem, to be sure, but a different one altogether.

The second problem is that the community banks appear reluctant to take the goverment cash, as we reported. Still, they could perhaps be persuaded that despite the fact that they pursued prudent business strategies while big banks went on an irresponsible binge, there is no dishonor in taking government cash, if only in order to make the post-bailout playing field more level.

One thing is clear: the government needs to act, and fast, to get cash flowing to small businesses. Otherwise, the 57% of small business owners who said this past month that they disagree with the bailout is going to look like a good figure.

Angel investors--who tend to be independently wealthy people who are willing to invest their own money in start-ups--are almost by definition, if not investors of a last resort, at least the last investors to leave. The current economic crisis has borne this truism out, but with a twist. Angels are investing in fewer and fewer start-ups as belt-tightening forces them to become pickier and pickier. On the other hand, the inadequacy of alternative forms of investment--the stock market is volatile; company bonds are unpredictable; government bonds are low; basic savings are set to be outpaced by inflation--has actually led to the increasing attractiveness of angel investing as simply another investment vehicle. In other words, fewer ventures were receiving angel funding, but total angel funding, at least in the first half of the year, was actually up.

As early as the beginning of this month, the Wall Street Journal reported that angels are being very stubbuorn about which start-ups they will invest in but remain willing ultimately to invest plenty. The Journal talked to several angels who said pretty much what we said above: the wise course is to invest more, but to invest it in fewer and ostensibly wiser endeavors.

The numbers bear this out.

Compared with the first half of 2007, in the first half of 2008 angel investing simultaneously decreased 3.8% in terms of how many ventures received such funding (23,100) and increased 4.2%--almost the same rate--in terms of how much was invested in this manner ($12.4 billion), according to a Download file">report put out by the University of New Hampshire's Center for Venture Research (h/t Inc.com). This while the total number of individual angel investors grew 2%, to roughly 143,000.

So who is getting this more widely but also more abundantly distributed capital?
-The top two industries should be unsurprising to those familiar with how venture capital generally works: software and healthcare companies received, respectively, 18% and 17% of all angel funding during the examined period (the first half of this year), though if you add biotech's 8% than the broader healthcare field is receiving at least a quarter of all angel funding.
-Here's an interesting set of statistics. The amount of angel investing that comes at its recipients' initial (seed and start-up) stages has remained mostly the same: 46%, up a not-very-substantial 4% from the 2007 first half. The difference comes when examining angel investing during the following two stages. Early-stage (post-seed/start-up) angel investing went down from 48% to 33%, while expansion stage funding exploded more than 150%, from 7% to 19% of all angel funding. The conclusion is clear: while angel investors remain fairly game to take on very young endeavors, they are going to be much more wary of companies that are at once big enough that they neeed more cash but small enough that their ultimate success isn't assured, instead favoring older companies where their stakes are probably a little smaller but their investments are more secure.
-Women represent 13% of angels and 10% of the owners of businesses that received angel funding; minorities represent 4% of angels and 10% of the owners of angel recipients. Importantly, both groups' yield--the chances that an entrepreneur seeking angel funding will secure some--are in line with the overall average.

So there you have it. Angel funding may be one of the few ways of scoring cash that is actually increasing (although it will be interesting to see the numbers for the second half of 2008, which experienced calamities much worse than the first half of the year). But you will need to work all the harder for it and be all the more deserving of it. Are you ready and prepared?

Well this should surprise exactly no one. The number of loans backed by the Small Business Administration dropped a whopping 30% in fiscal year 2008 from FY 2007, and the value of all such loans dropped a sobering 13%. (The numbers come from the SBA; h/t Inc.com.) The decline is of course in large part attributable to the general credit crisis; and the fact that 2007's numbers were record highs likely didn't help. But just because the credit situation deteriorated doesn't mean that small businesses' credit needs slackened, or that the government's obligations to look out for them were dissolved.

You may have noticed the interesting dynamic at work: though both the number of loans and the value of all loans decined, they did so at dramatically different rates. Total loans dropped from 100,000 to 70,000, a pretty steep decline; the difference between the value of FY 2007 loans, $20.6 billion, to FY 2008 loans, $17.96 billion, is quite significant but also much more modest. In other words: the average loan in FY 2008 was larger than the average loan in FY 2007. The SBA is trying to pick businesses where its loans will have the best effect for everyone, and then increasing the amount. Should this strategy sound familiar, it's because we reported earlier today that it's exactly the strategy being pursued by angel investors, who have loaned more money to fewer places as a way to try to cope with the scarcity of credit and the contracting economy.

In a statement, Acting SBA Administrator Sandy Baruah blamed the "perfect storm" of the credit crunch. Blameless, in his reckoning, are those segments of the executive branch with actual teeth as well as Congress for not compelling the bank-recipients of the newly materialized $700 billion in government capital from increasing their SBA loans. The SBA, to its credit (no pun intended), has asked the banks at least to cut recipients of 7(a) loans some slack. Unfortunately--and through no real fault of its own--the SBA lacks the authority to do anything in the way of compelling such action.

Of course, given the not-unreasonable fear that asking the banks to allow 7(a) borrowers extensive leniency could in the long run choke the flow of 7(a) loans, it might make sense for the government just to step in directly (perhaps via the SBA). Sen. Chuck Schumer (D-N.Y.) has suggested "tens of billions" in direct lending to small businesses as a part of the larger bailout effort. At the least, it could tell the banks to lend some of this capital out to small businesses instead of telling them to hoard it in order to acquire small banks.

For, as always, the fact remains: small businesses need credit. If the SBA, whose prime function is precisely backing so-called 7(a) and 504 small business loans, can't loan these companies money, well then, Congress: what are you going to do about this? Come January, we'll be taking notes.