'Member last week, when we said that we hope that lots of federal stimulus money ends up flowing to the states? The idea being that in the states' hands it is more likely eventually to make its way to the small businesses on the proverbial Main Street who are having some trouble getting their hands on necessary cash right now.

Well, via Open Forum (which is run by BizBox's sponsor, American Express OPEN), we learn about an intriguing, states-administered program called self-employment assistance. Basically, it is unemployment assistance for the unemployed who are trying to reemploy themselves by employing themselves--by starting their own businesses (whether literally or in the self-employed sense). This is important because, believe it or not, if you are unemployed but spending even marginal amounts of time working for or trying to set up something whereby you are self-employed, then you are not eligible for unemployment assistance. In fact, the self-employment assistance dollar amounts are the same as unemployment assistance.

The problem? Ah, yes. The problem.

The problem is that, though run out of the U.S. Department of Labor, it is a states program, and a voluntary states program, which only seven states actually participate in: Maine, Oregon, Maryland, New Jersey, New York, Pennsylvania, Delaware.

We couldn't put it better than the post itself: "So, if you live in one of the magical seven states that has the program, you can encourage family and friends and neighbors facing unemployment to consider starting their own businesses. And, if you live in one of the other forty-three states that don’t offer self-employment assistance, it may be time to contact your state department of labor to ask why."

Of course, part of the reason why is that it's voluntary in the first place. Imagine a stimulus package that combines more money for states that wish to take up this valuable program combined with additional enticement for participating? Or even, well, requiring state participation? It seems to us that the unemployed who are trying to re-enter the workforce and start contributing to the economy again ought to be encouraged, no matter if they are trying to get hired by a multinational or trying to start a business of one. If, as it's frequently said, recessions tend to give birth to exciting new start-ups and the like, then the government ought to be cultivating favorable terrain for smart men and women to seize their own reins. Expanding self-employment assistance looks like a good place to begin.

Last week we discussed the first law that Barack Obama signed as president--the Lily Ledbetter Fair Pay Act. We were happy then, and we remain happy: the law fixes an illogical structural inhibition that prevented employees who were genuine victims of pay discrimination from suing their employers. Our hope is not that the Act will lead to more lawsuits, but rather to less pay discrimination; and we trust that the system will work in such a way as, ultimately, to bring that result about.

However, in the short term, there is no denying that the law may mean a few extra small headaches for the average business owner. As we say, we believe the goal is broad and important enough to justify these headaches, but they're still there, and what you--the average, decent small business owner who would never think of adjusting your employees' pay on the basis of anything other than skills, experience, and seniority--need to do now is to make sure you are fully in line with the letter of the new law, as you no doubt already are with its spirit.

To that end, Fortune has put together a brief compliance guide that we heartily recommend.

The basic idea is that you should be sure to look at your current compensation structure, as well as the compensations of all of your current employees, with fresh eyes. May even be worth getting a lawyer to do same.

A couple extra tips:
Why the disparity? Of course you shouldn't pay everyone the same. But make sure you can easily explain pay differences among your employees with reference to skills, seniority, experience, or other legitimate business reasons.
Institutionalize the law. That means training any underlings with hiring or interviewing power on what the rules are, it means updating any employee handbook you may have--basically taking steps to ensure that the spirit and letter of the new law is fully ingrained in your company and its employees.
Document, document, document. You absolutely cannot do too much paperwork regarding hirings, firings, intra-employee and employer-employee disputes, and anything else; and you simply can't keep it around long enough. Just remember: if you're doing nothing wrong, then your detailed notes of what transpired are your friend.

Economists have endlessly debated the phenomenon of decoupling--the theory that, even in an age of globalization, the world's economies are not so linked that the downward motion of one, particularly of The Big One (that is, the U.S.'s), is guaranteed to bring the rest tumbling down with it (here's a primer, courtesy of The Economist). From what we've read, many economists have actualy been surprised at the extent to which decoupling has not taken place during the present recession, with even China's economy--the ultimate powerhouse of the past decade or so--going roughly stagnant.

Even so, as far as small businesses are concerned, it appears that the more globablly integrated you are, the more confident you are right now, according to a UPS report. Inc.com brings the news that in a survey taken last September (which, admittedly, came before the financial crisis began in earnest, but was taken in the middle of what we now know to be a year-plus-long recession), 56% of surveyed small business owners whose firms trade internationally expected to be in a better position one year from then; only 41% of owners of wholly domestic firms felt that way. And in a follow-up survey conducted last December--after the financial crisis hit, and hit hard, that is--the disparity remained, and in fact widened: 62% of the global business owners expressed confidence, compared to 39% of the domestic ones.

The fact of the widening, with the trends only exagerrated as the U.S. economy grew worse, is especially telling. It strongly suggests that, at least as far as perceptions are concerned, the advantage is with being globally integrated, and the disadvantage with not. If nothing else, after all, being globally integrated is one more way of diversifying your business and your customer base.

Think about it. There's a whole world out there. It might be time to start exploring.

The Harvard Business School and its research isn’t just for the big companies. In fact, a significant amount of research has been done in the area of entrepreneurship. New research in a just-published working paper, "Performance Persistence in Entrepreneurship" (35 pages, PDF here), indicates that entrepreneurs with a history of success are much more likely to succeed in new ventures than first-timers or those who failed previously.

Quite obvious, you might say. But HBS researchers were surprised at just how much successful experience, or performance persistence, pays off. Successful entrepreneurs in the study had a 34% chance of succeeding in their next venture-backed firm, compared with 23% who previously failed and 22% for first-timers. (It should come as no surprise that success, in general, is difficult and rare!)

The research, conducted by HBS Professors Paul A. Gompers, Josh Lerner, and David S. Scharfstein, and former doctoral student Anna Kovner, can be summarized as follows:

* Previously successful entrepreneurs are significantly more likely to lead successful new ventures than first-timers or those who previously failed.
* Some of successful entrepreneurs' edge comes from their adeptness at selecting the right industry and the right time to start new ventures.
* Suppliers and customers are more likely to back a person with previous successes.

Bottom line: Their research suggests that if you want to be a successful entrepreneur, it might be best for you to team up with other entrepreneurs who have a track record of success.

Here is a link to an article by Sarah Jane Gilbert in the Harvard Business School Working Knowledge newsletter about the study.

And if you want to get a first look at cutting-edge management thinking, you can subscribe to the Harvard Business School Working Knowledge newsletter as a weekly newsletter or through an RSS feed.

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.

We write a lot about the federal government's small business contracting--mostly its failure to live up to its legally mandated quota of 23% of contracts flowing to small businesses. Today, instead of reporting more bad news, we thought we'd link you to this helpful post on how you (yes, you!) can land yourself a nice, lucrative government deal, which, incidentally, there may well be more of in the coming months and years.

Among other things, the post warns that putting yourself in a position to reap goverment contracts is a long, arduous process--"don’t think you can simply call up the Department of Defense and get work," as the author puts it. But the post does provide a helpful checklist.

Briefly:
-Check the Federal Acquisition Regulation database (as well as relevant city and state ones) for upcoming bids.
-Are you woman-owned, veteran-owned, or minority-owned? There are special programs for you (whose quotas the U.S. is also falling short of, by the way, but still). Be sure to let the relevant people know this.
-Sign up at the Central Contractor Registration site.
-Be ready to act fast. That means having lots of relevant information, for example on your capabilities and finances, amply documented and ready at hand.

So there you have it. Go scoop yourself up some federal dollars!

In my first column, I noted that in my law practice representing business owners and my experience running businesses, it seems that entrepreneurs tend to lament, or feel sorrow or regret for, the following:

o Focus. Pursuing new ideas to the detriment of the core business.
o Work/Life. Missing out on real life while pursuing business passion.
o Employees. Inability to find great help and keep them.
o Partners. Challenges in finding or maintaining good business partners.
o Money. Inability to find necessary financing for growth or survival.
o Burnout. When one morning you just can’t do it anymore.
o Boredom. When there’s not much more to build.

We covered the work/life balance in the last column. Today we move to one of the least admitted laments: finding and keeping great people.

Let’s face it: what do employees of entrepreneurial ventures typically have to deal with? Either they have a micromanaging, controlling boss, or the opposite--one who is not interested in any details because he or she is always “chasing the dream.” Particularly in small businesses, there can be tremendous uncertainty about where the business is headed. Could a few bad months mean the end? Might the boss/owner sell tomorrow to someone who will consolidate and lay off many? Some bosses are self-centered and egotistical and have little interest in “the little people.” There are no controls on the boss, who can fire or make dramatic changes on a whim. Sounds lovely, right?

So what does it take to bring in the right people and develop them into satisfied, long-term employees? A few things, but they require a little work for some. I have seen a number of clients do this successfully--but, frankly, not many.

First, to get loyalty you have to give loyalty. Your employees' loyalty must be earned, and should never be assumed. How can you convey (and embody) loyalty? Stand behind your people; provide support if they are going through something difficult personally; simply be nice.

For example, I (almost) never fail to say please and thank you to my staff. I never raise my voice. Occasionally, we will simply buy lunch for the whole firm. We celebrate birthdays every month. We hold several firm-wide events each year to foster greater loyalty. I will strongly chastise a partner who appears to be rude or mean to a staff member.

A smile also helps. Once in awhile, go over and ask, “How’s it going? Everything OK?” Those little things mean a lot. A law firm I know told six attorneys who had been recognized for their accomplishments to leave immediately and get on a plane. They were sent to Vegas, where the firm had prepaid their $10,000 entry fee (each) to a poker tournament.

Second, try to find people who it seems will enjoy the crazy ride that comes from working at entrepreneurial companies, which tend to be different because of their very unpredictability. As a risk-taking entrepreneur, you should look for people who are risk-takers themselves, who think staying with a company like yours is as much for the “fun” factor as anything else. Think about the Google “millionaire secretaries”--they dealt with all the craziness, but it paid off when they finally went public. My office manager is with me 20 years and says she loves watching me constantly pull a rabbit out of my hat (I sanitized that one a bit).

But be careful: you don’t want employees to be too much like you. The entrepreneur loves to focus on the big picture, but you need the staff to be down in the trenches getting things done. If they are also dreaming a little too much, they will take their eyes off the prize. Or worse, they might take an idea they develop and leave to go on their own.

Third, one must develop a sense with each employee as to which is more important--current income or long-term opportunity. Some of them are simply trying to make ends meet and would rather make a few more dollars than, say, receive stock options (nothing wrong with that). Others are looking for that brass ring and are willing to sacrifice a little today for a lot tomorrow (nothing wrong with that either). Upon making partner, a lawyer I know in a smaller firm was given a choice: receive a 50% raise, or receive a percentage of the firm’s revenues, which had the potential to more than double his salary. He took the percentage, and indeed doubled his salary. But there are always trade-offs.

Fourth, in setting salaries, remember the “going rate”--however much is just enough to keep your employees from going. In a big firm I worked at, we did not receive the highest wages. Instead, we received the going rate. Find the magical number--the one that, for just a few extra thousand dollars, will prevent someone from leaving. And offer other benefits. Not just employee benefits, but psychic benefits. Study after study shows that being happy with the work environment, not just salary, is extremely important to workers.

Some entrepreneurs indeed lament that, even with all this, they can never find talent able to handle things as well as they themselves would. Accept that staff only needs to do things well enough, even if that is not the perfection that you yourself would produce. Your company can create quality products or services that best the competition, even if it doesn't bring that extra something you would. And if you train your staff right, they might just get close to your awesomeness.

Next time: getting and keeping good business partners.

David N. Feldman, founding partner of Feldman Weinstein & Smith, is the author of Reverse Mergers and blogs at Reverse Merger & SPAC Blog. He can be reached at dfeldman@fwsllp.com.

Today, BizBox ventures where it normally fears to tread: the New York Times Food section. Today's cover story--written by the paper's chief restaurant critic, Frank Bruni--is about something that should be near and dear to the hearts of small business owners everywhere: how to coax customers to patronize your establishment when they have far less money to spend. The answer, unsurprisingly, is what the paper has elsewhere called "desperation marketing": using any means necessary, and any type of deal, to keep the revenue coming in. As Bruni writes of most New York restaurants, right up to the top ones, "They’ve seldom wanted you so bad, so they’ve rarely treated you so good."

The "hugging" Bruni frequently cites isn't just creative and genuinely solid bargains, by the way. It's the little things, too, the ones that don't cost restaurants any extra money to offer. Like reservation bookers who, announcing nothing available, try to plead with you to book for a different, open night. Or servers who are more attentive than ever. Even the fabled 21 Club is no longer requiring a coat and tie for all its male diners, a concession, perhaps, to recession chic.

But it is also about deals. Those who don't live in New York may not understand what it means to be able to secure a $35 dinner at Jean Georges, or to get a series of $10 dishes on Fridays at Tom Colicchio's Craft. Suffice to say that these are some pretty tremendous deals.

And it's not just that expensive is being cut down to reasonable; interestingly, hyper-expensive is being cut down just to merely expensive. A decadent, 20-course meal at Mario Batali's Del Posto, formerly $250, can be yours for just (yes, just) $175. Do the math, and look at just how dramatic a cut that is.

The idea behind all of this is simple: customers are better than no customers. And this maxim apparently holds true even, of all places, in the restaurant business, where profit margins are already notorious for being as thin as a line of fishing wire. Even these places feel that their ultimate saving grace is less in cutting costs and more in bringing in the customers--who may order that one extra drink, or that one extra dessert, or come by that one extra time, and end up putting the restaurant over the top in that month.

If you and your business have not already been marketing in this way--offering deals, changing up your games, doing practically anything to keep customers coming through your doors--then let this serve as your wake-up call. Marketing to the recession isn't just the smart thing to do: it's downright fashionable now!

ADP's monthly job survey just came out, and the picture, needless to say, isn't pretty. (Full report here.) The top number is 522,000: the number of non-farm jobs lost between December and January.

However, the vast brunt of these losses were borne by medium-sized and small businesses. The former group--defined by ADP as firms that employ between 50 and 499 workers--lost 255,000 jobs. Small firms--those that employ under 50--lost a full 175,000. "Sharply falling employment at medium- and small-size businesses clearly indicates that the recession continues to spread well beyond manufacturing and housing-related activities," ADP concludes.

In a write-up, CNNMoney.com talks to several small business owners--they're hopeful that the (hopefully forthcoming) stimulus will help stem the job-loss tide--before bearing the bad news, quoting ADP's research partner's chairman: "Macroeconomic Advisers projects another 3 million layoffs, plus or minus, in next 12 months. That means for the next year, we'll be seeing layoff numbers that will be about as drastic as the ones we're seeing today." Yikes.

No one--but no one--is a bigger booster of the community banks than BizBox. (Look at all we've written up about them!) These small (under $1 billion in assets), locally focused financial institutions tend to understand their, well, communities better than the big banks do; they also tended to be wiser over the past several years while the big banks got drunk on toxic securities. Consequently, they are the ones who are doing their best to extend credit to deserving small businesses, and they are probably the ones you should look to. Plus, they themselves are frequently small businesses! For us, these guys are the home team.

We welcome all further confirmations of our beliefs, and Inc.com provided a solid one recently, pointing out that fully half of all small business loans under $100,000 are made by small banks, and quoting the National Federation of Independent Business's chief economist thusly: "If you're borrowing from a mega-bank, you probably can't get the loan, because they have a cookie-cutter model."

So imagine our shock--and sort of terror--upon reading, via The New Entrepreneur, that many community banks may be up to their necks in failed commercial real estate loans, and are in danger of going under.

Now, as we reported months ago, it has been long and widely known that many community banks were unusually loaded up on Fannie Mae and Freddie Mac preferred shares--which, needless to say, did not do so well after those two government-sponsored entities were renationalized. However, as a part of the broader bank bailout, the government decided to allow losses on such shares to count as business rather than capital losses, thereby theoretically saving the banks (and other shareholders) a whole bundle.

But this news about the commercial real estate loans is new to us, and it is indeed disheartening--an estimated 200 to 300 community banks may close as a result of this phenomenon, according to ProPublica.

Additionally, Small Business Trends reports on a new study that found a long-term trend towards fewer small banks, and small banks that are smaller. Specifically: over the past fifteen years, the number of banks with under $100 million in assets shrank from over 8,000 to under 3,000. And the remaining small banks' deposits are going away fast, with the country's top five banks now holding nearly 40% of total deposits.

The other reason to believe community banks may shrink further is the way the bank bailout has--somewhat perversely, we'd add--shifted even more capital and power to the country's biggest banks. The community bank, well, community has been veritably traumatized by what happened in October, when large bank PNC, flush with $7.7 billion in newly acquired taxpayer money, bought Cleveland's small National City for a cool $5 billion. That will likely not prove to be the last such instance.

We're going to refrain from totally freaking out. We just hope that as the government continues its bank rescue--because that stuff is far from over by all accounts--that it keeps the community banks, and their importance to small businesses, very much in mind.

New trend! With the job market, both generally and in particular for smart, ambitious college graduates (who might be inclined to look for jobs in, say, finance), being dismal right now, many college kids and recent graduates are looking into creating their own jobs rather than going looking for them--and the small business/entrepreneur establishment is only too eager to help.

The National Federation of Independent Business has smelled the Zeitgeist and responded accordingly: they are now offering a special discount student membership rate of only $25 per year. That's compared to a standard membership rate that, depending on the size of a prospective member's business, can range from $300 to $2400 annually. Those in college or within a year of graduating are eligible for the special rate. This is a great service the NFIB is providing (it's also a wonderful example of recession-era discounting--retailers, take note!).

Earlier this week, meanwhile, Independent Street ran a great post that contained several valuable tips for young entrepreneurs, basically mirroring an article that appeared the day before (the one difference: in the print edition, the young are called Generation Y; online, they are called by the apparently savvier "Millenials").

The blog advises
having modest funding expectations--the credit markets being what they are;
asking advice of your elders--yes, they may be older and more staid in their ways of thinking, but they've also done it before, and on top of that, they and their generations control the purse strings;
nab those young people-specific loans--many special programs offer loans exclusively to young entrepreneurs;
get a lawyer--annyoing, but you'll need one.

Finally, Entrepreneur weighs in with the tale of two Babson College undergrads who were able to get their business up and running in part by reaching out to current and former members of their fraternity. The point? Colleges provide the kind of extensive, helpful, built-in networks that older entrepreneurs dream of, and pay thousands of dollars a year to be party to, for free.

This will give older entrepreneurs yet one more reason to wish they were young again, and for that we apologize. But you know, a great way to feel young again--and to be young at heart again--is to help an up-and-coming entrepreneur get his or her ventures running. Just a thought!

We've written before about the comparative merits of Microsoft's and Apple's specific ad campaigns (the above link, for example, concerns the ill-fated "Mojave Experiment"--remember that one?). Today, though, we're focusing not on the campaigns themselves but on how much each company is spending on advertising. The answer is surprising, and instructive.

No, Apple is not outspending Microsoft: that would be insane. Apple reported $32.5 billion in 2008 revenue; Microsoft's 2008 figure was $60.4 billion. And indeed, according to this New York Times article, the $191 million Microsoft spent on advertising in the first three-fourths of 2008 made it tops in the technology sector, with Apple coming in second at a much-lower $133 million.

But still, and as is so often the case, the story is Apple.

As the Times notes, Apple is not remotely one of the technology industry's largest players. Forget Microsoft; I.B.M., just for example, had 2008 revenue that topped $100 billion. But Apple is the second-largest advertiser, and its ad budget is only growing: it maintained that it increased its ad spending in 2008's final quarter over the same period in 2007.

The result of the 2008 spending blitz? Apple gained another two points in the personal computer market, bringing its share to 10%. Of course, those two points almost by definition come out of PCs that run a Microsoft operating system.

The Times article of course discusses the companies' competing campaigns, as well as Microsoft's well-documented troubles with its Vista OS (whose replacement, Windows 7, won't be available for six more months if Microsoft's extremely lucky).

But the point we wish to take away from this is the same point we took away from the news that Denny's bought its first Super Bowl spot ever (incidentally, did you catch it? it's here, and it's hilarious). Namely, that advertising and aggressive marketing isn't best for the top dogs operating in fat times; it's best for the up-and-comers looking to steal away some market share during lean days. It is for the small, right now, in the recession, to seriously consider upping marketing budgets. It may work for Denny's; it's certainly working for Apple; and it could work for you, too.

It's hard to suggest that Obama's selection of Maine venture capitalist Karen G. Mills to head the Small Business Administration will prove remotely as controversial as his picks for Secretaries of the Treasury (Tim Geithner--since confirmed) and of Health and Human Services (Tom Daschle--since withdrawn), both of whom turned out to have tax issues.

But Mills, whom we went over here, has gotten a bit of negative attention in the small business blogosphere (here and here, for example) after non-profit investigative journalism outfit ProPublica did some digging and found that one of the private equity funds Mills helped to run, Solera Capital, did not do so hot. How not so hot? No one is suggesting any sort of epic fail, much less anything unsavory, afoul-of-the-law, or anything else definitively wrong. It just looks as though Solera has produced significantly modest returns for its investors (which included CalPERS, the California public employees' pension fund, which is the world's largest institutional investor, if we're not mistaken).

The other main caveat worth noting is that Solera appears to be only one small part of Mills's professional life. She's run other p-e funds, for one, which ProPublica did not investigate; she's presently the MMP Group's president. She's worked as a venture capitalist. She received an MBA from Harvard. She's worked closely with the governor of Maine on public-private partnerships. She most recently worked on Obama's transition team. She even put in time at consulting powerhouse McKinsey & Co.

It would be a cop-out simply to say, "Running a p-e fund is nothing like running the SBA"--administering something is, to some extent, a universal no matter what exactly is being administered; and besides, this is the track record we have to go on. At the same time, they're also clearly not the exact same thing, and so while we trust that more information will come out once Mills is formally up for confirmation (a hearing appears not yet to have been scheduled; Darryl Hairston, a deputy associate administrator, is the current acting administrator), we're certainly not going to let one fund's mediocre showing damn her outright.

Especially when Mills appears to offer a lot. Especially when, as Kiplinger has reported, Obama seems to be putting a laudably large amount importance on the SBA and its head, going so far as being the first president in quite some time to announce his pick for administrator before his Inauguration. Especially when she appears to have been selected with the tacit approval--at the very least--of Sen. Olympia Snowe, who is, like Mills, a woman from Maine. The Republican senator is the ranking member of the Small Business & Entrepreneurship Committee and is a very good person to have on your side. To get things done, the Obama SBA will need her on their side, and if Mills will put her there, then Mills has done a solid chunk of work already.

So we hope that the Senate performs its due diligence on Mills's record when the time comes to take a closer look at her. And when they do, we hope that Solera turns out to be an aberration, and that Mills turns out to be the hyper-qualified, solid choice we hope she is.

On a day when we learned that the U.S. shed nearly 600,000 jobs last month, and now has an unemployment rate of 7.6%: a beautiful, sobering article from the Wall Street Journal that reminds us who it is who is employing the majority of those workers who still have jobs--small businesses.

Remember: over 50% of private sector jobs are created by small and medium-sized businesses.

Because, and especially if you're in the northern half of the United States, you sure ain't going outside!

Be contagious! How to create the next huge viral video for your business. [Entrepreneur.com]

Fear itself. Guess what the only thing the entrepreneur has to fear during tough times is? Some tips on how to beat it. [Fortune Small Business]

Falling angels. Angel investors are increasingly becoming an endangered species, particularly in the tech industry. [New York Times]

Have Google map you. How to take advantage of Google Maps. [SmallBusinessNewz]

Buyers' market. Small, boutique financial institutions stand to gain from Barack Obama's desired limits on big banks' executives' pay. [Wall Street Journal]

Too much information? How much you, as the business's owner and their boss, should share with your employees; and, how much is too much. [Forbes]

Peeping Toms Related to previous: how to make sure your employees don't find out things they're not supposed to. [Inc.com]

Happy weekend!

Assuming a joint House-Senate stimulus bill is eventually agreed upon, passed, and then signed by President Obama--whose missteps in guiding this legislation through are documented well here, among other places--then the federal government will end up spending somewhere in the neighborhood of $800 billion through a combination of tax cuts and spending in an effort to jolt the economy out of its current contracting slumber. The debate over how well this will work dominates D.C. But will it help the country's small businesses?

Survey says: not really. The proposed stimulus has received a heap of criticism from entrepreneurs and from the small business community, who say the proposed legislation does not contain nearly enough targeted specifically to help them--the New York Times quotes an International Franchise Association spokesperson estimating that only .05% of the House bill concerns small-business lending programs, with the Senate's version only slightly better. And the legislation is specifically hit for its alleged likely failure to create enough jobs to compensate for rising unemployment in the nation as a whole and at small- and medium-sized firms in particular.

What does the stimulus bill have? Independent Street had a nice rundown of the House version when it was passed late last month. Its passage would allow small businesses to receive cash refunds in exchange both to offset current losses (these are the so-called "carry back" rules we covered here) and in exchange for tax credits for which they are not eligible should they not be bringing in enough money. Companies that have received credits for such things as clean energy would be allowed to exchange these for cash. At the time the House bill was passed, small business groups acknowledged what the bill did while insisting it was not enough; so, in fact, did the Senate Small Business & Entrepreneurship Committee.

Now that the alternative Senate bill has been largely hammered out, Sen. Mary Landrieu (D-La.), the new head of the Small Business Committee, laid out her grounds for support for the bill, Sharon McLoone reports. The main thing the Senate bill appears to add is the elimination of fees associated with Small Business Administration-backed loans, which have been in freefall.

Specifically, according to this release, the bill would temporarily eliminate fees associated with the SBA's most popular lending program, the 7(a), to the tune of half a billion dollars; it would also eliminate fees associated with the agency's 504 loans, estimated to cost another $100 million. Elimination of these fees could lead to as much as $20 billion in new small-business loans, the committee estimates. Finally, the bill attempts to grow the agency's burgeoning microloan program by investing $6 million in it. It also has $10 million for oversight. McLoone reports that the committee's ranking member, Sen. Olympia Snowe (R-Me.)--generally a crucial figure for passage of the stimulus--has been working to make these additions stick.

If that sounds like better-than-nothing but also not-that-much, then you agree with the National Federation of Independent Business's new head, Dan Danner (yes, that is his name). He weighs in with one of the interest group's patented "The Voice of Small Business" columns. "These provisions are a good start, but in the current economic climate, it's simply not enough," he argues.

He proposes a six-month payroll tax holiday, expensing laxness that is "sustained and meaningful"--extending the bill's allowance for the expensing of up to $250,000 in equipment investment into 2009 and 2010. The payroll tax notion is an especially intriguing idea. On the one hand, we're hesitant about further straining an entitlements program that is already in crisis; on the other hand, it is heartening to see the NFIB, a generally conservative outfit, proposing to cut the most regressive of all taxes.

One thing does seem clear: while we can and should quibble over just how much small businesses are getting out of this deal--and it seems to us that the answer, quite plainly, is "not enough"--a stimulus is desperately needed right now. A while ago, John Tozzi argued forcefully for the importance of the federal government's going into further debt in order to spend more (and perhaps cut taxes more) in order to juice the faltering economy; those warning against the government's spending any money at all right now are to be dismissed.

The NFIB recently conducted a poll--there's the "voice of small business for you"--and guess what? One third of small business owners say the recession has significantly affected their business for the worse; and additional one quarter say it has threatened their very survival.

For all our talk about fixing the SBA's loan programs, expanding expensing, tax credits, government investment, and the rest, the real name of the game, at this point, is demand: people need to have enough money to buy things, and enough confidence to borrow money to buy more things, if the economy--and all the small businesses dependent upon it--is going to get running at an acceptable speed again any time soon. Since the days of the Great Depression, John Maynard Keynes, and the New Deal, we've known that the best way to stimulate demand is to have the government provide it at the outset. What we're trying to say is that, at this point, while we wish the current bills did more for small businesses, we'll take pretty much anything so long as it is passed and implemented very, very speedily. Congress, Mr. President: your turn.

Exciting news: via Melodies in Marketing, we learn that the Small Business Administration's 504 loan program, designed to aid small business owners seeking to build commercial real estate, has been expanded to provide extra incentives for such builders to construct green-friendly projects.

The changes, which are the result of 2007's Energy Independence and Security Act, increase the ceiling for the amount of project financing guaranteed by the SBA under the 504 program to $4 million, should the project in question be demonstrably green-friendly--specifically, should it involve using energy-saving technologies to build or retrofit buildings such that energy consumption is reduced by at least 10%. Previously, the limit was either $1.5 million or, under special circumstances, $3 million.

A prospective lender is also eligible should it elsewhere in its business utilize renewable energy technologies--whether as a part of this specific project or even as a part of their own day-to-day business doings.

Finally, small businesses may apply for up to $2 million in 504 financing if their buildings utilize sustainable design techniques.

Under the 504 apparatus, the cut guaranteed by the SBA (which is actually provided by a Certified Development Company) constitutes 40% of the total financing (10% is required in a down payment; the remaining 50% comes from a traditional loan). What this means is that, in guaranteeing up to $4 million, the SBA is opening the door to projects costing as much as $10 million.

Unlike the expansion of Community Express loans--which actually denied women and minorities a valuable niche program--this should simply work to increase the percentage of commercial facilities built by small businesses that are green-friendly. It's hard to find a problem with that.

Last week, our very own Jerry Kalish brought news of one study on entrepreneurial success and its conclusions: having had previous start-up success is a pretty great indicator of your chances at success as you embark upon a new start-up, particularly as compared to to those who haven't started a company before.

Now Independent Street brings news of a new study--this from the Small Business Administration's Office of Advocacy--that found another trick to start-up success: have a plan.

More precisely, having a business plan will not necessarily ensure that you ultimately accomplish more with your start-up. But, the study found, those entrepreneurs with business plans accomplished more early on than those that did not, which is in turn an advantage in seeing how good your business's prospects are.

"Our findings indicate that early formal planners are doers," the researchers write. "We believe that "challenging prospective entrepreneurs to accomplish a formal business plan early in the venture creation process will likely enable them to engage in additional start-up behaviors that could further the process of business creation. By engaging in venture creation activities earlier rather than later, prospective investors and other venture supporters might ascertain earlier whether a fledgling idea has potential as an ongoing business."

So what's your plan?

Both Congress and the U.S. Department of Labor--the federal agency charged with overseeing the fiduciary aspects of retirement plans--have given 401(k) fee disclosure plenty of attention. Still, while proposed regulations and legislation work their way through the system, it’s a small, privately-held business that puts fee transparency and other 401(k) features into a practical setting.

The company is BrightScope, Inc., an independent data analytics firm that just launched a 401(k) ratings disclosure Website featuring the BrightScope Rating™, the nation’s first online 401(k) rating system--it judges various plans and spits out a hard number for you to look at. It can serve as a good reference, and as a good reference point: it shows you the stuff admirable 401(k)s are made of.

The company apparently consulted with top independent fiduciaries, finance professors, and 401(k) experts. In making its ratings, it takes into account over 200 unique data inputs per plan and calculates a single numerical score to define 401(k) plan quality at the company level.

For example, BrightScope currently rates the 401(k) Plan for Southwest Airlines Pilots as among the top plans within its respective peer group, as measured in terms of plan size, number of participants, and employee demographics. The full rating report is here. Do check it out!

The Southwest Airlines Pilot 401(k) Plan's BrightScope Rating

Participants contributing to this plan, BrightScope says, have a high likelihood of having a secure retirement.

You can see detailed scores and attributes for the other approximately 1000 of the largest 401(k) plans that BrightScope has reviewed to date by visiting their Website. More plan ratings will be available later this year. Maybe even yours. And even if it doesn't have yours, if you are a small business owner, BrightScope serves as a great resource for looking at other plans and comparing yours to them.

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.

Secretary of the Treasury Tim Geithner has just announced his plan to overhaul the current bank bailout scheme--the production formerly known as TARP. More so than the stimulus, it is the bank bailout that is truly integral to getting credit flowing again, to the biggest corporations and to the smallest businesses.

All told, the new plan will use as much as $1.5 trillion, with the following, crucial caveats: that figure includes the $350 billion that Congress appropriated for the original bailout but that has not yet been put to use; it will also include private money invested to buy those hard-to-sell toxic securities you've heard so much about; and, while that is the amount being spent, much of that will be in the form of loans. All told, there is no reason why the federal government (which is to say, the taxpayers) couldn't come out of all of this ahead down the road. But it will likely be pretty far down the road. But no matter how far down the road, if it sufficiently greases the wheels of lending, it will have been worth it.

So what's actually in the new plan?

More investing. The remaining $350 billion from the original funds will be used in much the same way as the original $350 billion: it will be invested in banks in exchange for preferred shares--which is to say, it will be loaned to the banks under terms that enable the government to convert their loans into ownership stakes.

A "bad bank". This idea had been bandied about a lot, and it looks like it's going to happen after all. Somewhere between $250 and $500 billion will be raised--in part by private investors--to purchase from banks those securities backed by toxic assets (typically housing-related) that are at the root of so much of our current troubles. Briefly: a problem for many banks is that they refuse to lend money because they have these unpriceable assets on their balance sheets; the uncertainty of what these assets are worth causes the banks to be reticent with credit. By buying these assets up, the bad bank would take them off off the banks' balance sheets, thus making banks feel as though it is safe to lend again. (Meanwhile, the bad bank holds the assets until the market improves, and, at least in theory, sells them off down the road for a profit.)

Lending against loans. A couple months ago, we reported on Treasury and the Federal Reserve's plan to lend roughly $200 billion, on favorable terms, to banks, with the collateral being assets backed by certain types of now-sketchy loans, including credit card debt, auto loans, student loans...and loans backed by the Small Business Administration. The idea being that, by creating a secondary market for these loans, the government can coax the making of new loans of this type. Well, scratch that $200 billion figure. Under the new plan, it will be closer to $1 trillion.

Geithner promised vastly increased transparency and accountability as compared to the way the bailout has been administered, explaining, "The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to the public distrust." This is pretty much objectively laudable.

The rest is more up in the air. Will this, at long last, work? And, secondarily, is it too kind to the banks that have so royally screwed up?

It does seem to us as though the first question ought to outweigh the second, and that it has correctly done so in the new administration's deliberations over the bailout's new shape. Retribution and vindication are nice and all, but they are not sound bases for important policy; and the only reason at the level of policy to be harsher with these banks, the so-called "moral hazard" argument, strikes us as significantly less important than the more immediate threat of the massive credit drought (and anyway, the whole moral hazard framework may be fairly specious).

Which brings us to: will it work? Specifically: will it work at increasing the flow of credit to small businesses in need? It does seem like a marked improvement over the previous bailout. Now we'll wait and see.

We came across this official fact sheet on the Obama administration's Financial Stability Plan, which describes in detail an initiative that is getting relatively little play but which strikes us as crucial: The Small Business and Community Lending Initiative. Here's the lead: The guarantee on SBA loans has been raised.

"Few aspects of our current financial crisis have created more justifiable resentment than the specter of hard-working entrepreneurs and small business owners seeing their companies hurt and even bankrupt because of a squeeze on credit they played no role in creating," the administration observes. Now, the government is setting out to rectify matters. Specifically, it has its eye on the calamitous drop in Small Business Administration-backed 7(a) loans, which declined 57% in the previous quarter alone.

The initiative has three broad points:
-Purchase AAA-rated SBA loans.
-Raise the SBA guarantee on its loans to 90%.
-Reduce 7(a) and 504 loan fees, and increase oversight and processing funding.

Let's look at these more closely.

The purchase of the SBA loans is nothing all that new, although the extra attention it is getting here does imply a greater focus. In December, as we reported, the Fed and the Treasury said they would lend to banks against assets backed by credit card, auto, student, and--yes--small business loans. The theory being that you have the government step in to create a secondary market for these loans, thereby prompting lenders to begin making them again (knowing they can sell them off as they did before the credit crash). A central part of the Obama administration's broader Financial Stability Plan was expanding this program from the $200 billion announced by the Bush administration late last year to somewhere closer to $1 trillion. This program should go a long way towards persuading banks to make these loans again--remember, banks are the ones that actually make SBA loans, which are then backed by the federal agency to varying extents.

Speaking of varying extents: raising the loan ceiling is the big news. While we don't have details, what we know is this. Previously, the SBA would guarantee between 50% and 90% of 7(a) loans, with 50% being the most frequent percentage. Now, the administration is putting its full weight behind a provision in its stimulus plan that would have the SBA guaranteeing between 75% to 90% of each SBA loan. That, you'll note, is a 50% increase from the previous floor of 50%. This is a huge deal, and provides a great incentive for banks to start making these loans again.

Finally, there's the reduction of fees. This was actually added to the House stimulus by the Senate, as we reported yesterday. It seems as though the Obama administration is committing to keeping the provision in there as the House and Senate bills move forward through the reconciliation process, though. It is yet another thing that should make banks less reluctant to make these loans. And the increased funding for processing and oversight should make the program work faster and more efficiently.

Finally! We see real, concrete, small business-specific stimulative steps being taken, or at least proposed. We hope this isn't the last time.

A couple weeks ago, we thought we finally hit upon it: a more efficient way to get federal dollars flowing to small businesses. The somewhat paradoxical answer: do it through the states! Specifically, we realized that beefing up money to the states would in turn see more of that money go to small businesses--since state governments tend to be more responsive to the little guys, and since since states give money to their cities and towns, which tend to be even more responsive to their small businesses. Got that?

It was with that in mind that we were greeted by this Independent Street post detailing the small-business stimulus measures many states have already proposed or undertaken. And it turns out that we forgot one more argument for giving the states more money as a means to helping out small businesses. We forgot the states' status as "laboratories of democracy"--50 smaller entities in which innovative new policies can be brought up, tested, and adjudged. A look at what several states want to do to give their small businesses the help they need is a great reminder of this feature of our federalist system.

Let's take a look at a few of the proposals:

Direct lending. The federal government may so far have been reluctant to start lending directly to small businesses, but that hasn't stopped the states. Most expansively, Florida is offering loans of up to $250,000 at an extremely favorable 2% interest rate for small businesses looking to expand. Colorado's Democratic governor wants to create a $5 million fund to serve as a sort of state Small Business Administration, in the business of partially backing small-business loans made by banks.

Lowered taxes. At least as far as small businesses are concerned, Arizona has entered the great Tax Cuts vs. Spending stimulus debate on the side of tax cuts, slashing business and property taxes for small businesses and adding tax incentives. So, more tentatively, has New Jersey, which has--this is interesting--considered offering sales tax credits in exchange for over-$5,000 capital investments. And so, more robustly, has Republican Minnesota Gov. Tim Pawlenty, who wants to eliminate the sales tax on small-business purchases of equipment and to institute a refundable 25% tax credit on businesses that invest in themselves.

Going green! Some states are seeking to design their small-business stimulus packages so as to encourage energy efficiency. Pawlenty wants to create tax-free zones for businesses that create green jobs. One Colorado proposal would give tax breaks to businesses that utilize clean energy technology.

Health insurance help. Martin O'Malley, Maryland's Democratic governor, wants $15 million to help small businesses deal with the mounting costs of health insurance.

So now we're left to see how the competing House and Senate versions of the proposed stimulus get hashed out. Will the feds give the states the resource they need to aid their small businesses? It's worth pointing out that the Senate version, despite being a total of $19 billion more expensive than the House's, contains over $37 million less for the states, according to ProPublica. How silly and shortsighted! And how dismissive of small businesses.

Whether or not you're interested in offing the heroin dealer who tried to kil your Mafia Don father (as well as the police chief protecting him), it is very important to remember where what's business ends and what's personal begins. Specifically, it is very important for small business owners to keep in mind how their business operations, business finances, and personal finances--what Entrepreneur.com calls the "Triangle of Entrepreneurial Finance"--overlap and affect each other. You can't adjust the the length of one side of a real triangle without affecting the lengths of the other two; ditto, you might say, this triangle.

Business operations are the business's day-to-day expenses: rent, payroll, administration--that sort of thing. Business finances are the business's broader assets and liabilities: the value of its brand, capital purchases, and cash flow, on the one hand; taxes and other debts on the other. And, of course, personal finances do not involve the business, at least not directly.

The article does not tell you exactly how to balance the three legs of this triangle--that's up to each particular entrepreneur. But it does provide a useful reminder of the triangle's existence, and of the interdependence of its three legs.

"It's nice to be able to know that if you screw up, it's your fault and no one else's, and if you succeed, it's all on you. How lucky are we that we get to do something that we love and work with people that we love and pursue our passion--you couldn't be any luckier. And once we really hit it it'll be so sweet."

Our guests today are Nick Scapa and Read Fasse--25 and 24, respectively--who head up Honor Roll Music, a combination studio/agency/label/artists' commune in Miami: a new kind of business altogether. You'll want to keep an eye on these guys over the coming years as the music business slowly but surely gets remade.

If you are a small business owner interested in being interviewed for Small Business Salon, or know one who would be (or should be!), please email us at bizboxonslate@gmail.com.

BizBox: What, exactly, does Honor Roll Music do?
Nick: Our first component is, we are actual music/record producers. We've done records for Vanessa Hudgins, Miley Cyrus, stuff that's been in movies--we've worked with the chairman of Geffen Records. The other component is we sign bands, composers, artists to individualized deals. We provide them with a phenomenal workspace--4800 square feet--and you can accomplish whatever type of music you hear in your brain here. And we put that into our library, and we license that to TV shows and movies. They can also score original music. Then, lastly, is our record label component--every single thing you can do for a band, we'll all facilitate within our walls.

How did Honor Roll come about?
Read: We started when we were still in school at the University of Miami. We met there, worked our way up through the ranks. I was a music school dude, Nick was communications. We were young. It just kind of escalated, we were working out of dorm rooms, school studios, and we slowly moved our way up. When we graduated, we moved into a bigger house, and built two studios there. Out of those studios, we were making music for Visa for the 2006 Winter Olympics, for Volkswagen, doing things you'd expect to be done out of a big studio. Along the road, we'd have big conference calls, and in the next room our roommates would be making dinner.

We ended up with a house we rented, where we housed our musicians. That gave us the springboard to understand our business and find the perfect space. You don't need to build a giant studio--you build for productivity. You need to build it to suit your business.

From there, we designed the new recording studio on graph paper on the kitchen table, and executed it in about four months. Our place started out as a completely empty warehouse in the design district. It was an old Haitian ragshop. It was disgusting--there were rags all over the place. We went in there, we claimed it, ripped out anything that was there, and built it up. I know where every single wire is and I know why it's there. Now we're up and running.

Can you describe Honor Roll's business evolution?
Nick: We're basically trying to build a marketplace. The first thing we developed was our production--that was our biggest breadwinner at first. Last year, the main breadwinner was advertising, commercials, and licensing, cause we took the time to really develop that infrastructure. And next year, it will hopefully be the bands. The idea is that once we have all the components in place, then there's one single marketplace. We produce, then license, a song gets into a commercial, it affects the band's sales, etcetera.

How many acts do you have?
Nick: We have seven people signed to us. They're people for different audiences. We have a band that could be a pop-indie crossover. We have artistic prog-rock niche groups that I don't even understand, but that someone will. We just want to have someone to offer for everybody. It's very up-to-the-times to have a label that's multidimensional.

Reade: The unique part of the business is that for years the music business was very separated. You'd have big record labels focused only on selling records, music companies producing music for commercials, licensing companies, a recording studio somewhere else. It was all so very disconnected. Everyone got lost in a sea of CD inflation, and they lost sight of the end result, which is the consumer. It's going to take a lot of power to reinvent the wheel, and the only people with that power are young people lke us.

We're trying to house them all under one roof, cause they're so interactive. The people we ally ourselves with are very talented and very multitalented. Kids you can trust. We've gotten really good at figuring out who's shady and who's not. It's very much a family in here.

How do you find and recruit your acts?
We're divinely guided. We're very lucky. Everything's happened organically. It's been wonderful. When you start finding this pool of talent, it attracts a lot of people, and good people. We're into trying things. We just met this new guy--he's one of my best friend's cousins--named Michael McGinnis, from Illinois. And this guy has been unbelievable, he's taking on tons of responsibilities. People love being in that space, they love being a part of Honor Roll, they have a lot of fire. We feel like we work with everyone. We have about six interns, we have kids coming in every day after high school.

Who runs the business itself?
Read: It's us two who are really running the business. Everyone else is kind of on their own. They all have different deals--some exclusive, some non-exclusive, some artists, some producer. These guys will come in, and I'll make them incorporate--you need to do it, so I can pay you as a corporation and you don't have tax implications. I help them get their on their feet. The music business is one of the most convoluted businesses to understand, especially the revenue streams, and yet it's full of some of the most moronic people. You give these artists an advance, and they go off and buy a Benz, and they wonder where the money went. We budget them--and they're all very thankful for that.

How did you learn the skills you need to run a business?
Read:: Growing up, my parents were very practical people. I'm a musician, but I'm not like "a creative type". I'm very organized. My dad ran a small farm in a tiny part of Illinois. I'm from Atlanta originally, and everyone there is relatively smart. I didn't just go to school for music--it was a music production and film score program. You're also studying the business.

Nick: You don't learn any of this stuff until you experience it. I'm a Jewish kid from the Valley. I grew up interning at record labels. I saw bands like No Doubt come from nothing.

How has the slumping economy affected your business?
Reade: We started this business at a time when the economy has been terrible, and the reality is we've been kind of slowly building this thing for years. We've developed different revenue streams, we've been lucky with what we've gotten, we've put a lot of it a way, invested a lot of it straight back in the business. We haven't taken out any loans for this thing, which is pretty unbelievable. But you have to understand that over the years we've acquired a lot of things--equipment, furniture. We went to the thrift stores over Miami and picked out the funkiest stuff we could.

What do you like most about owning your own business?
Nick: Waking up is great, because every day is a chance and a challenge. It's nice to be able to know that if you screw up, it's your fault and no one else's, and if you succeed, it's all on you. How lucky are we that we get to do something that we love and work with people that we love and pursue our passion--you couldn't be any luckier. And once we really hit it it'll be so sweet. We're learning as we go cause there is no handbook. It's totally a brand-new frontier. It's very exciting, and very difficult.

Read: You're making the decision yourself, and you're making the decisions not only for your business but for someone else's livelihood. The best thing is: you can wake up every morning and do something you love and put the 18-hour day towards your future, not somebody else's. You're pursuing your dream, and not building for somebody else. It's really quite nice. There's some days where nothing could go more perfectly, and there's some days whree everything's going terribly.

That's the beauty of a partnership, too. Some days, when one person is feeling up or down, the other is feeling the opposite. And I think a partnership is a very important thing. We have friends who've partnered together and it just hasn't worked, but it's like getting married--you gotta choose the right one.

We apologize for the paucity of posts over the past couple days. Unfortunately, the laptop owned by your trusty BizBox editorial producer came down with a failed hard drive, and this inhibited regular posting, the regular schedule of which resumes today.

Meanwhile, and as horrible as the experience of being denied a computer is, it's worth pointing out that it could have been much worse, and that it wasn't much worse thanks, in large part, to cloud computing software--of which BizBox has long been a strong advocate--and particularly Google's suite of cloud software.

We were able to keep and set new appointments on Google Calendar; keep up with the latest articles about small businesses and entrepreneurship--as well as, er, sports--on Google Reader; and, of course, check and send mail on Gmail. We also didn't really lose much in the way of documents, since what wasn't backed up on an external hard drive is stored on Gmail simply because at one point or another we sent it to someone else or to ourselves. We were even able to publish yesterday's Small Business Salon right according to its biweekly schedule, because we had prepared it not in Microsoft Word or some other hard drive-bound word processor, but rather in Google Docs.

Cloud computing proved a tremendous boon to us. Can it help you too?

Well it looks like the optimism in our previous post--in which we announced our laptop problems were over--was somewhat premature. (Though our point about cloud computing very much stands!) We leave you with a brief list of choice articles and blogposts to check out. Enjoy the long weekend! We're going to go get our computer fixed. For real, this time.

401(O)(k). Is now the time to add 401(k) plans to your employees' benefits? Some small business owners say: yes! [WSJ]

Exploiting the downturn. Four entrepreneurs are experiencing increased success right now, in spite of the bad economy. Did we say in spite of? We meant because of. [NYT]

The ailing health care system. Sharon McLoone examines how the issue of rising health-care costs and their impact on entrepreneurs has entered the stimulus debate. [WaPo]

Going green, part 92. We'll never get tired of reading new suggestions for how you can make your office more green, and save money in doing so. [bMighty]

Lower the cubical walls! That's not some metaphor in some slogan--that's a genuine piece of advice for encouraging creativity among your employees. [Entrepreneur.com]

There ain't nothin' finer than to be in Carolina.... Where are the best metro areas for starting a small business? Raleigh and Charlotte come in at number 1 and number 2. [bizjournals]

Not a quick read. The Small Business Administration just published its annual report on the small business economy. It's 413 pages. Could really put the "long" in your long weekend! [SBA Office of Advocacy9, via The New Entrepreneur]

As the stimulus bill prepares for enactment, it's time to take a last, pre-stimulus look at the small-business credit climate.

We say pre-stimulus because, well, the bank bailout--of which one can also expect a round two--did not increase lending as had been promised, the Washington Post recently reported. And the Federal Reserve announced that approximately 65% of U.S. banks tightened lending standards over the past few months.

On the other hand, Entrepreneur.com recently, and plausibly, offered the same advice we've giving for a while: look to the community banks! Some of them, in fact, have taken Troubled Asset Relief Program funding (even if others didn't), and so may have a bit extra to lend around.

We'll have more coverage of the stimulus's potential impact tomorrow, when President Obama is planning on signing the House-Senate compromise into law. For now, though, a friendly reminder: when you're looking to borrow, look local.

As everyone who's read an alarmist story about America's looming entitlements crisis, or the New York Times's new Sunday column, Generation B, know, we're about to get a lot more old people. The Baby Boomers--that massive generation born in the years after World War II ended--have crashed the gates of 55 and 60, and some will soon start receiving Social Security checks. At the same time, advances in the realms of medicine, nutrition, and lifestyles have made these junior senior citizens, as a group, more active than ever before. In other words, many of them are likely to blow by 65 without retiring.

This new demographic and social fact, however, may produce a new paradigm, wherein 50- and 60-somethings who might be considering a career change or partial retirement may instead look to a new option: entrepreneurship. So suggests Entrepreneur.com, which talks to the experts and profiles several examples.

Part of the idea is that at this point in their lives, people tend to have more substantial savings, which can be quite helpful indeed when you're looking to finance a start-up (particularly in this credit market!). Starting your own business can also give you the greater work-life flexibility--including the prospect of working from home--that people who are old enough to want to leave the rat race but young enough to want to keep working may be looking for.

This is one Boomer trend story that we think has something to it.

Sen. Olympia Snowe, Republican from Maine, is the ranking member of the Senate Small Business & Entrepreneurship Committee, so it's natural that she'd be mentioned on BizBox every so often. But we tend to go overboard. We wrote an entire, long post that was positively gushing; and we tend to mention her every chance we get.

She's not paying us or anything. We just think she has the right idea about what the federal government's role in advancing small business should be; and we know she's extremely powerful regarding the shaping of that policy (it's quite plausible that she personally recommended President Obama's pick to head the Small Business Administration, Karen G. Mills).

We've also always mentioned that, as a moderate Republican in a Senate in which Democrats alone come just short of a filibuster-proof 60 votes, she can, if she likes, wield lots of power and get the Democratic Senate leadership and the Democratic president to give her lots of what she wants. As a Washington Post article makes clear, she is indeed in that position, and in the recent stimulus negotiations, she very shrewdly and ably exploited her enviable position.

The article is about Snowe and her colleague Susan Collins, the other Maine senator, who also happens to be another moderate Republican woman, and who joined Snowe and Sen. Arlen Specter (Pa.) as the three Republicans who lent their support to the stimulus plan, enabling its ultimate passage. The current situation, the Post says, is "tailor-made for moderate Republicans to become kingmakers."

We learn many things from the excellent article. For one, Snowe "is known for her fabulous jewelry, expensively tailored suits and perfectly coiffed hair," and is the ninth-wealthiest senator (in contrast to Collins, who is of more modest means). But mostly we learn that Snowe (and Collins) find themselves in disproportionally powerful positions. Their votes may technically be only one out of 100 each, but with things as they are, their votes count for much more.

So, to sum up: ne of the most powerful senators takes a special interest in small business, and her policy views in this realm are largely correct. Olympia Snowe's rise just so happens to be great news for small business--assuming she is as unembarassed about using her extra sway in the cause of the nation's entrepreneurs as she was during the stimulus fight.

Introducing the National Federation of Independent Business's last pre-stimulus (and pre-Obama) optimism index. Last month, we reported that December's index--which takes the results of the NFIB's broader monthly survey and spits out a single figure that purports to measure entrepreneurs' overall "optimism"--was the second-lowest figure in the survey's 35-year history.

Well, now that January's numbers are out (full report here), December's index rating is now the third-lowest ever; runner-up status now belongs to, yes, January 2009. (Worst ever? February 1980. Go figure.)

For all the current awfulness, however, a closer look at certain figures suggests that, though the current situation is indeed truly dismal, we may be on the road to making it better after all. Let's view a few of the numbers more closely.

What are you in business to do? If you answered "to make money," you answered correctly. So how are profits? Net -47% of surveyed small business owners, seasonally adjusted, report positive profit trends. That's a record low, pushing December to second place.

Net -6% plan on increasing their workforces over the next three months. That figure, which was the same as December's, is the third-lowest in survey history. 7% are planning to lower their workers' compensation--a record high. 12% are planning to raise it--a record low.

The dramatic decline in capital spending appears to have been arrested, if not reversed. 51% reported having made capital outlays over the past year, the same as in December; 19% plan new capital outlays in the coming months, which is actually up two points.

Net -20% expect coming improvement in their sales figures. In the optimism survey, apparently, pessimism reigns.

We've watched the inflation figure especially closely--not because we're worried about inflation, but because we're actually worried about deflation, with prices dropping at catastrophic rates and thereby potentially creating general insolvency. January's figures do not make us feel better here: Net -15% of surveyed small business owners reported higher selling prices, a whopping nine point fall from December's (already low) figure. Six months ago, when 20% of small business owners reported that inflation was their number one concern, that was interpreted as an uncommonly low figure; in January, that figure was 6%. This is scary stuff, and it hasn't been discussed all that much in the mainstream business press, so far as we can tell.

We'd say the inflation--er, the deflation--news is the biggest to come out of this round of survey results. That said, you've simply got to think that the federal government's current and impending interventions in the economy--the Federal Reserve's implementation of Bank Bailout 2.0, the signing of the stimulus law scheduled for today--are going to halt any trend towards deflation.

The one other thing we'd point to are the credit figures, which were stable enough to lead the NFIB to conclude, "Fewer loans are being made, but a substantial share of the decline is due to lower demand, not problems on the supply side." That is a very interesting observation. If it's correct, it means that the solution to the credit crunch is to stop thinking of it in terms of an extra-special credit crunch--we think of it that way because it's sort of what started this whole mess, but really at this point it's just as much a symptom as it is a cause. Under this thinking, the real cure to the credit crunch is to cure the economy by priming the spending pump (and the real governmental cure is less a bank bailout and more a fiscal stimulus plan, such as the one we're getting today).

So we're somehow able to end this month's look at the survey with a note of optimism, maybe. If the problem is consumer spending and confidence, the answer is nearly always fiscal stimulus. And while we can and should quibble over the exact proportion of spending and tax cuts in the stimulus plan, and maybe with its overall size as well, the fact of that matter is that hundreds of billions of dollars are now going to be spent by the federal government in some form or another. And the January numbers are telling us that such a strategy is, if perhaps not sufficient, at least on the right track.

Fortune did a neat thing: in their profile of Karen G. Mills, the Maine private-equity specialist whom President Obama has tapped to head the Small Business Administration, the magazine talked to various entrepreneurs in Mills's hometown of Brunswick, Maine, where she lives with her husband, who is the president of nearby Bowdoin College. Mills would do well to read her own profile and talk to her town's own small business owners, who are--no surprise here--struggling in the current economy. (High gas prices last summer especially hurt Brunswick's economy, which leans heavily on tourism; and the impending closure of a local Air Force base won't help, either.)

A few other fun facts about Mills from the article:

-Her parents own their own business, though it's not exactly a small one. Rather, for the past half-century, they have controlled most of Tootsie Roll Industries, makers of the eponymous candy. Annual revenue totals approximately half a billion dollars.

-Last year, she co-wrote a Brookings Institution paper recommending an increased role for the federal government to help organize and stimulate regional economic clusters.

-Though she was an enthusiastic Obama supporter in the general election, prior donations indicate that she was hoping Secretary of State Hillary Clinton would be the Democrats' nominee.

-She's planning on a weekly commute to D.C., so that she can continue to spend her weekends up in Brunswick with her husband and children.

Mills's specialty in Maine has been overcoming local entrepreneurs' "lobsterman mentality"--which is Maine-speak for a fierce independence and desire to go everything alone--in order to organize and band them together to create a unit that is larger than the sum of its parts. One can anticipate that she will view her job as head of the SBA, should the Senate confirm her, similarly.

Well here's one way for businesses to function in a recessionary economy whose credit markets have been especially hard-hit: turn to bartering. That is, for needed services, instead of offering super-valuable cash, offer services of your own.

The Journal's report on the phenomenon is typically splendid. They find a New York ad-man who is paying his bank for accounting services by giving them pointers on extending their brand, gratis. An Atlanta sandwich shop is making up a bill to a refrigeration company by paying a third of it and paying the rest in catered lunches.

It gets better: there are actual barter companies, which provide membership networks that enable disparate businesses to find good matches for barter arrangements. Apparently, over $16 billion in services was transferred in North America via such deals in last year alone--$11 billion of it having been done by small businesses.

It strikes us that bartering is a great way to stay afloat, if a poor way to grow. It is a famous tenet in economics that there are no free lunches, and that goes even when your lunches are free, or at least catered by the sandwich shop that owes you $1000.

The great advantage of borrowing is that you are essentially reducing your debt, because the time, energy, and expertise that makes up your compensating services are not liquid in the way that an asset is (or that cash is, of course). And what this means is that $1000 in free lunches really only costs that sandwich shop a fraction of a that, since that $1000 includes money normally set aside to make up a profit margin. Thus is a $1000 debt paid back with something more like $600 plus your services.

That's a great strategy for when you're strapped for cash. But it's poor long-term planning. Services are valuable, and the energy that goes in to services used to pay back debts are an opportunity cost when compared to putting the service toward selling sandwiches. Which is why bartering is a novel idea for satisfying tricky debts during rough patches, but is not a sound long-term strategy.

The subtitle of this book is "Adventures in Popular Psychology", and that describes it pretty well. It’s written by Christian Jarrett, Ph.D., a British psychologist, and Joannah Ginsburg, an American psychotherapist and journalist.

This is the first of several book reviews I will be doing for my column, which is of course focused on issues affecting business owners. So, then, what’s a nice book about psychology doing on a blog like this? Well, take a seat on the couch, and I’ll tell you.

It’s a small world when it comes to blogging, and in the course of blogging on The Retirement Plan Blog, I came across the British Psychological Society's Research Digest Blog, which is written and edited by Christian Jarrett. I’ve referenced several of its studies on our blog. (See "One More Reason to Consider A Commuter Transit Benefit", "ERISA, It’s Not Elementary", and "What We’ve Got Here Is Failure To Communicate".)

So when I learned that Christian and his American co-author, Joannah Ginsburg, published a book, I was eager to see whether it was as interesting and as helpful as the BPS blog. The answer is a resounding yes.

Here’s how the publisher describes it:

This Book Has Issues delves deep into the human consciousness and casts light onto the reasons why we think, feel, and act the way we do. Packed with illuminating real-life examples, introductions to groundbreaking psychologists, and plenty of experiments and tests to unveil the way your own mind works, This Book Has Issues has the power not just to intrigue and entertain, but also to change the way you think. Divided into eight fascinating chapters, This Book Has Issues covers everything from the real reasons we fall in love to the science behind a good night’s sleep. From extreme disorders to the truth behind the ways we live our everyday lives, This Book Has Issues takes you on a journey through the amazing landscape of the mind.

That’s from the marketing department. So let me translate it from “popular psychology” into “business owner psychology”. The success of our businesses depends on the performance of our employees (including ourselves) and how we can satisfy the needs and expectations of our clients and customers. In other words, the human factor drives the organization’s performance.

So in that context, if you want to:

* Learn how our brains can sometimes make mistakes
* Get tips to boost your memory abilities
* How to look at problems some people have with language and counting
* Challenge your basic ideas on behavior and communication
* Get the latest research on relationship, leadership, and brainstorming
* Get to know yourself better using a range of tests
* Learn how to deal better with stress
* Learn how to get better sleep

then This Book Has Issues is for you.

Christian’s and Joannah’s book is available in the U.S. from Barnes and Noble and in the U.K from Amazon U.K.

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.

Habemus Stimulus! Yesterday, President Obama signed the final bill--total price-tag: $787 billion--in Denver, making it law. When last we wrote about the matter, a number of provisions were up in the air. Now that it's set in stone: What's in it for small business owners?

(Good rundowns courtesy of Fortune, The Entrepreneurial Agenda, and, indeed, the Small Business Administration's Office of Advocacy.)

Well, for starters, there's about $730 million in spending and tax breaks that are clearly designed to benefit small businesses specifically--money that is hoped to have a multiplying effect that could create as much as $21 billion in new small business inveestment and lending--a prediction offered by Rep. Nydia Velazquez (D-N.Y.), who chairs the House Small Business Committee. What's that $730 million being spent on?

Expanded Community Express loans. The stimulus authorizes the SBA to guarantee $3 billion in bundles of SBA-backed Community Express loans on the secondary market. It does appear to be the new administration's policy to try to juice the small-business credit scene with the use of these loans, whose original purpose was to ensure that women and minority entrepreneurs could obtain sufficient financing. While we are happy for any help at this point, we were hoping the government would find another way.

Expanding 7(a) loans. To confront the alarming decline in SBA-backed 7(a) loans, the agency's flagship program, the stimulus provides a range of measures. The 7(a) program now allows for loans over $150,000 to be backed 90% (it was previously 75%). $6 million was appropriated for SBA microloans (which can go as high as $35,000 apiece). And, the stimulus has reserved $375 million to pay for borrower and lender fees associated with SBA-backed loans; there will be no fees until that money runs out. (At which point, if things haven't improved dramatically, you can be sure we and others will be clamoring for further fee-elimination funds.)

Expanding the SBA. The most common complaint surrounding the SBA, whether it's trying to administer its loan programs properly or ensure that federal small-business contracts are actually going to small businesses, is simply that it's woefully underfunded. The extra $55 million the stimulus provides should come in handy there.

Carry back for small businesses--and small businesses only. We first wrote about this here. The stimulus law allows businesses to "carry back" losses on their 2008 tax returns up to five years back and duly collect the appropriate refunds; normally, you may only carry losses back up to two years. This provision only applies to businesses that grossed $15 million or less in 2008.

Equipment expensing. Businesses may now deduct up to $250,000 in purchases of new equipment; the prior limit was $133,000.

Expanding hiring deductions. Under current federal law, businesses may deduct 40% of the first $6,000 paid to employees who fall into certain categories. The stimulus adds two categories: military vets and "disconnected youths".

Most of all, though, and as we have argued previously, maybe the stimulus's greatest boon to small businesses is simply the sheer amount of money the federal government is spending in an effort to get consumer spending off of the mat. For, ultimately, no matter how much is thrown at SBA lending programs and the like, it is only when the American people decide to start buying things again that the economy--and its myriad small businesses--are going to start getting in good shape again. For that reason, certainly, yesterday was a day to be thankful.

Well, we just finished telling you what's in the new stimulus bill as far as small businesses are concerned. What did the nation's entrepreneurs not get out of the close to $800 billion the federal government is about to assume in debt?

The two main pro-small business provisions that were lost amid the negotiations between the House and the Senate over their competing bills, according to Fortune, were a House provision that would have permitted the Small Business Administration to loan directly to small businesses who had been rejected by several banks, and a Senate provision that would have raised the ceiling on 7(a) loans (which is currently $2 million).

Frankly, these are not the world's single worst losses. Regarding the 7(a) ceiling: any business that, right now, could take out a single loan in excess of $2 million without putting too worrisome of a dent in its balance sheet can't really be all that small anyway. The direct lending provision would've been nice, but really, major lending change is only going to come when the SBA, as per Sen. Chuck Schumer (D-N.Y.)'s suggestion, is directly lending "tens of billions" to all small businesses, not just a little bit to those whom the banks rejected.

The stimulus also does not contain a payroll tax holiday, which the National Federation of Independent Business had called for. And indeed, the interest group was not overly pleased with the final law: “There’s not a lot in the stimulus plan that will put cash in the hands of people who will deliver it to the front door in the form of sales,” the group's chief economist told the AP, according to Independent Street.

We're not as down on the final law. A bit more money to enable the SBA to expand its lending programs further may have been nice; maybe a bit more for hiring tax credits, too. But, honestly, the best way for fiscal stimulus to help small businesses may not be for it directly to go to them as much as for it to cause a ton of new money (say $787 billion) to enter the economy, and to do so in a way so that the maximum percentage of it is spent, and spent quickly. That's why you've been hearing so much talk on whether government spending or tax cuts are more likely to have multiplying effects, and on the importance of finding "shovel-ready" projects where the money can start greasing the Gross Domestic Product wheels within six to nine months.

The stimulus may be good or bad for small businesses, but whether it is or is not does not have to do with how much in it was directly and explicitly aimed at helping them--it has to do with how well the stimulus works as a whole. You can be sure we'll be hearing all about that question over the coming months and years.

Even in the best of times, the deck seems stacked against small companies. So what's a small business to do when times are tough? Already outdone by large companies on margins, volume, and pricing, small businesses are also the last to get a helping hand from banks and the government during a downturn.

There's one essential business competence that small companies have in much greater supply than big ones, though: empathy for their customers.

For an individual, empathy is the ability to step outside of yourself and see the world the way other people do. For a company, widespread empathy consists of everyone in the organization having a clear sense of the lives of the people they serve. Companies that cultivate widespread empathy see new opportunities more quickly, have the gut-level intuition to try something new, and maintain the courage to stick with ideas that don't take off right away. As we discuss in our book Wired to Care, empathy often leads to growth--regardless of the overall economic climate.

While it's difficult to build a pervasive sense of empathy into a large corporation, it's easy for a company of a few dozen folks to see the world through their customers' eyes. Small business owners are almost always closer to the people they serve than big-corporation CEOs are. Take the insurance agent who owns a home in the same community as her customers and whose kids attend the same schools as theirs. If she's paying attention, she'll anticipate demand for new services far more swiftly than a large company that conducts business almost entirely through automated Websites and call centers.

In a troubled economy, where companies of all kinds are looking for new ways to create value, cultivating a sense of empathy is a smart strategy for ensuring long-term viability. But don't just take our word for it: consider one small company that has been able to lead its market for nearly 400 years, by consciously developing strong connections to the people who use its products.

The Avedis Zildjian Company has fewer than 100 employees worldwide, yet it's legendary for making the world's finest cymbals (that's where you recognize that odd-looking name from!). Drummers from jazz great Buddy Rich to Ringo Starr to Radiohead's Phil Selway have all relied on the warm, rich sound of Zildjian cymbals in the studio and in concert. In fact, the company was founded in 1623 by an alchemist living outside Istanbul, who provided cymbals directly to the Sultan of the Ottoman Empire. Mozart himself specified the use of Zildjians during his symphonies and operas.

So why hasn't a larger player entered the market, duplicated the quality of Zildjians, and then sold them at a lower price for larger profits? What sets Zildjian apart from many also-rans is its empathy. From management to marketing to manufacturing, everyone inside the company understands on a deep, intuitive level exactly what keeps drummers up at night. And as a result, everyone makes ten thousand better decisions to shape their company and its offerings to better serve drummers. This has helped the organization to thrive through numerous downturns. In fact, the company's American branch was founded in late 1929, weeks before the Black Thursday crash.

Like Zildjian, small companies have a built-in empathy advantage. Almost by definition, founders tend to be salespeople whose ability to connect with customers determines whether their fledgling enterprises ever go anywhere. But as companies grow from 50 to 500 to 5,000 people, they hire more and more managers who don't have front-line exposure. In order to maintain and extend the intuition that fuels a company's growth, small business owners can take three steps to make sure that an empathic connection to customers is driving growth, even in a down market.

Share the empathy you already have. The brains of entrepreneurs tend to be filled with customer stories that shape how they view the world and how they come up with ideas for new products and services. The problem is that others in the company lack that same intuition. One of the best things small business owners can do to ensure long-term viability is to get those stories out of their heads and into the cultures of their companies. Tell them to employees. Post them on the walls. Get everybody making decisions that draw on the stories that have brought the company thus far. In time, this can turn personal intuition into a shared resource for employees on all levels.

Incentivize managers to spend time with customers. Managers who don't work on the front lines can still think like the folks who do. Companies that scale empathy effectively make sure that all employees, regardless of their titles or functions, have a clear understanding of what's keeping their customers up at night. This can be as simple as rewarding people on their annual reviews based on how often they meet with real customers or as time-consuming as a mandate that all managers take rotations on front-line jobs. Such practices can go a long way toward ensuring that everybody develops a gut sense to build on what the founders already know.

Look to the friends who brought you here. When companies are shedding jobs and shutting their doors, it's easy to focus inward and worry about your problems. But doing the exact opposite is critical to survival. Especially in a tough economy, it's imperative for small businesses to leverage the empathy they already have. Get outside and spend even more time with your most loyal customers, find out what they're going through, and then put yourself in their shoes to come up with products and services that can help them out right now. For example, now might be the time to be a bit more forgiving on payment plans to ensure loyalty over time. The Little Bay restaurant in London has even seen its revenue shoot up over the last few months by introducing a pay-what-you-want business model. The particular solution that works best will vary from company to company. What matters is showing your best customers that you're genuinely interested in their lives and well-being.

The small companies that don't just survive the current crisis but actually manage to thrive in the coming months will be those who form new connections to the people they serve and then leverage those connections to focus their business solely on what their customers genuinely value. People are wired to care, so why shouldn't companies be, too?

Dev Patnaik and Peter Mortensen work at the consulting firm Jump Associates and are the authors of Wired to Care: How Companies Prosper When They Create Widespread Empathy. They can be reached at wiredtocare.com.

One of the bigger pieces of business news this week is that Starbucks, which has struggled mightily over the past year as the collapsing economy had made people slightly less ready to buy $5 lattes every day, has thrown what the company's own CEO has acknowledged is an "off-brand" "Hail Mary pass": they are about to release Via Ready Brew--otherwise known as Starbucks instant coffee. The move is an object lesson for all businesses looking to adjust to the current consumer spending climate.

If you listen to Howard Schultz, the company's CEO, you'll find an acknowledgement of the rebranding, but not of the rebranding's being a response to the economy: “It just happens to fortuitously coincide with the downturn in the economy,” he told the Times. “It wasn’t planned that way.” We're going to go ahead and not really believe him. The decision seems too canny, and too tailored to Starbucks's current problems, for it to be unrelated.

Times business columnnist Joe Nocera went to the product introduction in New York and, on his blog, has a characteristically witty and must-read take. For one thing, and though marketing die-hards may consider this hardly important, Nocera reports that the coffee tastes good--which is to say, it does not taste like it's instant. And Nocera lauds Starbucks for taking a risk. But he is unsure that it will ultimately be a successful gambit: "The question, of course, is whether Starbucks customers, who all now have espresso machines in their kitchens, are going to warm to the idea of instant Starbucks."

If anything, we admire this move--less in concept than in specific execution--more than Nocera does. We're not even sure it's "off-brand," as Schultz put it (he was likely being strategically disingenuous in saying the move was not a response to the economy, so why can't he have been strategically disingenuous here, too?). This is instant coffee, but it's instant coffee done...by Starbucks. Look at that slick packaging (image courtesy the Times). Note how your options are "Colombia" or "Italian Roast"--normally, instant coffee options range only from "regular" to "decaf". Check out the product's Website. "This is not instant coffee as you know it. This is rich, flavorful Starbucks® coffee in an instant." The fact that the coffee apparently does taste that way certainly won't hurt. But what will really get that message across is Starbucks's indelible brand.

We're ready to see this new product succeed. And if it does, it will become the model for how a business, large or small, whose brand is known for being "luxury" or "gourmet" can offer an ostentatiously inexpensive product while retaining its brand's appeal.

It is a truth universally acknowledged (and reported before by us) that as economies sour, crime rises. It is a truth that extends to the world of white-collar employee fraud against small businesses, as a Wall Street Journal article today made clear.

One extra issue generated by the correlation of an economic downturn and a spate of employee fraud is that the absence of absconded-with funds is very easily blamed not on theft but on the declining revenue intrinsic to the business cycle. In fact, part of the Journal's point is that because small busines owners tend to be less experienced and have fewer internal security resources, small businesses are especially vulnerable to this brand of foul play.

The owner of a small bookstore in Alabama, for example, spent quite a bit of time not understanding why banks would refuse to lend her money. Then she noted discrepancies on her company's credit-card account: it was months late on several payments, which in turn caused a decline in the business's credit score, thereby (legitimately) turning off lenders. The explanation for those discrepancies? Allegedly, a former bookkeeper took funds from the bookstore's balance sheet to pay off personal debt. (You're, you know, not allowed to do that.) The owner, meanwhile, has since arranged for company bank statements to be mailed to her and her husband's home (they are the business's co-owners)--a smart idea.

The article recommends that small business owners who suspect employee fraud act very rapidly and very discreetly. Call your outside accountant, call a lawyer, but do so quietly--the offending employee could catch on and lam it (if bookkeepers can indeed be said to "lam" it).

The other lesson is not never to delegate. It's just to consider security concerns in deciding which activities to delegate and which not to.

Beyond that, exercise a hefty extra dose of caution for the next several months.

When the prospect of bailing out the Big Three was being debated late last year, we joined the discussion, because, as we noted, the livelihoods of thousands and thousands of small businesses, across the country and especially in the Midwest, depends on the continued solvency of General Motors, Ford, and Chrysler and the money they generate through taxes, through wages, through business transactions, and the like. Indeed, Fortune recently published a nice look at the way several Detroit-area businesses are coping with the stress that these companies' downscaling has caused.

The solvency of the Three, and in particular of GM and Chrysler, is still somewhat up in the air. In the meantime, a new meme has developed, which asks: might it not be that it is not the Three but rather the thousands of small, dynamic small businesses scattered throughout the Industrial Midwest that are actually that troubled region's last best hope for revitalization?

According to a recent post on the OPEN Forum (which is published by American Express OPEN, which is also BizBox's sponsor), Youngstown, Ohio has hatched a non-profit called the Youngstown Business Incubator, dedicated to attracting and supporting entrepreneurs who settle in the northeastern Ohio town, with aims of turning the area into a regional tech cluster. The catch is that Youngstown is known as "Steel City"--if you know about the domestic steel industry's trajectory over the past three decades, you'll know how bad that sounds. It is perhaps the ultimate symbol of Rust Belt decline, having even been given the Bruce Springsteen treatment in a song called, yes, "Youngstown" (which is far superior to Billy Joel's parallel track, "Allentown," where they're "closing all the factories down," if you ask us).

The other day, NPR did a story on the group, whose title says it all: Youngstown, Ohio: The Rust Belt's Silicon Valley? (Listen to it here.)

And John Tozzi over at The New Entrepreneur gives a nice bit of context for the group, linking to the superb cover story in this month's Atlantic on the future of America's economic geography. That article's author, sociologist Richard Florida (whose The Rise of the Creative Class BizBox heartily recommends), argued that the cities and regions that will thrive over the coming decade or two will be those that cultivate the most fertile ground for the development of innovative ideas rather than old, industrial products. It's a point Florida made eight years ago in the Washington Monthly, in which he held up his hometown of Pittsburgh as a model of transformation from industrial wasteland (the football team is called the Steelers for a reason) to thriving tech and especially life-sciences corridor.

Tozzi's point, which we would second, is that Youngstown appears to have taken this notion to heart, and is looking to transform itself from a center for the manufacture of just about the hardest, most physical substance there is to a hub for the manufacture of ideas that can zip around the world at the speed of light. Seeing whether towns like Youngstown succeed or fail in this endeavor will be one of the great American dramas of the coming years. And it speaks to the importance of small businesses and entrepreneurs that both will be at that drama's center.

Microlending is hot right now--Muhammad Yunus won the Nobel Peace Prize a few years back for pioneering programs that lend tiny amounts of capital to poor entrepreneurs in poor countries, which ended up being paid back at far higher rates than big loans to rich people in rich countries. The Small Business Administration's new emergency microloan problem, for which the new stimulus law appropriated over a quarter of a billion dollars, is obviously quite a different beast. But the very basic principle--that canny entrepreneurs can make a lot out of just a little bit of extra cash--is a shared one.

Fortune takes a closer look at what's formally known as the Business Stablization Program. Very briefly and basically: small-business owners who already have bank loans may apply for microloans for up to $35,000 from banks, which will then be 100% guaranteed by the SBA (meaning that there is a certain sense in which it is the SBA, not the banks, making the loans, although there will be no direct SBA lending under the program). Additionally, the loans are, for all intents and purposes, interest-free--they last up to six months, are not due back before a year has passed (they must be fully repaid within five years), and--oh yeah--the SBA will fully subsidize whatever interest is charged. For this, the stimulus law appropriated $255 million.

So it's...basically free money to borrow. The condition to focus on is the requirement that borrowers already have outstanding bank loans. The purpose of the microlending program is less to give ambitious entrepreneurs a bit of extra cash to grow, but rather to give struggling entrepreneurs the chance to pay off interest on and hopefully pay off existing loans. Which is still great--for small business owners struggling with balance sheet troubles and potential insolvency; for banks, whose default rate should be improved by this (remember: even should any of these loans default, they're completely guaranteed); and for the SBA's 7(a) program, which is in dire straits indeed.

It's not quite the direct lending we've been clamoring for, but it is certainly better than nothing; and it could in turn work to buttress the 7(a) program and get credit--credit intended not to pay down debt, but credit intended, like Muhammad Yunus's, for growth--to start flowing to the country's entrepreneurs again.

Including the inevitable tax articles. Sorry, guys. But it is, after all, that most wonderful time of the year!

The Small Business Administration saved you a lot of money, reports the Small Business Administration. [SBA]

How should you declare your business for tax purposes? Use the CORE Assessment. [Entrepreneur.com]

Cash flow: what it is, why it's important, and how to increase it. [NYT]

To everything there is a season. Is this the season to sell your company? [Forbes]

Keep Good Records! A valuable scolding. [AP]

On-campus start-up success stories--because, first, you start a business. Then, you graduate. [Inc.com]

Why small businesses fail: a list. (Hint: try to avoid everything on the list!) [P2W2]

In my first column, I noted that in my law practice representing business owners and my experience running businesses, it seems that entrepreneurs tend to lament, or feel sorrow or regret for, the following:

o Focus. Pursuing new ideas to the detriment of the core business.
o Work/Life. Missing out on real life while pursuing business passion.
o Employees. Inability to find great help and keep them.
o Partners. Challenges in finding or maintaining good business partners.
o Money. Inability to find necessary financing for growth or survival.
o Burnout. When one morning you just can’t do it anymore.
o Boredom. When there’s not much more to build.

We covered the employee issue in the last column. Today we focus on finding the right business partners (if any) to help you build what you have dreamt of. These partners, who own part of the business, tend to fall into one of four categories: founding partners, investor partners, rainmaking partners or worker bee partners.

Founding Partners. When you start a business with someone else at your side, it is difficult to determine how to divide the pie, how decisions will be made, what happens if one of you leaves, and so on. Be sure that you really need the other person, because if things go as you hope, and the other person is replaceable, you will provide a very significant windfall for the privilege. Here's one hint: if you have difficult issues going in, that's probably a sign of trouble ahead.

Investor Partners. Assuming you want and can find investors (more on this in the next column), they tend to be either friends and family, angel investors, venture capital or private equity firms, or, if you are a public company, so called PIPE (private investment in public equity) investors, which tend to be hedge funds.

Friends and family and PIPE investors tend to be the least interested in having a say in how the company is run. But they also usually do not offer meaningful assistance and guidance, which is more common with angels, venture capital, and private equity investors. Of course, with guidance comes involvement. One client lamented his frustration at his investor partner by telling me, "I already have a Mom. I don't need another." Another said, "It wasn't until it was too late that I realized they could throw me out of my own company." Others appreciate the value that these investors add. Be sure you understand what you are getting into when you bring these sorts of investors in.

Rainmaking Partners. Rainmaker partners are unique in that their main job is to produce revenue for the company. It is a tricky decision as to whether to grant someone like this ownership in the business. Yes, it will incentivize them, but it will also give them more of a say in things. Sometimes, however, that is what it takes to keep someone. Just make sure you can always outvote them, though realize that some legal rights attach to being a shareholder.

Another choice: so-called "phantom stock." Here you have a contract with the rainmaker promising financial rewards, as if they were a shareholder, if an event such as a sale of the company or going public occurs. But they don't own stock--they don't co-own the company--and if they leave the company, they generally lose the phantom stock.

A client of mine granted stock options in his private company. The option could be exercised only upon a liquidity event (such as a sale). Plus, real money had to be paid (or credited) in order to exercise the option, solving a major tax problem relating to granting stock as compensation. Additionally, the option granted no shareholder rights, and was terminable if the holder left the company. It also vested over the time they were there. When the company was ultimately sold for $14 million, four option holders each took home close to $1 million. Two of them told me they would have long ago left the company, except that they were waiting for this payoff. Ah hah--it works!

Worker Bee Partners. And what of the lowly worker bees? Won’t they happily slave away for a good salary and an occasional pat on the back? Actually, most entrepreneurs improperly downplay the importance of the folks who implement things, assuming incorrectly they are basically fungible and that rainmaking is more important. As we discussed in the last column, getting and keeping good people is not easy.

In fact, no one appreciates "a piece of the business" more than that worker bee. I sometimes offer valued service attorneys in my firm a percentage of the business, in addition to their regular salary. And it is easier to negotiate terms, as they are likely to be thrilled just to be offered ownership. I’ve seen offers phantom stock, stock options, or stock with no voting rights, and they are all tend to be terminable if they leave.

Whenever you take in a partner, remember that you must run the business cleanly, without creating the “piggy bank” that entrepreneurial companies sometimes become for the founder. Because while you will always be the founder of the company you started, once you take on someone as any of these four types of partners, you are no longer truly its sole owner.

Next time: the challenge of obtaining necessary financing to keep your business going.

David N. Feldman, founding partner of Feldman Weinstein & Smith, is the author of Reverse Mergers and blogs at Reverse Merger & SPAC Blog. He can be reached at dfeldman@fwsllp.com.

The National Federation of Independent Business, which is the leading small-business advocacy group, laments the passage of the Lily Ledbetter Fair Pay Act in a press release. The group, which we have dinged in the past for being governed not by the concerns of small business owners but rather by its center-right ideology, called President Obama's signing of the bill "a decision that could prove harmful to small business".

When it was signed a few weeks ago--it was actually the first piece of legislation to be enacted under Obama (a wise political move, given that it is an overwhelmingly popular law)--we argued that we were ultimately pleased with the law's passage, the concerns of business interest groups notwithstanding. We wrote, "It is difficult to feel sympathy for employers who have been paying some people less than others not because of relevant experience, education, or skills, but because of characteristics like gender or race." And we added: "The new law does encourage lawsuits: it encourages people whose employers have been discriminating against them to sue for well-deserved damages. We're not sure that's such an infelicitous development."

Were we being unfair? Is the NFIB once again in hoc to its conservative agenda? Let's take a closer look.

The main change that the Ledbetter Act made to current employment discrimination law was to expand, dramatically, the statute of limitations from the time when an employee was discriminated against in compensation on the basis of gender to the time that that employee may no longer sue for the act of discrimination. Specifically, where previously the lawsuit time-period ran out either 180 or 300 days (depending on the state) after the first discriminatory paycheck, now that period restarts after the receipt of each paycheck that reflects the discrimination. In other words, assuming the discrimination is never corrected, it keeps going and going--in fact, it could even go into an employees' retirement, during which pension checks might still reflect the initial act of discrimination.

The NFIB argues the following:
-The law "does not encourage employees to act immediately when they are subject to discrimination."
-"Without limits, small businesses would be forced into the position of trying to defend an employment decision that occurred in the distant past."
-"Because discrimination cases tend to rely on circumstantial evidence ('he said, she said' testimony), it would serve both parties best to review what occurred immediately after the event, not years later."
-It also takes issue with the rule extending the matter to compensation received post-retirement, which, the NFIB says, "only serves as a disincentive for small businesses to offer employees retirement benefits."

We're actually partially sold on one of the group's points. Given the legitimate interest the civil justice system has in speedy trials with just outcomes, it would not be wrong to weight matters toward reporting discrimination early so that memories are fresh, documents are available, etc. The argument against this, of course, is the argument for the bill itself--that it is usually very difficult for employees to find out that they are being discriminated against; usually, when they do, it's due to pure dumb luck. (It took Lily Ledbetter something like two decades to figure out that her employer, Goodyear, was paying her less than men of equal experience and skill level.)

Perhaps a compromise could be reached: still expanding the old statute of limitations--maybe you're allowed to sue for full damages if you do so within five years (instead of half of a year) after the initial discrimination, assuming the discrimination continues--and thereafter you may only sue for a certain percentage. Such a compromise would offend the spirit of the Ledbetter Act, which is the determination that each new discriminatory paycheck is just as damaging and relevant an act of discrimination as the original one. But, well, that's why they call it a compromise.

Meanwhile, the NFIB's broader concerns are misguided. It makes no sense to treat only the very first paycheck as discriminatory, with every subsequent paycheck that reflects that discrimination somehow off-limits. When somebody receives a discriminatory paycheck eight years after their first discriminatory paycheck, suing the following day is not focusing on "the distant past"; it's focusing on the present.

Take the most extreme example: pension, received after an employee is no longer even an employee. Let's say that employees who work at a small manufacturer receive one-third of their final salary if they have worked there for at least twenty years and are of retirement age. If a woman was being paid less during her time as an employee because of gender discrimination, then her pension checks, too, will be lower than that of her male ex-coworkers. Why shouldn't that count as discrimination, too? The NFIB says allowing lawsuits here would be a "disincentive for small businesses to offer employees retirement benefits." We think that small businesses who don't offer retirement benefits because of this are going to lose the most skilled employees to those that do. We don't think it will disincentivize retirement benefits; we think it will incentivize fair pay--a legitimate social goal if ever there were one.

At bottom, the NFIB tends to act as though the new law has the potential to harm all small businesses. But that's ludicrous. Assuming its administered correctly, it only has the potential to harm all small businesses (and other businesses) that practice pay discrimination--in other words, to harm those who, frankly, deserve to be harmed. The ony conceivable way in which this could hurt all small businesses is that it may require a bit of extra due diligence, which could cost entrepreneurs a bit more time and, in the form of attorneys' and accounting fees, money. But that's money spent towards the goal of paying all employees fairly.

We give entrepreneurs credit--we think they will recognize that it is right, and also shrewd, to be and to be perceived as good corporate citizens, and that standing behind this law is a great way to do just that. We think they by and large will welcome this new law. We hope the NFIB comes around, too.

Last week President Obama signed the American Recovery and Reinvestment Act, a.k.a. the stimulus package. My fellow blogger, Marc Tracy, neatly summarized the impact of the major provisions of the legislation on small business in his post, What’s In the Stimulus.

But buried amongst the $787 billion package were two benefit provisions of value to employers and employees, those currently employed and those recently laid off:

1. Changes to COBRA, which affects employees that have been terminated,
2. Increased transit benefits under Section 132 of the Internal Revenue Code.

Let's take a closer look.

Changes To COBRA

COBRA is the acronym for 1986's Consolidated Omnibus Budget Reconciliation Act, which mandated health benefit continuation provisions. COBRA permits certain former employees, retirees, spouses, former spouses, and dependent children to continue health care coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events. As the U.S. Department of Labor explains in a helpful FAQ page, those "qualifying events" include a reduction in employment hours as well as termination--voluntary or involuntary--for reasons other than "gross misconduct". In other words, if you are a victim of the economy or your company's specific travails rather than your own personal behavior, you and your beneficiaries tend to be eligible.

There are two parts to the COBRA aspect of the stimulus:

1. Reduced Premiums. Help will be provided to struggling families trying to pay their COBRA benefits. The government will provide a 65% premium reduction to those people who are currently receiving COBRA health care coverage.
2. Re-Enrollment. Recently terminated employees will have the ability to re-enroll in health insurance under COBRA even if they had declined coverage in the past. Many did not continue their health care coverage because they couldn’t afford it--but perhaps those reduced premiums will make it easier for them.

Increases in Commuter Transit Benefits

The commuter transit benefit is one that we recommend to our clients when it fits with their work force. It’s a way employers can help employees put more dollars in their paychecks at no--zero!--additional expense. In fact, tax savings are available to both employers and employees.

So what is it, and how does it work? It’s an oft-forgotten program that allows employers to offer employees the opportunity to pay for certain transportation expenses on a pre-tax basis under Internal Revenue Code Section 132 and the Transportation Equity Act for the 21st Century.

Pre-tax means before income taxes and FICA taxes (payroll). What does that mean? It means that pre-tax benefits effectively increase take-home pay. And these benefits are also valuable to employers because the employer avoids paying its share of FICA on this income!

Qualified transportation expenses generally include payments for the use of mass transportation (e.g., train, subway, bus fares), and for parking. Amounts are indexed to inflation: for 2009, the maximum amount that can be excluded from an employee's income for mass transit and van pool use is $120 per month, and the amount that can be excluded for qualified parking is $230 per month.

And there’s one more goodie. While Section 132 benefits are similar to the pre-tax flexible spending accounts available for medical expenses and dependent care under Section 125, there’s one important difference. The transportation benefit does not include a "use it or lose it" penalty, as required with medical/dependent care flexible spending accounts.

Under the stimulus package, effective March 1, 2009, employees may reduce their salary or receive up to $230 per month for transit passes and transportation in a commuter highway vehicle. This is the same monthly limit as currently allowable for parking expenses. The increased limit for transit passes and transportation in a commuter highway vehicle is set to expire December 31, 2010.

Neither of these changes may not seem like a ton in the context of a law that costs over three-fourths of a trillion dollars. But every little bit helps.

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.

We're long-time big fans of cloud computing for small businesses, and particularly of Google's suite of cloud software; we even personally relied on it a week or so ago. But neither cloud computing nor Google is perfect, and our advocacy mandates that we report on Google's imperfect reliability. (Which, incidentally, we already have done: we discussed Gmail's infamous August 2008 outage here.)

Very early this morning/late last night--but at the beginning of the London/Paris/Berlin workday--Google's software, including Gmail itself, crashed, and it did not come back for some users until as much as four hours later. While the apparently unintentional outage was timed such that it affected the barest minimum of U.S. (particularly East Coast) users, it stole half of Western Europe's day.

Terrifyingly, part of the reason it took Google so long to fix the problem, according to the New York Times, is that--wait for it--Google and its employees all use Gmail. (Someone over there really ought to use Yahoo! or something, if only for times such as this.) Certainly this tendency towards a vicious crashing cycle is cause for caution regarding (over)reliance on cloud computing.

At the same time, the outage revealed just how pervasive cloud computing has become. Among those businesses effectively shut down by the outage were the Telegraph and the Guardian, two of Britain's top dailies, who use Gmail for email, Gchat to communicate with each other, and even Google Documents to write and edit articles (the software's sharing feature makes the program especially handy for when multiple contributors need to view or even make changes to a common document). So that's at least two top papers who have already made the move to the cloud.

Indeed, it's hardly a surprise anymore to see Mediabistro's GalleyCat blog report that esteemed author Susan Orlean (whose The Orchid Thief formed the basis, in a discursive way, for the movie Adaptatation) has stopped using Microsoft Word to write her next work after a hard drive crash caused her to lose a good chunk of it. What's she using now? Google Docs, naturally.

Now, Ms. Orlean would probably have been harmed less when her hard drive crashed had she been thoroughly diligent about backing up to an external drive. But cloud computing can be about more than just ease, efficiency, and, indeed, cost (Google's whole software suite is offered gratis): it can be about convenience and elimination of annoyance, too--and nothing is more annoying than constantly backing up your work (well, except for losing your work when your hard drive crashes).

As for the reliability issue? The Times blogger, Saul Hansell, makes a good point: "If you are being quantitative about it, I’m not so sure what this proves. Every company I’ve worked for has had its internal systems go down at least as frequently as Gmail does. But psychologically, a problem under your own roof is easier to handle than a problem caused by someone far away, whom you can’t even get on the phone to complain to."

In sum, we're willing only to call the reliability issue a wash between cloud computing software and hard drive-bound software. And once you get rid of reliability, it becomes apparent that the advantage--for the individual, for the large corporation, and perhaps especially for the small business--lies with cloud computing.

We don't actually know if there are any newbies to greet. But, according to the New York Times, several other outlets, and just plain common sense, the current climate of massive layoffs could actually lead to an influx of new, small (even one-person) start-ups as the unemployed turn to entrepreneurship. (It is no coincidence that the twin recessions of the late-'80s and very-early '90s gave birth to the tech boom: a lot of future whizzes and titans found themselves either with few prospects or totally out of work, and decided to go into business for themselves instead.)

The Times offers some good advice for the formerly corporate rookie entrepreneur (think of your new business as just one more business problem; turn yourself into a salesperson if you're not already one), and cautions that the lack of available credit and just the general atrociousness of the economy generally mean that this recession, unlike past ones, may in fact not produce a bumper crop of entrepreneurs. Indeed, we may already know that it hasn't: "Preliminary results indicate that the rate of people going into business for themselves actually declined in 2008," the article, which you should read all of, reports.

After a brief hiatus, BizBooks returns! BizBox's regular author discussion series, which in the past has featured Rohit Bhargava, Robert H. Bloom, and others, will tomorrow play host to Larina Kase, co-author of The Confident Speaker and author of the new The Confident Leader.

Kase's book is about many people's self-imposed obstacles to change one's business in a positive way, and how you can learn to stop flinging them in front of you. We've leafed through the book, and--really--this is a discussion you won't want to miss.

The discussion takes place tomorrow, Thursday, February 26th, at 3 PM, right here. Of course, a transcript will be available thereafter. What's really important is that you leave a question for her. You can do so here.

Did you catch that big speech last night? It apparently was not, technically, a State of the Union address, but it may as well have been. President Obama stood in front of congressmen and senators and Supreme Court justices (including, remarkably, Justice Ruth Bader Ginsburg, fresh off of surgery to remove a malignancy from her pancreas), and, as the Washington Post's Steve Pearlstein succinctly put it, "staked his presidency on bringing the nation out of its economic crisis." (Obama was fairly stark: if he fails to accomplish what he was promising to, he himself will be just about the first person to hold himself to account. Very bold, very risky.)

After addressing the twin bailouts of the economy (in the form of the stimulus) and the financial system, Obama's three main areas of focus were energy, health care, and education. But what did Obama have to say about small-business concerns? And what about Louisiana Gov. Bobby Jindal, who gave the Republican rebuttal after the speech? Let's take a look at the transcripts (here and here).

PRESIDENT OBAMA
On lending: "You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education, how stores stock their shelves, farms buy equipment, and businesses make payroll. But credit has stopped flowing the way it should. Too many bad loans from the housing crisis have made their way onto the books of too many banks. And with so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or even to each other."

On the Federal Reserve's buying AAA-rated small-business loans: "We are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small-business loans to the consumers and entrepreneurs who keep this economy running."

On turning economic crisis into economic opportunity: "In each case, government didn't supplant private enterprise; it catalyzed private enterprise. It created the conditions for thousands of entrepreneurs and new businesses to adapt and to thrive." He also promised to double the country's supply of renewable energy in just three years, in part through government investment of $15 billion.

On wonderful community bankers: "I think of Leonard Abess, a bank president from Miami who reportedly cashed out of his company, took a $60 million bonus, and gave it out to all 399 people who worked for him, plus another 72 who used to work for him. He didn't tell anyone, but when the local newspaper found out, he simply said, "I knew some of these people since I was 7 years old. I didn't feel right getting the money myself."

GOV. JINDAL
On entrepreneurship and America: "The strength of America is not found in our government. It is found in the compassionate hearts and the enterprising spirit of our citizens."

On tax policy: he said Republicans' stimulus plan included "cutting taxes for small businesses...".

On energy: "We believe that Americans can do anything. And if we unleash the innovative spirit of our citizens, we can achieve energy independence."

So basically, both speeches largely offered boilerplate where small businesses were explicitly concerned.

However, where small businesses are only implicitly concerned--where the issue was the economy as a whole--the two speeches offered two profoundly different visions of the federal government's proper role in getting the economy back on its footing. Obama suggested a vision of an enhanced role for the government in steering the country's people towards the achievement of common goals. Jindal proposed making the federal government step back and let the people achieve those goals without government help, on the theory that "government help" is more or less an oxymoron.

This is the grand debate, then, that we find ourselves in. We'd advise small business owners to compare the two visions less as they seem to affect small businesses specifically and more as they seem to affect the economy as a whole, and decide on their support that way.

"I think small banks felt like they were doing the honorable thing [in not taking TARP money], and their customers applauded them for not going to the government trough. But there were also some very logical reasons not to do it, including the unknown strings attached to it. The contract said you would comply with all present conditions and all future conditions imposed. Well, have you ever signed a contract where they said they'll tell you what the terms are later???"

Our guest today is Dan Ford, the President and CEO of, and shareholder in, Pine River Valley Bank, a small community institution in southwest Colorado. He also serves on the Colorado State Banking Board. We found Dan after he posted a comment insisting that, for all the troubled times, his community bank and many others like it were not going anywhere, a sentiment he reiterates below. In our interview, he also discusses why his bank didn't take the federal government's bank bailout money and how it is coping with a drop-off in deposits.

If you are a small business owner interested in being interviewed for Small Business Salon, or know one who would be (or should be!), please email us at bizboxonslate@gmail.com.

BizBox: Please tell us about Pine River Valley Bank.
Dan: We are a locally owned little bank, founded in 1977. We're located in the southwest corner of Colorado--the closest neighboring community you'd know is Durango--about ten miles from the New Mexico border. We are a $170 million bank--we recognize that's a pretty small bank by the scope of things. We have four branches, one as far away as 152 miles. All four are located in small towns. We have about 50 employees.

Our method has always been to provide banking services to small and rural places that just barely have the resources to support a bank in their towns. We're profitable. Sometimes we make the list of one of the best banks. Recently, we've devoted a lot of money to expansion. But we've been modestly successful and pleased. Our ownership is 20 people--20 families who helped start the bank, when we realized we needed one in our little town. And it's the same shareholders! No one's sold. We don't have one family or one group that controls the stock. The largest shareholder holds about 18%.

What were the circumstances of the bank's founding?
It was all merchants, the founders, because the closest bank was about ten miles away, and the story goes that one of the merchants typically ran around town and picked up all the deposits, and he went to the nearest bank one day, and he showed up, and it was right at two o'clock, and a woman was closing the shade and locking the door, and they wouldn't let him in. So he missed the two o'clock closing. And he came back and said, "We just gotta get our own bank here." With $300,000, they were able to start the bank, and that has turned out to be a pretty good investment, because that's now worth about $15 million. We have a lot of pride of ownership. We're glad to be recognized as someone who did something good for the town of Bayfield.

What's your role at the bank?
I have been here for 21 years, I live a mile from the bank. I'm 60 years old, and I'm the president and CEO. I took over for the first president, and now I've been president for five years. I was born and raised in the area.

What is the Pine River Valley like?
Our little town is of about 3,000 people, and we're about 20 miles outside Durango--which is only about 15,000. But Durango is kind of a rich, upper-scale place, much like the Aspens and Tellurides of the world. Lots of big, expensive second homes. So Bayfield has developed as more of a bedroom community.

In the last fifteen years, construction has been a big part of our economy, building those houses: either the upper-scale houses in the Durango area as second-homes, or the subdivisions with the more modest homes out here. Another big part of our economy is the oil and gas business. We're kind of a center of natural gas.

What sort of business is your bank primarily engaged in?
We do a lot of construction loans. We're heavily into real estate. We've done spec [speculation] lending in the past--and that's not in our future, that's for sure! A lot of small businesses. A little bit of agricultural, though not as much as people back East might suspect.

What types of small businesses do you tend to work with?
Mostly retail--small shops. I can't say that we've even had anything as big as a modest-sized grocery store. Mostly, someone will build a commercial building, we'll finance it, and then also the businesses that go in there--anything from a hair salon to a restaurant. A lot of financing of that type.

How is the current economy treating you?
We're coping. Our numbers look good. If you looked at our numbers today, you'd think there wasn't a recession going on, and you can say that about most of the little banks in our areas.

While we don't have any foreclosures going on right now, we do have other real-estate owned properties--homes in inventory. We probably don't foreclose on anybody but once every three years. But we can look down and see another house and speculation loans, and somewhere before the end of the year, maybe we'll own them--we hope not. I think bankers always try to put on a happy face, but in their darkest moments, they've gotta be thinking, "This could be a problem, that could be a problem."

Fortunately, when this economy hits in small towns, people don't buy houses, so rentals tend to be in demand. So the guy that built that spec home and hoped to sell it is now turning that into a rental. He's renting it, and he's at least making the interest payments and breaking even, and he's hoping that in a couple of years he can sell it and make some money. So rentals have been his salvation and ours too.

Do you also take deposits?
Yes. We are a regular retail bank. There's less money in circulation out there, that's for sure. In the '30s, one book I'm reading said, cash was so short in one community, they created scrip--your own internal economy. I can see our deposits are dwindling. We're trying to get a handle on why. We have the same customers, they just seem to have less money deposited--less money to deposit, I think. The town and the county bank with us--they collect taxes and bank with us and they seem to have less money than in the past.

We have one customer who boards horses--that's her business. And she's always been a good loan. But she came in one day and it turns out she's a bad loan now, because people aren't boarding horses any more, probably because they've seen their 401(k)s go to hell. There's a link to the stock market for you. So those banks that would tell you that they're insulated are sadly mistaken.

Have you been able to keep up your usual lending pace?
Not so much. We have less money to spend, to loan, because we have less deposits. We chose not to accept the TARP [Troubled Asset Relief Program] money, as most banks did, and for the right reasons.

What were your reasons?
I think small banks felt like they were doing the honorable thing, and their customers applauded them for not going to the government trough. But there were also some very logical reasons not to do it, including the unknown strings attached to it. The contract said you would comply with all present conditions and all future conditions imposed. Well, have you ever signed a contract where they said they'll tell you what the terms are later???

So we don't have excess funds. The FDIC [Federal Deposit Insurance Corporation] comes in and always fights with the banker and says, "I think this could be a bad loan". There's one side. And the other side is they say, "Take these millions from the government and go lend it out." Well. I always think of the eight restaurants in our little town. And I think of the worst one now--the one that's most likely to close. Imagine the owner coming to my desk and saying, "Dan, I need to borrow $10,000 to make payroll, and I understand you took the TARP money, so I think it was there just for me." Should I loan him the money? The TARP side says yes, the FDIC is saying, "No way".

What do you think the federal government should be doing to help small banks such as yours?
If you look back to the Depression, they protected the large urban banks more than the small rural banks. When you hear those stories, stuff like It's A Wonderful Life, it was always the little town bank that failed in 1929 or 1930. So my fear is that the folks in Washington are not in touch with Main Street and that they will do things that put us at a serious disadavantage, like nationalizing Citigroup or Bank of America. If the federal government owns one of my competitors, they don't have to make a profit or pay taxes, and anyone would probably want to put it in the national bank. That gives that bank a serious advantage over my bank. So I hope they honor the private industry.

You mentioned to me earlier that you serve on the Colorado State Banking Board. Could you tell us a bit about that?
I'm on the Board, a governor-appointed part of the state Division of Banking, which governs all state-chartered banks. The Colorado Division of Banking regulates 108 statewide banks. And I'm on that five-member board.

How are Colorado banks faring?
Probably a lot of banks north of Denver are struggling because they promoted in and were involved in overbuilding. They were a little bit larger, and got involved in entire subdivisions. I often tell people: banks as small as ours are just too small to be stupid. But these guys are a little bigger. I don't know that those people made bad decisions--they were rolling with the times. But now they're facing suck stock.

When will the banking industry finally seem out of the woods?
I think it's going to take some time, and I think it's going to weed out some good businesses, good people--some well-intentioned, good-hearted people. And through those failures, we will get down to the survival of the fittest, and ultimately that's where we'll start building back up again. I know the government can't let a huge bank fail: I trust there would be a trickle-down effect to all of us if we allow multibillion-dollar banks to go away. But there will need to be some blood-letting, and some folks are going to have to go away to make the rest of us survive.

Is Pine River Valley Bank going to survive?
We're going to survive. We've already kind of cut back on a lot of things. We told our employees we're putting more money into reserves, so we can't give them raises. We've cut back on our bonuses. Me, too. I tell my employees, "You can imagine: everyone's got 50% of what they got last year, and my bonus is bigger than yours!" We'll have to not make some of the loans people would like us to make. We're not going to be popular, and no banks will be.

Important news reported by Sharon McLoone over at our sister site, washingtonpost.com: a new Small Business Administration rule has capped, at $250,000, the amount that the agency will guarantee where someone who is taking out a loan in order to purchase a small business is looking to finance the acquisition of the existing business's "good will"--which is economist-speak for a business's non-tangible assets, such as its brand, as well as its cash-flow.

The actual cap is actually either $250,000 or 50% of the total loan amount. McLoone gives the example of someone looking to buy a business for $2 million, including a $400,000 down payment. While now (technically, the rule goes into effect on March 1) the SBA's uppermost limit would be the $250,000 figure, it previously would have been as high as $1.6 million. In other words, the rule all but ensures that fewer small businesses will be sold now.

What's the explanation behind this?

After all, SBA loans, particularly from its flagship 7(a) program, have plummeted, and the new stimulus package appropriated hundreds of millions of dollars to the agency for the explicit purpose of juicing these loans and getting small-business credit moving again.

Our best guess is that while the SBA wants to increase its lending, it and the federal government's main focus right now is in lending to existing small businesses so that they can most efficiently and quickly pay off their existing loans. That goal in turn serves the broader goal of buttressing the credit markets generally--hence the expansion of the agency's microloan program, which is specifically designed for small businesses with outstanding loans. While focusing on this, the agency is intentionally cutting back on lending designed for other purposes--such as making it easier for people to buy small businesses. Essentially, and with the larger macroeconomic situation in mind, the powers that be have determined that they would rather struggling small businesses move towards solvency, rather than move towards insolvency and a subsequent sale.

The problem with this, as McLoone is told by a business-broker (who is in the business of helping the sale of businesses--a job description that does not sound great in light of this new rule), is that, "Buying a business is a real option to a traditional job search. What happens [with the new rule] is the whole business acquisition market could come to a screeching halt." His Chicago-based firm's typical customers are apparently "middle- to senior-level managers in their 40s or 50s 'with lots of experience and a little nest egg who wouldn't have nearly enough money to pay for a business in cash,'" according to McLoone.

In other words, keeping the market for buying businesses open--as opposed to constricting it, as this new rule does--would effectively enlarge the labor market, which certainly doesn't sound so bad for an economy that is experiencing rapidly rising unemployment. So count us skeptical on this latest move.

We tend to be suckers for stories about uplift and redemption, so please excuse us while we indulge that. We just came across this wonderful New York Times article on Houston's Prison Entrepreneurship Program.

Basically, the lifestyle feature that just about most correlates with recidivism among former inmates is unemployment, so finding jobs for the newly-freed is crucial from society's perspective. One promising avenue for "employment," particularly during a time of rising unemployment, is of course entrepreneurship. And entrepreneurship may especially suit some of these prisoners...as the PEP's head politely puts it, "We try to help these guys realize that the skills they already possess from illegal ventures have real value in the business world." She clarifies what she means in less polite terms: “Major drug dealers are already proven entrepreneurs.”

The program has met with success, if not massive success; some think it's great, some take issue with it (recent prisoners tend to need structure, which entrepreneurship provides less of than a more traditional job). Most of all, though, it's a great story and a great article. Check it out.

Yesterday saw the latest in our BizBooks author series, as we hosted Larina Kase, author of The Confident Leader. Larina discussed what it means to be confident; how President Barack Obama embodies the confident leader paradigm; and even how to solve the eternal problem of procrastintion.

Check out the whole discussion! Check it out here.

And, for now, check out some of our favorite highlights below! (Including, yes, the procrastination question.)

BizBooks: What exactly do you mean by "confident"? And what are the practical virtues of this personality feature?
Larina Kase: I see confidence as our ability to face challenging situations with a sense of optimism and feeling that we can handle them. Confidence also includes how we respond to failures or obstacles. Someone who is confident has a realistic appraisal of the risk in a situation but feels that even if it didn't go the way he would like, he could handle the outcome and perhaps even turn it around in his favor.

Confidence is not so much a personality trait as a mindset that develops over time. The most important practical virtue of confidence is being able to challenge ourselves to confront difficult situations. When we do so, we not only feel great, but we are more likely to experience greater rewards in life and work, and our confidence grows.

BizBooks: One chapter in The Confident Leader deals with a subject near and dear to the hearts of many: procrastination. Could you please briefly tell us what you have to say about that?
Larina Kase: Yes, absolutely. Most of us experience procrastination on some level. The first half of The Confident Leader lays out the 6-step GROWTH formula to use in areas of key change and challenge. The second half applies the formula to different areas that many of us struggle with, such as procrastination.

One of the primary drivers of procrastination is a lack of confidence in a certain area. We worry about how well we'd be able to do something, whether we have what it takes, how long it will take us. These worries may not be obvious to us unless we sit down and say, "What concerns me about doing this now?"

But they float around in our heads and make us put things off. The thoughts are often completely irrational. For example, I recently procrastinated learning how to sync my PDA with my Outlook because I have a fear of technology. When I stopped and said, "What am I worried about?" I realized that there was nothing serious. So, I gave myself 30 minutes and said, "Try it out and see what happens," and of course I was able to do it.

New Paltz, NY: to quote machiavelli: is it better to be feared or loved?
Larina Kase: That's an interesting question...

It is definitely best to be loved. There is a great deal of research that people who are likeable achieve more. They are more influential. People are attracted to them and see them as charismatic. People go out of their way to help them. People who are likeable show empathy, care and concern for others, genuine interest in others, and are willing to share their resources and look for ways to help others out.

The only way to influence others is for them to feel that you care about them. So, definitely love.

On the other hand, a *little* bit of fear is okay. This means that people don't see you as a pushover. People see you as someone who is confident and has power. People see you as someone who has standards for what is okay and what isn't and is not afraid to act on them if there is a transgression. These things make others respect you and not take advantage of you, because they know there will be an unfavorable consequence.

Of course, the first thing you should be reading is our BizBooks with Larina Kase. But what, besides that, you ask??

Dissension in the ranks? Healthy disagreement among your staff: it's a good thing! [Forbes]

Whom to have host you? A primer on selecting a host for your company's Website. [Fortune]

Going against the grain. Some entrepreneurs and venture capitalists are attempting something decidedly not au courant: they are trying to start a business. [NYT]

But are they (see above) nuts? Maybe not! Maybe now is actually a good time to start your own business. [myWealth]

They (see above) are not nuts! More people saying the time is indeed ripe for business-starting. [CNN; h/t The Entrepreneurial Mind]

Four out of five entrepreneurs agree... Even now, the vast majority of entrepreneurs think that it's totally worth it. [OPEN Forum--which is sponsored by BizBox sponsor American Express OPEN]

Good weekend!