Independent Street notes that, as the economy began to tank and then tanked in earnest in 2008, entrepreneurial activity actually grew. Breaking down the data, the blog notes that it "suggests that more people are turning to entrepreneurship out of necessity in today’s bad economy, meaning they have limited job opportunities and start businesses to generate income rather than to chase a hot opportunity. In recessions, the numbers of 'necessity entrepreneurs' tend to rise given lagging job markets."

Makes sense. But we also prefer to think of these numbers as part of another trend we've talked about: the Great Rearranging, in which the downfall of numerous big corporations, victims of the economy and, in some cases, of their own mismanagement, produces numerous talented, ambitious, but jobless people who find that this is the perfect time to go into business for themselves, or to join smaller firms, or to start smaller firms, and so on. We previously examined the Great Rearranging in the financial industry. Something tells us that pretty soon we'll be able to write a post about the auto industry and the upper Midwest's economy generally (Youngstown, anyone?). But results like those which Independent Street presents shows the Great Rearranging happening on the macro level. The results show that the Great Rearranging is for real.

Small businesses and the small business blogosphere have tended to view the Obama administration's $787 billion stimulus package from the perspective of how it is likely to throw extra federal contracts small businesses' way. Certainly we've covered the stimulus in this manner; more recently, Fortune did, noting that 75% of the $787 billion set to be spent is likely to be spent by August 2010. And it's true! The stimulus will increase federal contracts, and, given a mostly (though not fully) followed law mandating that 23% of all federal contracts go to small businesses, the stimulus will indeed increase federal contracts won by small businesses.

But to fixate on this aspect of the stimulus is to miss the stimulus's larger point. Though this is far from always the case, here the stimulus's biggest benefit for the economy as a whole is also its biggest benefit to small businesses: by manufacturing $787 billion in extra demand autonomously, it is likely further to juice demand and to increase consumer spending. Even if not all of that goes to small businesses, much of it will. And achieving a new plateau of responsible spending is the absolute single most important thing for helping the country's small businesses.

Something to keep in mind as we debate future ways for the government to take pro-small business steps. Until demand reaches the necessary point, the rest is commentary.

Hopefully your spring allergies aren't acting up as badly as ours are. However, if you find you need to spend much of the weekend indoors, you may want to check out the following.

You're protected--unless you're a small-business owner. The House passed a Credit Card Bill of Rights, only it contains an exception for small-business cards (like that of American Express, which is our sponsor). What gives? John Tozzi has been all over this story. [The New Entrepreneur]

Predicting audits. Are you going to hear from the IRS? [AllBusiness]

SBA in L.A. An interview with the Small Business Administration's Los Angeles district director, on the SBA's role in helping the country out of the recession. [Entrepreneur]

The dotted line. How to craft solid employee contracts. [Small Business Trends]

Notonthehighstreet.com. An entrepreneurial success story worth taking in. [NYT]

Get 'er fixed. Bad times are boom times for repair shops--many of which are small businesses. [WSJ]

One of the main accomplishments of February's stimulus package as far as small businesses are concerned was to greatly expand the Small Business Administration's main lending programs in terms of how much of individual loans the SBA would back. Now, reports Entrepreneur, comes a different sort of expansion: more businesses--think car dealerships--are now eligible to participate in this program of favorable loans.

We see three ways to view this development. One is to say: hey, these are small businesses too--bigger, more tied into bigger corporations in some cases, but still small businesses--and they should be just as eligible for the loans as the local hardware store or whoever. Two is to say: well, maybe these aren't small businesses, exactly, but they are in trouble (we're thinking especially of car dealerships and parts makers), and this is a convenient, pre-existing structure through which the federal government can help them; plus, as long as demand for SBA loans continues to stay low, what's the harm in letting more businesses in on the program? It's worth noting, indeed, that this expansion in eligibility is temporary, at least for now--it's set to expire in September, 2010, which makes this second way of viewing the expansion entirely plausible.

But the third way is to condemn it as another instance (you could point to the extension of certain federal small-business programs to equity-backed companies as the first) of this administration's small-business policy not being governed sufficiently by the concerns of genuine small businesses. We imagine Lloyd Chapman and his American Small Business League would view it this way, and we're somewhat inclined to, as well.

"We have seen signs that small businesses that are just outside the traditional 7(a) size standard are being shut out of the conventional lending market," SBA Head Karen G. Mills said in announcing the expansion. "This temporary change will help those businesses weather these tough times and help move our nation closer to economic recovery." The problem, of course, is that while such businesses may indeed require and deserve government help, there's no particular reason why that should come at the potential expense to genuine small businesses who thought these programs were just for them and which Congress presumably intended as just for them, too. So long as demand for credit is as low as it is, it probably doesn't make a huge practical difference. But as a symbol, it is slightly troubling. And we hope that as September 2010--that's two months before an election--comes around, the administration actually lets the expansion lapse.

We're cuckoo for cloud computing, as you can see here. We see it as a way for small businesses to bring overhead costs way down, make telecommuting and working from disparate locations much easier, improve security, and generally make life easier. (It also, according to McKinsey & Co., provides an important advantage over big corporations, for whom cloud computing's benefits are less stark.)

But our advocacy nonetheless obliges us to present the opposing view. Fortune presents something of the small-business case against cloud computing today, and it isn't uncompelling (though we do think they misread the McKinsey study, which found that cloud computing is overhyped only so far as large businesses are concerned).

The article argues:
-Cloud computing isn't as technologically simple and easy-to-use as its boosters make it out to be.
-That in addition it presents "deeper cultural challenges" for offices and workers used to desktop-based computing.
-It's much more expensive than you'd think just by noting the cheap basic fees, plus free applications like Google's.
-Finally, even as cloud computing costs mount as the applications can accomplish ever more, traditional desktop-bound applications--some especially designed for small businesses, and priced accordingly--are getting cheaper.

We're still going to stick with our advocacy. As anyone who has dealt with Microsoft's dominant business software suite (or even their dominant personal-computing software suite) knows, technology is always going to present some problems. Price-wise, cloud computing may not be as cheap as some may imply, but nor is it particularly expensive.

And as for ingrained anti-cloud computing cultures? Well, we'd respond that overthrowing ingrained cultures in the name of efficiency is pretty much the definition of the small-business advantage. It'd be a shame if that went to waste.

The Small Business Administration is not, automatically, a Cabinet-level department, but some presidents--most recently President Clinton--have used their prerogative to elevate the agency's head to Cabinet-level status. We've said that President Obama should do this (actually, we said we'd be shocked if so uncontroversial a move was not made; but we are in favor of it). So has Sen. Olympia Snowe (R-Me.), who is arguably the most influential legislator as far as the SBA is concerned, and who in fact recommended the current SBA head, Karen G. Mills, for the post. Clinton's SBA heads were Cabinet-level; President George W. Bush's weren't. And, as of right now, Obama's first and so far only SBA head, Mills, is not, either. Clock's a-ticking.

On the one hand, the list of those non-Cabinet officials (being in the Cabinet, as we understand it, means you head a fully-chartered federal department) who are Cabinet-rank at this point is not exactly exhaustive: they include only the heads of the Council of Economic Advisors, the Environmental Protection Agency, and the Office of Management & Budget, plus the Trade Representative, the Ambassador to the United Nations, and the President's chief-of-staff.

Even so. This is taking a little long--the first hundred days are over (perhaps you read about it last week?). If Mills is going to be made Cabinet-level, the administration needs to get on with it already. And if she's not going to be made Cabinet-level, then the administration needs to explain why not. Either way, it needs to happen soon.

That’s me, of course, on the left, talking on the phone. If I’m not doing that I’m sending and answering email. And for about the last six months, I’ve been one of the estimated six million people on Twitter. In fact, so has BizBox.

If you’re not quite sure what it is, Twitter is a free social networking service that enables its users to send and read other users' updates, known as tweets. These tweets must take up 140 keystrokes or fewer, and can be sent to individuals or a network of “followers"; users receive them in turn from people they follow.

Here’s a much better explanation, as only the creative folks at Common Craft can do, in their video, Twitter in Plain English.

As explained in the video, tweets answer the simple question: “What are you doing now?”

Which brings me to my topic. Answering the question "What are you doing now?" can sometimes cause problems in the workplace for employers whose employees are using Twitter to do so. Or maybe employees are spending time following tweets having to do with such current Twitter trends as #Swine Flu, #Wolverine, or #Steve-O. Or maybe employees are revealing a little too much, since all user information is public by default.

According to computer expert Graham Cluley of antivirus firm Sophos, an embarrassing or incriminating tweet, or one which may have been sent accidentally, even if deleted, still exists on the Twitter site. And thus, is searchable forever.

So if you’re looking for a simple Twitter policy, here’s one discussed at the Workplace Prof Blog. It’s by attorney Jay Shepherd, who writes the management-side Gruntled Employees blog. He shares his firm’s Twitter policy with us. He says:

"Our Twitter policy: Be professional, kind, discreet, authentic. Represent us well. Remember that you can’t control it once you hit 'update.'"

(In case you're wondering, yes, that policy can be written in under 140 characters!)

It’s common sense, of course, but that doesn't mean you don't need to make it formal policy. After all, as I pointed out on my Retirement Plan Blog, if common sense was so common, more people would have it.

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.

Last week, our very own Michael Taylor told us why times of crisis or potential crisis--whether 9/11 or the swine flu scare--make him glad that he is his own boss and that he works at a small business rather than a large corporation.

Big business or small, though, there are precautions worth taking as we continue to learn more about the swine flu (although--knock on wood--most signs suggest that the disease is nowhere near as serious or spreadable as some initially feared). The Washington Post offers a good rundown today:
-Food Lion is considering having delivery drivers not help unload their trucks, presumably to ensure that only carefully audited and sanitized Food Lion employees handle foodstuffs. Smart!
-Marriott's corporate headquarters has taken President Obama's famous urging of Americans to wash their hands a step further, urging not just washing but also posting signs that instruct employees of proper handwashing technique (rinse, soap, and rub for 20 seconds--we want to hear you counting!). Thorough!
-Booz Allen Hamilton's headquarters has set up a makeshift swine flu tracking station. Possibly excessive!

More broadly, the emphasis seems to be on implementing the following maxim: "preserve continuity of operations and prepare social distancing policies." The article translates: "Be ready for employees to be sick or unable to get to their desks because they need to care for their children." This sounds about right to us. A quick first step might be making sure that any employee is able to telecommute with great ease--even if they are just feeling a little under the weather, as though they may have something contagious, it might be a good idea to have them work from home.

Actually, having employees who might have something contagious work from home sounds to us like a pretty good idea even in the absence of a pandemic scare! Which brings us to our final point: just as you hopefully would with any other potential challenge to your business, try to look at all of this as an opportunity--to innovate, to increase efficiency, and the like. In protecting your business from swine flu, you may end up inadvertantly protecting it from some unknown obstacle down the road.

The AP takes note of one little-reported consequence of the credit crash, the recession, and the rest that helps more fully flesh out their implications. Namely, applications for patents are down. The article blames the recession for this trend: it has driven down both big corporations' R&D budgets as well as venture capital funding for smaller, more entrepreneur-type innovational efforts. Even "basement inventors"--people who invent stuff alone in their basement--whose normal ways of accessing credit have been shut off and whose discretionary income is likely to have shrunk have been filing fewer patent applications.

And that is bad not just for innovators but for everyone else, too. As the head of the patent examiners' union puts it, "Innovation is the way America generally gets out of downturns." Indeed, innovational entrepreneurship is also the natural thing for people to turn to during recessions.

An additional problem, incidentally, is that the U.S. Patent and Trademark Office, the federal agency responsible for approving patents, depends upon patent application fees for its funding. So fewer patent applications means less funding--and what do you know, the USPTO looks likely to be $100 million short at the end of the year. And less funding, of course, is in turn likely to lead to fewer patents being granted which will only harm American innovators--and America--further.

We're not sure what quite exactly the government should be doing here, other than making sure that the USPTO is fully funded, even when fees fall short (and then some--as it stands now, thousands of patent applications are backlogged, so they could use a bit of extra cash). Perhaps special seed money funding for small (and we really do mean small), non-equity-backed outfits looking to launch a new product is in order? It would be money incredibly well spent.

Q: I run a one-man advertising agency that bears my name. I’m known as an expert in health care marketing, but I’m very nervous about the idea of branding myself as a health care shop exclusively. That category provides about 75% of my work, but losing the other 25% scares me. What should I do?

A: This is one of the most common types of questions we receive—to specialize or not to specialize? While it can be frightening to deliberately turn away paying business, especially in this economy, our rule is that if you get a verifiable 70% or more of your business from one specialty area, then you can and should specialize in that area and say “No” to all other business outside your specialty.

In trying to get yourself to an emotional place where you can brand yourself as a healthcare shop exclusively, you should think about more than the 25% of your income that your non-healthcare business provides. You should also think about these factors:
-How much time and money does it cost for you to acquire your non-specialty (in this case, non-health care) clients?
-How easy is it for you to work with them, since they represent an area where you are not a recognized expert? Do you spend a lot of time dealing with change orders, writing proposals, etc.?
-What kind of referral stream are you getting from those clients?

See, value isn’t just a matter of gross income. It's al the factors that make your little agency profitable. If you spend more than average to get those non-core clients, spend 20% more time on them for the same amount of money, and get 50% fewer referrals, you’ve got nothing to lose going specialist and kissing them goodbye. Which is why we recommend that, whenever possible, you specialize.

Here’s a simple three-step plan for specializing the right way:

1. Start a six-month branding program telling your health care clients that you plan to narrow your focus and specialize in their area of business. During that time, complete your new branding look, feel, and language, and update your Website. Communicate with your core clients during this period; remind them what you’re doing, and ask for referrals. In fact, why not also do this with your non-health care clients? Because the next thing you’re going to do is…

2. ...establish your own referral program. Have an agreement with some other agencies in which you refer them non-health care clients in return for a finder’s fee. Then, when a non-health care client contacts you, you say, “I’m sorry, but I’m specializing exclusively in healthcare companies now. I would be happy to refer you to a partner agency I’ve chosen personally.”

3. Raise your fees. You can justify them--after all, you're an expert now! Plus, you may need them at first until you pick up new clients.

Peter Montoya and Tim Vandehey are the authors of The Brand Called You, the definitive guide to personal branding, published by McGraw-Hill. The book can be purchased here.

To someone who simply can't stand the thought of working for someone else anymore, striking out on your own is the most obvious and easy decision to make in the world. But the fact remains that in many practical ways, owning your own small business is much more difficult, trying, and challenging than working for someone else. Which is not to say it isn't worth it! But it is to say you should be wary of the full implications of opening your own shop.

The Wall Street Journal does an admirable job today laying out those implications--admirable both for its thoroughness and also for its tone, which points out, "higher expenses and other costs come along with your newfound liberty," while acknowledging, "That doesn't mean you shouldn't try. There are few more gratifying accomplishments than making it on your own."

Briefly, the Journal says owning your own business could mean:
-Higher taxes. The self-employment tax essentially sees you paying both sides of the payroll tax.
-401(k) mishaps. The bevy of deductions you'll be inclined to take could lower your taxable income to the point that you are unduly restricted in what you can contribute to a retirement plan.
-Mortgage obstacles. Since lenders will look at your earnings after expenses, you could find yourself turned down for mortgages you know you can handle.
-Insurance costs. You'll need to purchase insurance for your business and health insurance for yourself.

And this is all before we even talk about the logistical nightmare that is known as having employees.

All in all, the article estimates that if you want to end up as an independent businessman with the same amount you take in as a wage-earning employee, you should plan to gross 20% more. But maybe that's not discouraging--maybe you see that as a challenge. In which case, you're probably a natural entrepreneur anyway.

Well, it's hard to call 491,000 lost private-sector jobs this April "good news," but ADP's new employment figures are a lot more merciful than the 645,000 many economists were predicting (indeed, March's numbers were also revised downward). Of the nearly 500,000 cut positions, only 77,000 came from big corporations (500 or more employees). Small businesses (under 50 employees) lost 183,000 positions, with mid-size companies cutting 231,000. (Now you see why we talk about small and medium-sized businesses being the main engine of job growth!)

CNNMoney runs a nice article accompanying the new data, which points out that jobs at small businesses tend to be particularly vulnerable to recessions because payroll tends to be by far the biggest expense of any small business with employees.

Anyway the real good news may be less the actual less-harsh numbers and more what many are saying is their cause: increased consumer spending. If the American people are once again determined and able to buy stuff, then that is about all the good news that small businesses could hope for at this point. So yay!

Steven Greenhouse, the New York Times's labor reporter, gives us an update on the progress of the Employee Free Choice Act, commonly known as "card check", and various compromises as the Senate deals with the legislation. In its original form, card check would require companies to recognize unions where over half of the relevant workers have signed cards indicating a desire to organize--a full secret-ballot process would no longer be necessary. Passing it is more or less labor's top priority (they're pretty keen on health care as well); defeating it is more or less the top priority of many business groups, including the National Federation of Independent Business, the most powerful small-business lobby. Indeed, the only thing both sides agree on is that card check will make it easier for workers to form unions.

So let's examine, first, the politics of the issue; second, the shape of potential compromises; and, finallly, where small business ought to stand on the issue.

The politics and horse-race aspect are interesting. Basically, it's the Senate, so you need 60; the Democrats currently have 59, plus, potentially, one of these days now, Al Franken. On the other hand, the last time we wrote about this debate was when the big news broke that then-Republican Sen. Arlen Specter (Pa.) had switched from support to opposition to card check. Then again, now that he faces a Democratic, rather than Republican, primary challenge, might he change his tune back? Or will congressional liberals hold off on the bill til 2011, in the hopes of having yet more favorable numbers then? Or will a compromise obtain?

In terms of a compromise, there appear to be three main aspects of the original bill on the table, where a compromise is likely only to have one or two of them. They are the card check provision itself; an arbitration requirement, which would throw a management-labor dispute into private arbitration 120 days following unionization; and toughened penalties for companies that violate labor laws.

As alternatives to the central card-check proposal, there is the notion of still requiring a secret ballot following the card-signing process (which is how the system currently operates), but also requiring that the elections be held quickly afterward--the thinking on both sides being that the more time management has to lobby against a union, the less chance that the ballot results will call for a one.

So there you have the battlelines. Where do and should small businesses fall? We haven't heard much about exempting truly small businesses from any sort of card check. Then again, beyond simple assertion, we also haven't heard much about the actual likelihood that passing card check would do serious harm to small businesses (and we actually mean small businesses, not businesses with 450 employees that are technically medium-sized and really are not what groups like the NFIB should primarily be looking out for).

If anything, we're inclined to think that greater unionization rates at large companies are likely to bring employee compensation, and therefore payroll costs, more into line with what they already are at small businesses, going some way towards erasing large companies' advantage in that area. Just think how easier it would be for a small local retailer to compete for customers and for the best employees with the nearby Walmart if both stores were paying their employees roughly the same? It looks to us as though the passage of card check would provide a substantial silver lining to small businesses--at the very least.

Two different articles today illustrate which types of businesses--retailers especially--are managing to do alright for themselves even in one of the worst consumer spending climates of modern times. Essentially, the two main types of thriving companies are the known discounters and the known purveyors of unique, quality items.

The Washington Post reports that Walmart, T.J. Maxx, and a few other prominent big discount retailers all reported solid growth this past April. This should really come as no surprise, of course; and nor should the disappointing data reported by Nordstrom's and other more high-end stores. "Industry experts said any improvements in retailers' performance was largely driven by better management of prices and inventory rather than an increase in consumer demand," the article reports. "Shoppers remain cautious and are looking out for deals." The lesson? It's not what you sell as much as it is how you sell it. Market to the recession, and you should do okay.

Meanwhile, in what's really more of a service-type article, the New York Times highlights Brooklyn's flourishing new design scene. "Even though the economy is down, the scene is still booming," says one furniture maker. The lesson? No matter the economy, neer underestimate the determination of creative people to be heard; and never underestimate the market for their creative, unique product. And relatedly: if you are one of those creative people, try not to let the economy stop you.

You'd be hard-pressed to find a more troubled major American city than Detroit. Take the usual Rust Belt problems; add in especially harsh and au courant industrial decay given what the Motor City's main industry is, and how it is currently doing; plus don't forget a pinch of hilariously corrupt and incompetent ex-mayor. You get the idea.

But as we've discussed many times before, it's precisely into such vacuums and even desolations that there is real space for innovative entrepreneurs to step in, take advantage of low costs and low expectations, and really make a name for themselves, helping the area and the country in the process. Entrepreneur reports on a new non-profit, Bizdom U, that is aiming to help entrepreneurs do all of that (shades of the Youngstown Business Incubator). Basically, it's a free service (you have to apply) for budding entrepreneurs to receive mentoring, training, instruction, and support as they pursue their new business dreams.

The whole thing is the brainchild of Quicken Loans chairman Dan Gilbert, who may own Cleveland's (Finals-bound) basketball team but is a Detroit native.

A century ago, Detroit and its native industry was arguably the greatest and most important center of innovation in the country; what it birthed helped drive the whole country's economic growth for decades. Those days might be gone. But there appears no reason why Detroit can't once again cultivate itself as a center of innovation and entrepreneurial success.

This Tuesday, the Wall Street Journal published the article that launched a thousand blogposts. The paper reported that some lenders are perceiving a "thaw" in the secondary market for small-business loans, and are in turn feeling more comfortable making new small business loans. The most recent numbers, which are from February, show that that the selling of newly made Small Business Administration-backed loans is on the rise, though it is not where they were before last September's credit crash. The notion that increased sales on the secondary market would lead to increased loans is precisely the premise of the federal government's plan to use $15 billion from the TARP fund to buy up loans in order to let more be made, a plan of which, incidentally, we are skeptical both in theory (we don't think credit is the main problem right now) and in practice (a similar program has not been going all that well).

The news seems to have made some people a whole lotta happy. Entrepreneur's Daily Dose blog hailed the news, for example. But most of the reaction has been more tentative and skeptical, and we'll happily join with that latter sentiment.

Independent Street, for example--the small-business blog, of course, of the Journal--questions if loans are really up. Jeff Cornwall of The Entrepreneurial Mind points out that failure is not the $15 billion's plan's only bad option: success, too, could be catastrophic if it results in "a small business loan bubble that will surely pop sometime in the not too distant future" (haven't we had enough of credit bubbles???).

One point we would make is that the $15 billion hasn't actually been spent, at all, yet, so at most its effect is on morale--people know it is coming--and so it deserves at most only a tiny bit of credit (no pun intended) for any trend towards increased purchases of loans and increased lending that may or may not exist.

The larger point we'd make is that the market for something like small-business loans--both to be purchased and to be made--is dependent on much larger macroeconomic forces than can be decisively influenced by 15 billion semi-strategically utilized dollars. As this New York Times interview with a small-business financing consultant makes clear, small-business loans are down primarily because small businesses don't really need or want loans right now; they are, correctly, obsessed with surviving this poor economy, and the wise way to do that is not to take out loans but, on the contrary, to focus on making do purely with what they generate. Loans are for trying to grow; and 2010 (hopefully) is for trying to grow. 2009 is about cashflow.

The consultant, for his part, proposes instead that Congress pass a bill that would permit businesses to defer $250,000 in income taxes in order to invest in their companies. We have a lot of problems with such a proposal--we're not sure that's the most efficient way to provide stimulus; we worry about the lost revenue; also, most businesses with $250,000 in income taxes to pay are not exactly small--but at least his thinking is where it should be: on helping small businesses' core business functions rather than the comparatively ancillary matter of how much money they can borrow. It is time people stop thinking of increased small-business credit as a favorable end in and of itself and more as a symptom of something even more favorable: an economy in which banks want to lend and business want to borrow. That is what we should be shooting for.

In between watching NBA playoffs action, you might take a look at the following:

Who owns your loans? Concerns over the Federal Deposit Insurance Corporation's dealings with small-business loans. [The Entrepreneurial Agenda]

To the manner born. Is there such a thing as a natural entrepreneur? [AllBusiness9]

To declare or not to declare. Considering Chapter 11 bankruptcy. [Forbes]

So sad. When layoffs happen at small businesses. [NYT]

Procuring procurement. How to get in on government contracting. [OPEN]

$5,000. That's all you need to start your online business. [Entrepreneur.com]

The headline is from the memorable speech made by Gordon Gekko (right), as played by Michael Douglas in Oliver Stone's 1987 classic, Wall Street, a role for which he won the Academy Award for Best Actor in 1988.

"In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms: greed for life, for money, for love, knowledge, has marked the upward surge of mankind."

Well, Gordon Gekko isn’t around now, and neither is Wall Street, as Marc Tracy pointed out in his recent post on this blog, The Great Rearranging of Wall Street.

But we can ask: what did we do to get where we are now, and how do we--how do small businesses--get out of it? Most of the discussion and commentary has been by the economists and financial experts, but there is a large psychological component to all of this which is beginning to get attention.

At recent conference at the University of Pennsylvania called, "Crisis of Confidence: The Recession and the Economy of Fear", an interdisciplinary panel explored the psychological elements behind today's economy. While all agreed that psychological factors are at work behind the current financial crisis, each focused on a different element:

* Mania and over-optimism behind the housing bubble.
* A lack of self-control by consumers hooked on debt.
* Many Americans' shock and feelings of betrayal because they thought they were making safe investments, but now find themselves facing a frightening and uncertain future.

According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. Sachs argued that the public will have to see proof that government and business leaders can behave responsibly before they will trust them again.

Maybe it’s as simple as saying “Trust is an economic stimulus package.”

Meanwhile, here's another question: how can you and your business take advantage of the current situation? How can you restore trust where your business is concerned?

Here is a summary of the the conference in the article Hope, Greed and Fear: The Psychology behind the Financial Crisis the on-line publication of the Wharton School at the University of Pennsylvania, Knowledge@Wharton. And if you one of those auditory rather than visual people, here is the mp3.

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.

One of a recession's (admittedly few) upsides is that all the rules can potentially be thrown out the door. One good example of this is that the recession has actually, believe it or not, brought back the ancient art of bartering. Another example, which Entrepreneur does a good job with, is negotiating with creditors. What you may owe them and be expected to pay them in good times may not be what you actually have to end up paying them in bad times. Everyone else is taking a haircut; they may be willing too as well, especially when the specter of your bankruptcy, in which they'd be sure to get far less, is looming.

We recommend you read the whole thing, and we don't want to take too much of the article and put it here. We'll just highlight the following points:

-It's not just about negotiating payments. Your lenders have a great deal of leeway in terms of what they report to credit ratings agencies. Take a proactive role and, frankly, just be nice, and you're likely to be able to avoid them reporting information that might lower your credit score.

-When it is about negotiating payments, it's not just about negotiating how much you pay. You should ask for lower interest rates or waiving interest (or at least waiving interest beyond the principal); waiving of fees or penalties; or a revised payment plan.

-Never offer to pay more than you can afford to pay. Sounds like like the most obvious thing in the world, but you need to stick to it even if what you technically owe exceeds this amount.

-Don't be intimidated. That's how they get what they want--and you don't.

The Wall Street Journal runs a solid piece on the increasing prevalence--and, hopefully, taming--of the practice of borrowing against accounts receivable, in which the borrower puts up money it is owed from others as collateral. It's the sort of practice that would seem best to fit small business owners. The story reports that a number of services--most notably Websites at which lenders can bid on wannabe borrowers' proposals for receivables-backed loans--have recently popped up that better facilitate the practice. The idea is that accounts-receivable borrowing, long the Wild West of the credit world--having rates that exceed 30% or 40% is not unusual--might be made more palatable for more borrowers.

It's not hard to understand why rates would be higher here: the collateral is by definition assets the borrower does not technically possess. And indeed with these loans we're still not talking about the safety one associates with, say, basic bank loans. In fact, interestingly, one auction Website reports that upwards of 40% of lenders who participate are not banks or traditional lending institutions of any kind but rather hedge funds, desperate for any sort of investment that could yield good returns (and if it's yielding good returns for the lender, that means it's tough on the borrower). Also somewhat odd is the fact that borrowers don't know whom they are lending from. On the upside, borrowers get money wired to them the day after a lender wins their bid.

Servicess such as these are making this last-resort source of credit...a little bit less last-resort. Times being as they are, we have to take our victories where we can.

Well look what's on the front page of the New York Times--an article about community banks! Welcome to the party, Gray Lady! You are a little late, but we'll forgive you, because as many as possible should know how awesome community banks--which are both a great resource for small businesses and frequently small businesses themselves--are. (Want to read our interview with a community banker, in which he discusses, for example, why his bank refused TARP money? Click here.)

“Banking should not be exciting,” an Indiana community banker says in the piece. “If banking gets exciting, there is something wrong with it.” Yup, and that's why these guys are still in business without the extra help of billions in taxpayer bailout funds. (The Indiana fellow reminds us of a column Timesman Paul Krugman wrote a month ago on why boring banking is good banking.) "The public, politicians and the media have made little distinction between the stress-tested behemoths and the 7,630 community banks across the country--the vast majority of which have watched the crisis like bystanders at a 10-car pileup," the author writes. We're proud to say that present company is very much excluded.

It was interesting to find that the over-7600 U.S. community banks represent a substantial majority of total banks but hold a substantial minority--under one-tenth--of deposits (remember, generally community banks have under $1 billion in assets). It was also fascinating, if not surprising, that what failures have taken place were in the few states most in thrall to the housing bubble; Indiana, for example, saw little change in property values and has also seen no bank failure since 1992.

And the article's generally a joy for us to read. "To spend time with these Indiana community bankers is to step into an alternate universe," the author, David Segal, writes, "where everything sounds a little strange because it makes perfect sense. You hear things like, 'If you don’t understand the risk you’re taking, don’t take it.' And, 'We want to be around for decades, so we’re not focused on the next quarter.'"

What's that you say? This article so piqued your interest in community banks that you want to read more of BizBox's coverage of them?
-How, way back last fall, Financial Bailout 1.0 helped the community banks (it changed the way Freddie Mac and Fannie Mae shares could be written down).
-Why community banks are good for small business.
-Why community banks have been able to survive the financial crisis.
-Are some community banks holding poor real estate loans?
-Why the government should help the community banks.
-The community banks fight consolidation in the banking sector.

This article on how marketers are beginning to use vacant storefronts--of which, of course, there are an unusually large number right now--as cheap and prominent space for advertising caught our eye. Partly because it's just a wonderful recession-era trend piece. But also because we were so impressed with these advertisers' gumption and creativity: where others saw nothing, they saw a business oppertunity--a frugal business opportunity, at that! (One advertiser pays $500 for three-month ads in storefronts at locations where a billboard would cost $50,000.)

We don't bring the ad to your attention as a literal suggestion--hopefully, your storefront is not vacant!!! But this new trend is a wonderful example of the recession bringing out the best in entrepreneurial creativity and flexibility. How is the recession prodding you to open up a new business stream, or to alter your marketing strategy for the better?

Speaking of which, the one other lesson the article carries is that advertising is cheaper now than during pre-recession times. Sounds to us like one more reason not to cut your marketing budget if you can at all help it.

We've said it before, we'll say it again: the currently dismal system of health-care coverage is a small business issue. It skews prices and other things in a way that makes it easier for larger corporations to insure their employees, giving them a competitive advantage for attracting the best and the brightest; and it makes it extremely expensive for those small businesses that do offer coverage. Fortunately, important small business-minded legislators and groups--from both sides of the aisle--agree with us, and have decided it's time to help small businesses with their health care needs.

Three senators--Dick Durbin (D-Ill.), Blanche Lincoln (D-Ark.), and, of course, Olympia Snowe (R-Me.)--have recently introduced a set of proposals known collectively as the Small Business Health Options Program: SHOP.

Broadly speaking, SHOP would:
-Allow pooling. It would permit small businesses (including the self-employed) to pool together, among different states. A bigger pool means the risk is more spread around, which translates to lower premiums (which is why, currently, big corporations have such an advantage!).
-Extend tax credits. Small business owners who pay 60% of their employees' health insurance premiums would receive an annual tax credit of $1,000 per employee, or $2,000 per employee provided with family coverage. Bonus tax credits exist for employers who pay more than 60% of premiums.
-Bars health status rating. Currently, when one employee at a small company gets sick, that event can raise everyone's premiums; SHOP would end that.
-Credits for the self-employed. These folks would receive an $1800 annual tax credit ($3600 for family coverage) to buy insurance.

These are important senators supporing the bill. Snowe, as readers of this blog know, is probably the single most influential legislator when it comes to small business issues. Durbin is the Assistant Senate Majority Leader, and a close friend and ally of the guy who used to be the other Illinois senator. Lincoln is a representative of the politically crucial group of conservative-to-moderate Democrats.

But maybe even more remarkable is the diverse set of organizations that are backing this initiative. The Service Employees International Union--fast upstaging even the AFL-CIO on the labor front, and a hugely important (and progressive) advocate for health-care reform--is onboard. So are the National Partnership for Women & Families and Families USA. John Tozzi over at The New Entrepreneur got in touch with the head of liberal group Small Business Majority, and they support it too.

But also backing SHOP are conservative business interest groups, including the National Association of Realtors, the National Restaurant Association, and--wait for it--the National Federation of Independent Business, the most prominent small-business lobby, and one that nearly always finds itself aligned with the Republican Party. That's a big deal.

Actually, Small Business Majority has supported these initiatives for awhile, which should you give you some clue as to their political heritage. Yet here is NFIB President and CEO Dan Danner saying, “For so many small business owners the cost of healthcare is unsustainable,” and adding, "Enacting solutions specific to the diverse small business community is critical to advancing meaningful reform." The NFIB, which we have in the past criticized for toeing too close simply to the GOP party line, deserves a great deal of credit for demonstrating political flexibility here.

So this is all pretty politically huge, as well as a good thing, we think.

Caveats? Independent Street points out that SHOP is "just a band-aid where we really need some major surgery"--where we need major surgery being the sharply rising costs of health care. That's entirely accurate, of course: costs are the real issue (which both President Obama and the health care industry acknowledge).

SHOP by no means represents a panacea--certainly not for health care in America, and not even for the advantage in this realm enjoyed by big corporations over small ones. But when you have both the NFIB and the SEIU saying that this is a good and necessary first step, well, it's hard not to agree.

The Age of the Entrepreneur continues apace. We are big believers in the theory that one of the recession's effects has been to encourage entrepreneurship. You have laid-off workers who are actually talented. You have lower opportunity costs for those who wish to strike out on their own instead of continuing old jobs. You have lowered costs for just about everything (we noted just yesterday that even advertising's cheaper). Put it all together, and you have a climate in which more people than ever before are going to be starting their own businesses--which, incidentally, is exactly what happened the last time we had a big recession (perhaps you've heard of the late-'80s/early-'90s recession, and its descendant, the '90s tech boom?).

A case in point: the New York restaurant industry. The New York Observer reports that New York City--a place, remember, that is disproportionately reliant upon the disproportionately devastated financial industry--saw an astounding 25% rise in applications for new restaurant permits during the first few months of the year.

In guessing at what has caused this trend--there's not really a definitive way to know for sure--the Observer suggests several possibilities we'd endorse, including, yes, "perhaps it's the surge of laid-off bankers looking for new career paths." But their best guess is that it reflects a softened retail real estate market: "rents on the storefront spaces ideal for restaurants continue to fall." In Manhattan, asking prices fell 11% across the borough since last autumn; in some neighborhoods, the drop was even steeper. The trend "provides an opening for entrepreneurs that can be hard to resist," the newspaper concludes.

It's good to know that no matter what havoc the recession may wreak, it is likely also to bring about a renewal of entrepreneurship, both for the economy writ large and for many talented and ambitious individuals. A robust and dynamic economy just may be in the offing.

Earlier this morning, Treasury Secretary Tim Geithner spoke to the Independent Community Bankers of America, which represents, as he noted, the over 8300 small and mid-sized banks in America--all of which hold under $1 billion in assets--which together comprise over 90% of the total banks. Noting all the things we like to note when we write about community banks--their strong balance sheets, their willingness to lend to small businesses (they have been making over one-third, in dollars, of all small-business loans), he concluded, "Collectively, you are a source of strength and resilience for the U.S. financial system. And you will play a critical role in laying the foundation for economic recovery."

But now for the news. You may have heard that several of the big banks that took billions in TARP money are now going to pay it back, and in turn be freed of the various restrictions on executive pay and the like that come from having accepted it (in fact, you may recall that our very own Anonymous Banker thinks this shouldn't be allowed). Geithner announced that the proceeds from that will be used to reopen the Capital Purchase Program for banks with under $500 million in assets to apply to receive government investment, in the form of preferred shares (so loans that are convertible to equity). So think of this new extension as creating something like a mini-TARP, in which a few million here and there is invested into community banks, which then (hopefully) use it to increase lending.

We'll probably see and post more about this in the coming days. For now, as they say, Developing...

As things stand right now, small business owners are at a disadvantage in terms of filing their annual tax returns, as this excellent post at the OPEN Forum (which is published by our sponsor, American Express OPEN) makes clear. Part of the problem, of course, is the sheer complexity of filing taxes, which actually weights against small businesses, which after all tend to lack the resources to hire professionals to do their returns. And the rest of the problem is the intricate dynamics of the modes of taxation themselves, which contain, in effect if not intent, an unmistakeable anti-small business bias.

The article recommends four changes that would go some way towards leveling the playing field:
-Simplify, simplify. Rep. Kurt Schrader (D-Ore.) estimates that small businesses end up dishing out over $1300 per employee just to do their returns--that's double the rate at which big corporations spend. A simpler system, written in plain English, could go a long way towards lowering that.
-Standard home office deduction now! We've written about this before. As it stands now, taking a home office deduction is at best a large hassle, and at worse a red flag likely to attract an audit (shudder). Making a standard deduction for this undeniable and legitimate business expense would change all that.
-Independent contractor versus employee. Having independent contractors is far cheaper for the employer, but as it stands now, it's an extremely complicated matter. Making it less so would be a boon to small businesses--and, potentially, to the people they become more willing to hire.
-The health care deduction for sole proprietors. The self-employed can do it. Employees at large corporations can do it. Why can't sole proprietors of independent corporations do it?

Incidentally, we'd add a fifth: reform the self-employment tax. As matters stand right now, the self-employed pay over double what wage-paid employees pay in payroll tax: they are paying both sides of the Social Security tax (where employees pay only half, and their employers take care of the other), plus a Medicare tax, for a total tax of over 15%, completely independent of the income tax (except that what you pay in self-employment is deductible). We understand the logic behind this--the employee and employer each pays half; the self-employed payor is both employee and employer--but the fact that it makes some degree of internal sense doesn't change the fact that it's grossly unfair.

Yesterday, we reported that the Treasury Department is now reopening its Capital Purchase Program--under which the government purchases preferred shares in willing banks to given them extra lending capital--to banks with assets under $500 million each. In other words: think community banks, the institutions that have been a crucial source of credit for small businesses in recent months, and in fact are small businesses themselves. The reopening of the program is to be funded by the TARP money that several big banks are planning to pay back. The announcement was made by Treasury Secretary Tim Geithner in a speech (which you can watch after the jump!) to the Independent Community Bankers of America. It's unsurprising to find the New York Times reporting that the speech--in which Geithner called community banks "a source of strength and resilience for the U.S. financial system" which "will play a critical role in laying the foundation for economic recovery"--received a "warm reception".

Of course, there is now some question as to whether any community banks will actually apply for this new round of the Capital Purchase Program. Roughly 300 small banks are currently participating, according to the Times, and the reason there aren't more are certain strict requirements that govern the behavior--we presume executive compensation and the like--of those that participate (if this sounds familiar, it's because such restrictions are what also threaten to doom the administration's $15 billion small-business credit program). As added enticement, the Treasury is now allowing community banks in the program to borrow as much as 5% of the value of all risk-weighted assets, where the previous limit was 3%.

Less controversial was Geithner's endorsement of legislation that would cut premiums required to be paid to the Federal Deposit Insurance Corp., saving the banking industry roughly $7 billion, and would permanently raise the cap on insured accounts from $100,000 to $250,000--a move that, we noted several months ago, is definitely good for small business.

Speaking of the speech (speak the speech, I pray you!), you can watch it below:

"It’s been entirely self-funded. I used my 401(k). The lucky thing is I cashed out at the perfect time, before everything dropped! Yeah, it’s a risk, but I’m investing in myself. I believe in an idea. I knew I had something very valuable that nobody else had."

Our guest today is John Krech, the owner of ePhiphony, a one-person business that sells a patent-pending inventory optimization software called Phitch, designed specifically for small business owners. John discusses what makes Phitch unique (it uses a new metric, called "economic profit", to determine ideal inventory), how small business owners should manage their inventory during this recession, and what it's like being a small business owner whose clients are also small business owners.

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 your business.
John: Epiphony Inc. was founded in 2007. We specialize in helping small businesses survive. Most businesses have more inventory than they need, because they don’t have the the tools or experience. We try to provide the intelligence to help them make better decisions, so that you only have what you need at any given moment--neither too much nor too little.

Small business owners are struggling not so much from profits but from cash—they don’t have the cashflow. And that’s where our software comes in. We took a formula—most of the big companies are using a formula that was developed in 1913. And we redid it for today’s business.

How did you redo the old formula, and improve upon it?
The old formula took the cost of ordering and of holding inventory. It's a very good model, it’s easy to put into your computer. But we started from scratch. Cost really doesn’t tell me the whole picture. We switched to a metric called economic profit. For a business, that’s operating income after taxes, minus cost of capital. So we’ve got a different metric. But also what we did is, the old model focused just on ordering cost, and we changed to be a little more in line with how business is done today.

So now we’ve got this number-cruncher. How do you order, and when do you order? Because you also don’t want to order too early and tie up your money. The software lets you bring down inventory levels, so that you can use that money for something else.

Our business model is really to provide a powerful tool, but it has to be easy to use, because frequently the person doing it is wearing multiple hats. Like myself: it’s just me, so I have to do everything. Any little thing that frees up my time so that I can focus on my business is a good thing.

How did all this come about? What made you start your own company?
I spent twenty years with a Fortune 500, and I worked with manufacturers all over the world, small and large. I saw this universal issue: how much to order, and for when? What I thought is that oftentimes, maybe because they’re so busy doing other things, people order monthly, or, if they’re a little bit computer-savvy, they start creating their own spreadsheets. But it still depends on what that person’s metric was. Minimize costs? Minimize inventory? My whole thing was, how do I solve this debate? How do I find a better way, that makes everybody happy? Economic profit, our metric, is the better way.

The key is you look at inventory as an investment. You’re investing a large amount of your company’s money. How do you get the best return for that?

Did you design the software?
I designed the software. I’m not a programmer myself. I contracted out rather than hired someone in. Right now, our product is compatible with [Intuit] QuickBooks. But now we want to be compatible with Microsoft Dynamics. What we do is take existing software packages that are out and make ourselves compatible.

Why did you contract out the programming?
By contracting out to a custom software developer, I can get size and experience, more so than if I hired in. And I brought an end-user perspective. It freed me up: instead of getting into the minutiae of code, I could focus on user interface, testing it. Our software was released in December of ’08. And we were certified by Intuit in January.

How do you sell Phitch?
The main thing is, we’ve got a growth plan. Our business model is to drive traffic to our Website, get them to try it—because we offer a free trial. So it’s an inside-sales model. We’re really not focused on door-to-door, so much as making people aware, through our blog, through social media like Twitter, through commenting on other blogs, through networking. But it’s also through our alliances. We’re working with the Small Business Development Centers, [which is] part of the SBA. They have about 1000 offices nationwide, they help 1.2 million small businesses a year. They have a Website, we’re featured, and QuickBooks is the only other solution like ours that’s featured. We’re on Intuit Solution Marketplace now that we’re certified. We want to have additional compatibility and have a broader audience.

How have you secured financing?
So far I’ve funded myself. The main reason is, I wanted it to get to a point where I would be more in a position to get outside funding. So now the patents are pending, the product has been developed--now we’re in a much better position to get funding, whether it’s from an angel investor, or venture capital, whatever. So it’s been entirely self-funded. I used my 401(k). The lucky thing is I cashed out at the perfect time, before everything dropped! Yeah, it’s a risk, but I’m investing in myself. I believe in an idea. I knew I had something very valuable that nobody else had. As long as I stay in a very unique selling position—we’re the only one that does it from a financial perspective, and it's a software that’s very affordable. We’re $144 flat. I knew I had a good business model that would succeed. Now I’m at the stage where by the end of the year, I want a much larger investment.

If Phitch could talk, what would it tell small business owners regarding how they should manage inventory during these tough times?
The software would say, "Yeah, times are down, so obviously now is the time to bring your inventory down. But you gotta be ready to see that uptick and get that demand back. If you’re not watching, you might miss out. Business is dynamic. And you have to be ready for when things start to improve. Many businesses are maybe 3% margin. Now that things are down, how can you free up cash? And inventory is one of those ways. It’s been documented by the SBA: one of the top ways of failing is failure to manage inventory."

Since all your clients are small business owners, has it helped you to be a small business owner yourself?
Oh yeah. You’ve gotta understand their point of view. Being a small businessperson, I can very easily put myself in their spot. It puts you in a whole different perspective.

How do you like being in business for yourself?
It’s so fun. To me, it’s been really rewarding to be able to create the whole package. And I’ve learned so much by having to wear multiple hats. I’ve learned a lot about myself. You have to be pragmatic, know your weaknesses, bring in people. But for me it’s been a great experience. I like the flexibility—to work different hours and things like that. I find myself working a lot more hours, but I don’t notice it. It really reinforces that saying, that if you do something you love, you’re not going to work a day in your life. To me, the days just fly by. It’s kind of the pride in creating something.

To me it’s been fun to involve my kids. My daughter came up with “Phitch”. She’s very musical, and I said the software defines the rhythm of when you buy. And she blurted out, “Pitch”. And to me it was just perfect. When you think about music, that’s really what Phitch is doing for a business. It’s defining the individual inventory item. How do you get in tune so you sound good? That’s what we do.

Check out our previous Small Business Salons.

It is a dark, dark day for cloud computing advocates such as ourselves. We could go on and on about cloud computing's benefits, but at some point you do bump up against the fact that whatever you put in the cloud--which, if you take our suggestions, is pretty much everything that your company has--is stored on someone else's servers and space rather than your own (although obviously cloud computing doesn't preclude backing up every so often; but it does mean your stuff is out there, and that you use the cloud to conduct day-to-day computing). And what that means is that whether those servers go down is out of your control. And they can go down. Hint hint, Google.

Yes, Google was down today. It was a nightmare. We're speaking personally here--we couldn't access our Gmail or our Google Reader RSS feed for, like, an hour. As we say, a nightmare.

So yes, it's time for the anti-cloud computing people to gloat. Forbes is game. The piece actually has some many sage insights about what it means that so many are dependent on the servers of so few companies. It also points out that Google's guarantee (albeit for free services) of 99.9% uptime gives it almost nine hours each year to be down without even breaking its promise, which truly is terrifying. And then, yes, the piece concludes: "Of greater concern is what the outage implies for trust in cloud computing services, the biggest hope for the tech industry as it moves out of its slump."

Well, look. We talked about this before, when Google's cloud software suite was down for a bit in Western Europe. Servers crash all the time, whether they're under your roof or not. These outages are not an argument against cloud computing; they're an argument for taking extra security measures and for backing everything up.

Also, memo to Google: please don't ever do that to us again.

In response to a recent article over at Business Week, "Snipping Credit lines for Small Businesses", which discusses how JPMorgan Chase and others are slashing small-business lending in an effort to shore up their balance sheets, I must, unfortunately, question the use of the word ‘snipping'--which, to me, sounds like a tiny trim. Au contraire. Dig deeper and you will find that banks are slashing tens of billions of dollars in credit to our nation's small business owners.

Does the Obama administration care about small-business credit? It certainly says it does. A typical press release from the Treasury Department avows as much.

But is this for real? Or it this simply rhetoric? As a business banker, I sit in my office each day and deal with small business owners, which I define as those with annual revenue up to $10 million, but often less than $1 million. I see their worried faces as they come into the bank, letter in hand, wondering why their credit lines were frozen. These people need help, and so far as I can tell, they're not getting it from the administration.

I took a random sampling of approximately 360 lines that received letters similar to the one described in the Business Week article. These 360 accounts represented $20 million in potential money loaned out, which actually owed just over $12 million. About seventy accounts had no balances outstanding and represented $4 million in potential credit. This particular bank (and I'm sorry I can't identify it for our readers) froze all these lines to any further draws, with an intent to term them out. Based on this sampling, the average credit facility was just over $50,000.

At first glance, these numbers don't appear devastating, especially when the new buzz words being bandied about are in the billions and trillions. But my sampling is just a drop in the bucket. Imagine that this is happening not to 360 businesses but to 36,000 businesses in one bank. That results in $2 billion in cancelled credit lines. Now imagine that each of the five largest banks (and I'm being gracious) have taken similar action, resulting in the systematic cancellation of 180,000 lines. That would mean that more than $20 billion of working capital has been taken away from the U.S. small business community. I personally believe that the results are much larger than even this.

I understand the need for all banks to recognize the quality or deterioration of loans they hold on their books and their need to effectively reserve for losses, particularly in these trying economic times. But it has been my experience that many of these borrowers never even missed a payment and have met their commitments as agreed.

And what about the prospect of converting credit lines to term loans? Business Week points out, "Business owners who accept the conversion to a term loan will likely see dramatically higher monthly payments." Once again, a good point; and once again, a drastic understatement. Working capital lines of credit often have monthly payments equal to interest only. They may, in some cases, carry a minimum principal payment equal to 1% of the outstanding loan amount (it depends on the bank and their rules under the original loan agreement).

Take a $50,000 loan at a rate of Prime +2%. Under the interest-only scenario, the monthly payment would be $218.75. If a principal payment of 1% is required, the monthly payment would be $718.75. However, the same $50,000 loan termed out over five years (and with an increase in rate to between 7.5% and 10%) would now carry a monthly payment of just over $1000! So the end result of converting lines to term loans is that the banks have increased the monthly payments for the small business owner by at least 40% across the board while cancelling their access to future working capital.

Let me make this clear to President Obama. Not only are the banks not making business loans to small business owners, they are systematically withdrawing billions of dollars in credit lines from the small business market.

While our president is rallying our Congressional leaders in support of his positions on credit card reform--reform that is likely to exempt small business owners, by the way--he may want to share these observations from the front lines of the banking world so that our leaders can begin to understand and focus their efforts on protecting our nation's small business community.

Anonymous Banker is a 35-year veteran of the banking industry who has spent much time as small-business banker and credit underwriter. He blogs at anonymousbanker.com.

The New York Times Magazine's forthcoming piece on credit-card companies' use of psychology to better pick their users, and collect debt from them is mostly just a fascinating piece about the way the credit-card industry works (how it switched from a model under which they make money when people don't pay off their balances--that wasn't always the case) and about the ways in which psychology can be used to extract more money from debtors. (Our sponsor is a credit-card company: American Express OPEN.)

But it also contains a lot of information about how credit-card companies have begun to collect much, much more information about their users. "Today companies are focusing on those customers most likely to honor their debts," the article notes. And: "credit-card companies are becoming much more interested in understanding their customers’ lives and psyches, because, the theory goes, knowing what makes cardholders tick will help firms determine who is a good bet and who should be shown the door as quickly as possible."

In the article, this article comes across as maybe two parts sophisticated to one part creepy. But we actually like it! Here's why: it encourages a system in which credit is extended not to those who a few somewhat arbitrary and totally impersonal metrics say is more likely to pay back loans, but to whose who really, truly are actually more likely to pay back loans. It's actually more or less the same type of thing that makes us like community banks so much: they are interested in really getting to know prospective borrowers. It's good business sense on their part, which is why they do it (and why the credit card companies are doing it); but it also balances the scales more in favor of small businesses, whose cashflow may not look like much but who, if you get to know them, may just be an excellent loan candidate nonetheless.

A world in which credit-card companies pay less attention to credit scores and more attention to the intangible heuristics that actually make someone a good loan candidate is a good world for small business. Which doesn't take away the need for, say, credit-card reform that actually includes small business owners. But hey, we'll take our victories where we can.

It's the last weekend of non-summer! Which means it's that last weekend during which you have any excuse for not being outside.

Failing indicators. How you can tell if a small business's outlook isn't brilliant, and how its course can be reversed. [Fortune]

Taking care of business. And of financing, too. The method for effectively dividing your time between your actual business and raising capital for it. [Forbes]

Happy day? Has their been a surge of optimism in the small-business community? [The Entrepreneurial Mind]

The age of discounting. Prices are falling everywhere, in an effort to meet the increasingly frugal customer. [WaPo]

Trade credit explained. Borrowing to pay the people you're borrowing from. [Small Biz Trends]

Financing an acquisition. Want to buy or sell a business? In this credit climate? Here's how. [Entrepreneur]

P2P lending. The New York Times Magazine discovers it. [NYT]

The shows must go on. How to take maximum advantage of trade shows (at minimum cost). [WSJ]

The neurology of entrepreneurship. How brain science explains management style, and more. [Inc.]

In my 24 years of law practice, I have represented many individuals who were starting or building their own business. In 1992, after seven years at large law firms, I became one of them when I started my own law firm, and I have been running my own shop since (I talked about this in an interview with BizBox). I have also bought and sold several businesses along the way. So my perspective is unique, in that I both advise entrepreneurs and personally feel their pain in my own experiences.

I have often pondered what makes a great entrepreneur. Anyone can declare themselves independent, leave their boring jobs, and get that rush of excitement upon first de-shackling themselves from the corporate world. But even if they have the talent and ability in their industry, does that mean their make-up is such that they can handle the ups and downs, the stress, the dedication, and the passion that are also absolutely necessary to make a business succeed?

In my last series, called “The Entrepreneur’s Lament”, we covered just seven of the difficult challenges that most growth company founders face, and concluded that despite all of these burdens, most entrepreneurs would not trade what they are doing. Having satisfied ourselves that entrepreneurship is a worthwhile endeavor, the next logical question is: do you have what it takes?

There are tens of thousands of responses when you ask Google, “Are you an entrepreneur?” I looked it up after creating the list below, and was surprised both by how many folks agree with some of my own responses and how many I truly disagree with.

First, a couple premises. In this analysis, we are not talking about whether a schoolteacher should consider opening that Subway franchise. I am talking about people with a desire to build something, from scratch or near-scratch, that is substantial and significant. I also assume that you have the savvy and experience in your industry to break out on your own.

I believe there are nine key, distinct personality traits that increase your chances of being a successful entrepreneur if you possess them. Starting with the next column, we will go through each of these individually. But let’s start with a quick sentence or two on each.

Big Dreamer. You look at the way Microsoft and Home Depot started very small and believe you can do the same thing. You have, as my wife likes to say, that million-dollar idea.
Natural Leader and Decisionmaker. You are a great communicator and good listener, and people trust and follow you. You relish the opportunity to efficiently weigh important choices, and then roll the dice.
Obsessively Passionate and Driven. It is not possible to be a successful entrepreneur without having a major appetite to dive into what you are doing. You pop out of bed each morning excited for the day ahead. The clock is less important than completing your goals for the day; you simply will not rest until you are satisfied.
Macro-manager. I learned that I did not coin this phrase. It is, obviously, the opposite of being a micro-manager. The best entrepreneurs learn to delegate day-to-day tasks, leaving them to the important business of dreaming, planning, assisting with key hires, and helping solve the major problems that arise.
Rational Optimist. I admit that at times I fail on this one--at least the rational part. The best entrepreneurs plow ahead thinking that the best is right around the corner, but at the same time attempt to temper that enthusiasm with preparation for plausible difficulties ahead.
Healthy Fear of Failure. This follows directly from rational optimism. Part of what drives me every day is the ringing in my head of, “When are they going to take this all away?”
Little Fear of Risk. Entrepreneurs understand that the greatest rewards await those who risk the most.
Controlling, But Not Freakish. A true control freak will not make a great entrepreneur. But healthy skepticism of the talents and motivations of those around you is not a bad thing. As President Ronald Reagan said about the then-Soviet Union: “Trust, but verify.”
Disciplined Personal Life. Many entrepreneurs’ guides talk about the importance of being healthy. Yes, that’s important, but it's not the full story. but It's best to lead a fully disciplined life: getting enough sleep, balancing work and life, and realizing the importance of working smart rather than hard. Rare and valuable is the entrepreneur who has several of these other traits and this one as well: the necessary risk-taking mentality in particular too often goes together with other, less productive, risky behavior.

In the columns ahead we will tackle each of these in much more detail. I hope you stay tuned!

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

...no, we don't oppose gay marriage on the grounds that it's bad for small business. The gay marriage debate is a legitimate one, and one that should be had out, honestly, by both sides. Linking it to small business's interests is disingenuous at the very best.

We were pleased last week to find Treasury Secretary Tim Geithner announcing the extension of an old lending program to community banks. As we've said countless times, these banks--small, locally focused, holding under $1 billion--are the lifeblood of small-business credit, and in fact tend themselves to be small businesses. Indeed, we were even happier to see Geithner make this announcement to a gathering of the Independent Community Bankers of America.

The record should show, however, that the federal government has not always been so attentive to the ICBA's interests. A friend pointed us to some documents related to the financial bailout deliberations last fall obtained by the non-profit Judicial Watch (they're too big to upload; if you want, go here, download "Documents 1", and go to page 80). One is an email from ICBA President and CEO Camden Fine wondering why he was not invited to an important meeting that featured the heads of all the Five Families--the CEOs of the major banks. "Many, many of my member banks are emailing me and wondering why ICBA is not at the table today. Representing over 5,000 banks with over a trillion dollars in combined assets should get us a seat at the table. Many want to be involved in whatever Treasury plans for equity investments." Certainly both the substance and the symbolism of last week's announcement--the fact that it was announced directly to the ICBA--is as good a replacement for having had a seat at the table then that could be scrounged up.

Fine also asked that some of the TARP money be used to beef up the Federal Deposit Insurance Corp.'s reserve fund, noting, "Since community banks fund their balance sheets almost entirely from core deposits, insurance premium increases (like those proposed by the FDIC to replenish the fund) hit community bank institutions disproportionately hard." And so in last week's speech, Geithner reported that the administration supports allowing the FDIC to borrow $100 billion, as opposed to the current $30 billion, each year from the Treasury as "an important step towards decreasing the FDIC assessment fees that your banks now face and that we know you are deeply concerned about."

It's bad to see that the ICBA and community banks were so forsaken as the financial bailout plan was formed. It's good to see the government (and its new administration) making amends.

Yesterday, at the National Small Business Week promotional events in Washington, D.C., Small Business Administration Head Karen G. Mills announced that the America's Recovery Capital Program--a.k.a. those 100%-guaranteed $35,000 microloans authorized in February's stimulus package--will become operational within a month from now. The news was reported by, among others, Inc., CNNMoney, and bMighty. They all celebrate the news.

While we're not upset about it or anything like that, we're not quite so cheery, either. As we've discussed before, there is a crucial component to the microlending program: it is available only to small businesses who have existing bank debts to repay. In other words, the loans' purpose is to make sure small businesses can stay current on their debt--and that lenders can stay current on collecting it. It's obviously not a bad thing per se--far from it. But fixating on it does smack of the general, myopic focus on credit that has been a hallmark of the administration's small-business policy. We're not against the program, even if it is designed as a sop to the banks (who stand to benefit as least as much as any small-business participant). But it is far, far from enough, and we're not getting out the confetti just yet.

None of which is to imply that we aren't pleased the SBA is getting the program up-and-running. Congress and the President were the playcallers on this one; the SBA is just executing.

But we're actually more intrigued by some of the other things Mills proposed in her speech. According to CNNMoney, she pledged to update the agency's technology and human capital as well as to implement those other new provisions of the stimulus package.

She also said she's committed to "making the SBA the strongest possible voice for small businesses in the U.S." That would be change we can believe in.

A new bill, dubbed the Healthy Families Act, would require employers with fifteen or more employees to grant them one hour of paid sick leave for every 30 hours they work, which adds up to seven days' worth of sick leave per year for an average full-time employee, the New York Times reports. (Sick days may be taken when you are ill or when a child, parent, spouse, etc. needs care.) It's a Democratic bill--its chief sponsors are Rep. Rosa DeLauro (D-Conn.) and the still-roaring Liberal Lion himself, Sen. Ted Kennedy (D-Mass.)--and indeed business groups, foremost among them the National Federation of Independent Business, are opposed. While he appears not to have spoken out on this particular bill, the Times reports that President Barack Obama voiced support for requiring seven paid sick days per year during last year's campaign.

The bill's proponents are selling it both as a quality-of-life issue and under the argument that government should require employers to encourage employees not to come to work when ill; they have been unafraid, indeed, to point to the recent swine flu scare as further buttress for their argument. Opponents, meanwhile, paint the bill as both an overly intrusive mandate and as, yes, unfair to small businesses: “Given that small businesses are barely able to keep their heads above water in this economy, we don’t think this is the right legislation to be pushing right now," was the NFIB's response.

In fact, it's unlikely the legislation will be particularly "pushed" at the moment: according to the Times, even the bill's supporters say it is unlikely to pass this year, what with the already overcrowded and urgent legislative agenda. They are, however, more hopeful about its prospects next year (hint: election year).

So: what do we think? We are very sympathetic to the public-health aspect of the supporters' argument. If smoking can be banned in public places because of the dangers associated with secondhand smoke, then the government can also make sure that sick and possibly contagious employees are not around public places to spread what they have to other employees, or to customers. We also think that a recession, with unemployment spiking, is actually a very good time for such a bill: despite how it sometimes feels to small business owners, as far as employees are concerned, this is a buyers' market--employers have as much of an upper hand as they have had in quite some time. It is, in other words, exactly the time when government might be necessary to ensure wise policy and workers' rights.

We are additionally pleased to see that businesses with under 14 employees are exempted. The question then becomes: where do you draw the line? (Also, we're thinking there should maybe be more acknowledgment of a gray area, so as to avoid the inevitable horror stories of businesses with exactly 15 employees laying off one so as to avoid the law.)

We're dubious on whether 15 is quite the right place. This isn't an instance of the NFIB claiming to speak for "small businesses" when they're talking about a 300-person, mid-sized company; your local mom-and-pop restaurant very likely has at least 15 employees, and it is exactly what we talk about when we talk about small business. Our concern isn't the mandate inherently--sometimes it's government's job, in the course of trying to achieve the best common good, to require private actors to do things that wouldn't seem to be in favor of their immediate interests. What concerns us is how the requirement articulated in the bill would affect small businesses vis-a-vis larger ones, with more employees. It seems to us that, economies of scale being what they are, it would fall harder on the small businesses. That's unfair.

Now, there's probably no way to level that playing field purely within the context of paid sick days: requiring larger companies to give more paid days of sick leave, for example, is nonsensical (and also represents a competitive disadvantage for small business). Rather, what would make us feel better about the bill is if in some other realm--say, in the form perhaps of the payroll tax, which is problematic to begin with anyway--small businesses were given a break as compared to bigger ones.

Ultimately, as the saying goes, government is choosing; and when choosing is done, there are winners and there are losers. We know that small businesses can't be the winner every time. However, it seems they haven't been the winners for all that much ever since the economy crashed. Which is whyt when an otherwise sensible bill, such as this one, comes along and it turns out it would have not just a deleterious but a relatively deleterious effect on small business, we feel that we need to see a second, compensating initiative, in which small business is the winner, before we can get excited over the first one. That's not too much to ask, is it?

The Washington Post (our corporate brother-publication) runs a good article on the entrepreneurs of India. It does a particularly good job at highlighting all the conflicting forces at play. On the one hand, India's projected 6% 2009 growth represents a sharp decline from the 9% of the past several years; on the other hand, it is massive compared to those of Western countries. On the one hand, past generations of Indians have been notoriously risk-averse; on the other hand, young people now are the opposite. On the one hand, their embracing of risk had a lot to do with the now-disappeared boom economy of recent years; on the other hand, the economy "appears not to have curbed the dreams of India's budding entrepreneurs."

And yet even as you admire the potential of India's entrepreneurs to produce growth for their country, it's difficult not to notice the numerous obstacles they face in India, namely: onerous "bureaucratic, legal and tax hurdles" faced by foreign investors; an "inadequate" venture capital system; and an ingrained culture, within the middle class particularly, that values stable, salaried jobs over entrepreneurship.

And then you remember that there's another country--the U.S.--that has few hurdles to investment, a vast venture capital apparatus, and a massively pro-entrepreneurship culture, along with various other features highly conducive to entrepreneurship. And you wonder why more of these Indian entrepreneurs aren't coming here to make their millions.

And then you remember our idiotic visa laws, which seem to be designed to keep talent out rather than attract it, and which thus have the inevitable effect of denying the U.S. economic production, tax revenue, and all the rest. And then you get angry.

Over the last several months, I’ve been writing a lot of “how are we doing?” columns. They've ranged from business owners being generally optimistic despite the economic climate, to small business employees not being optimistic, and to us considering a new view of the American Dream.

Part of the American Dream is, of course, a secure retirement. But last year’s financial losses and on-going job cuts have for the first time created great uncertainty among the generations that make up our population. A landmark national study, Retirement at the Tipping Point: The Year That Changed Everything (summarized, and downloadable, here), launched by Age Wave and conducted by leading research firm Harris Interactive, provides insight into the new retirement fears, hopes, attitudes, advice, and plans among these four generations of Americans. Given that the average entrepreneur has a bit more control over how he or she shapes his or her retirement, it's worth taking note of these changes.

The term “tipping point” is, of course, a reference to the best-selling book by Malcolm Gladwell. A “tipping point” occurs when the momentum for change turns from strong to unstoppable. The study seems to confirm that we have since passed a tipping point in terms of attitudes toward retirment among all four current generations: Veterans (1922-1945), Baby Boomers (1946-1964), Generation X (1965-1980), and Generation Y (1981-2000). Although each group has different attitudes, behaviors, and expectations, they all have been forced to reassess the funding, timing, and purpose of retirement.

Here is a summary of the study’s key findings:

Resetting the Retirement Clock. Today’s pre-retirees say they will need to postpone their retirement, on average, by 4.2 years. Should this come to pass, it would be the first time that retirement age significantly increased in so short a timespan in America. The uninsured costs of healthcare are now considered the biggest potential financial wildcard in retirement.

Needed: Financial Rehab. After decades of out-of-control spending, Americans have been jolted into realizing that they must get back to basics and learn to live within their means in order to find financial peace of mind.

Am I My Brother’s Keeper? Above all else, Americans define success as having loving family and friends. But with these relationships and connections come significant responsibilities to provide care and support for parents, children, and even siblings.

Retirement Finds a New Purpose. In the midst of today’s crisis, Americans are beginning to envision retirement as a time of new purpose, new priorities, new careers, and new opportunities to give back to the world.

Whether the changes revealed in the study are rooted in economic necessity or are, in fact, permanent, only time will tell. You can make up your own mind by reading the complete study.

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.

Starting next week, reports The New Entrepreneur, a business can have annual revenue as high as $8.5 million and federal income taxes as high (for the previous two fiscal years) as $3 million in order to be eligible for the Small Business Administration's flagship 7(a) loan program. It's the only measure required by the stimulus package designed to increase the availability and power of SBA-backed loans, all of which are set to expire in the fall of 2010, that hasn't been implemented yet.

And, actually, there is some evidence that those expansions that have already been implemented--chiefly, the temporary elimination of fees and the increase in the amount of a loan backed by the SBA--are having the effect of increasing the program's use. In fact, according to Independent Street, weekly loan volume in March was up a whopping 25% since the stimulus's $730 million for these extra features became available. SBA Head Karen G. Mills testified that the main cause of the uptick is actually that more lenders are participating in the program.

Which does leave us wondering just whom this is helping most: small businesses, or banks? And yes, credit isn't everything. And even within the realm of credit, SBA credit isn't everything. Still, we'd say all this ultimately counts as good news. May the stimulusing continue!

Via The Entrepreneurial Mind, we caught sight of this article from Silicon Valley Mercury News columnist Scott Harris. In a nutshell, the piece argues that even though venture capital and entrepreneurial investing is markedly down, innovation continues to thrive. "The sheer volume of entrepreneurial activity is striking, and often seems utterly independent of the investment dollars available," he says.

Harris points to a number of factors that have made this dynamic possible and cause it to take place. Top among the list is the ability to do things cheaply using the Internet and digital technology--he specifically cites iPhone apps here, as we certainly would. Additionally, the very existence of many entrepreneurial endeavors has a multiplying effect, requiring other new endeavors to service them in various ways (such as TechCrunch, the blog that covers Silicon Valley).

The main point, though, is that the availability of capital, whether through investment or credit, isn't a problem; and so focusing on solving it seems sort of extraneous, at best. What's going to keep innovative entrepreneurship going through the recession are all the pro-entrepreneurship features--low cost of failure, low cost of entry, etc.--that the recession is creating naturally.

The New York Times Magazine last week joined its print counterpart in celebrating community banks. They profile the impeccably named Rusy Cloutier, who turned Louisiana community bank MidSouth into one with 35 branches that publicly trades for over $900 million. "Cloutier says he believes his job as a banker is to know who runs a business well and thus may survive a downturn," the author writes. "Community bankers are well equipped to make that kind of judgment because, as clichéd as it sounds, they really do know their customers. 'If a guy owes you seven or eight million dollars, you better know everything there is to know about him,' Cloutier told me." We've heard all that before, of course, but it's wonderful to hear it again and again.

The one interesting tidbit of news is to hear Cloutier say that demand is what's preventing his bank from lending more money than it is. "The problem has been finding borrowers," the author writes. "Lafayette’s economy is strong--unemployment is just 4 percent--yet people are reluctant to borrow when they fear the recession will reach them eventually." Yet more confirmation, for us, that the credit crunch is a red herring.

MSNBC runs the first-ever television interview with Karen G. Mills since she rose to head of the Small Business Administration. The interviewer does, we thought, a phenomenal job, pushing in all the right places. She asks about loans, obviously. But then she also asks what the SBA can do in addition to providing credit to small businesses. And she even asks the extra-tricky question: since the SBA nominally represents every small business, from the corner laundromat to the venture-backed Silicon Valley IT start-up, whose interests, truly, is it serving? (This is the question we'd imagine that Lloyd Chapman and his American Small Business League would ask.)

We'll let you decide how well Mills acquits herself--the interview is after the jump. We'd just leave one thought. Mills clearly feels very at home discussing the SBA's typical bread-and-butter: credit and the like. And she does additionally bring to the table a crucial sort of pet issue--a very typical McKinsey & Co. one--namely, an emphasis on updating the agency's woefully outdated IT in order to make dealing with the SBA much easier and cheaper. But we'd like to see more. Here she was given a bully pulpit, but she didn't really use it to go beyond fairly technocratic-type stuff. The next time she has a similar opportunity, we hope she'll talk about other sorts of policies that could help small business owners. Being head of the SBA should mean more than just running it. It should mean representing small businesses, and giving them a voice, at the highest level of government.

Via Entrepreneur, it looks like Rep. Patrick Kennedy (D-R.I.)--for those keeping score at home, he's the son of Sen. Ted Kennedy (D-Mass.)--has submitted something called the GROW America’s Small Businesses Act. According to a release put out by the congressman's office, the basic idea is to allow small businesses a one-time deferral of their federal income taxes, up to $275,000, as long as the money is reinvested into their businesses. (The bill defines small businesses as having had revenue of up to $12 million a year, which obviously includes some not-that-small businesses). The deferred money would get put into a trust; it would not come due for two years, and even then would be paid off at regular intervals over four years; and these paid-off taxes would be totally interest-free. Companies that provably use the deferred money to create jobs can get an additional year to pay it off.

Is it just us, or is this not actually an awesome idea? We like it, anyway. The best way to think of these deferrals is, simply, as loans from the federal government to small businesses: loans which just so happen to be interest-free and due on a spread-out schedule. But the mere fact that they are direct loans--as opposed to government-backed loans that are actually made by private lenders, as is much more typical--makes them a helluva lot more efficient than typical government credit-creating initiatives. And the fact that the program involves loans instead of outlays of some kind, whether through spending or tax-cutting, makes the initiative revenue-neutral. (Actually, it's not, because the deferred taxes are interest-free, so the government's losing money on the float; it would presumably also lose money where there is a "default"--where the business in question goes insolvent. But the government's still losing only a small fraction of what it would lose if it, say, rebated the taxes instead).

That's not even our favorite thing about the proposal, though. Our favorite thing about the proposal is that it is brilliantly structured from a stimulus perspective.

The ultimate idea behind stimulus policy, remember, is to raise spending levels quickly. Direct government spending does this very efficiently--hence John Maynard Keynes's famous reasoning that, if it needed to, during times of slumping demand the government could pay people to dig ditches and pay more people to fill them. Tax cuts do it to some extent, and in theory could a great deal, too, but the problem is at base all those do are give people more money, and whether they actually spend it is up to them. (Some say that giving people that choice is more important than ensuring maximum stimulus. That's a debate for a different venue.)

This initiative contains the best of several worlds. Because the deferral is only applicable to money that is used towards investing in one's business, it is guaranteed to be put back into the economy, whether by increasing demand directly, or by engineering economic activity and job growth. (Remember, it's not a tax cut; there's actually a sense in which it is direct government spending.) At the same time, it is not the government but rather private businesspeople who get to allocate the money, which means they bring their expertise to how the money is spent, theoretically making sure it is spent most efficiently (which deals with the complaints of some that government spending tends to be inefficient). And, of course, it gives a specific leg up to a sector that over the past several months has gotten something of a bum deal in terms of government help: the nation's small businesses.

So, in short, this is kind of awesome. Let's see what happens next.

It was treated as rather triumphant earlier this week when the Small Business Administration announced that its program of 100%-backed, interest-free $35,000 loans would become operational next month. We're a little more skeptical of the so-called America's Recovery Capital (ARC) program--among other things, emphasizing it indicates an undue sense of importance attached to credit--but, y'know, sure, it's more good thing than bad.

However, now comes news that the program might run into trouble in practice. The problem? Though the loans are 100%-backed by the government, they are actually to be made by private lenders. Which means the lenders have to agree to make the loans, and are under no obligation to do so. And many of them are balking. "Some banks will join the ARC program simply for the civic value of helping small business customers," this article says, "but others say they won't participate unless it's in their financial interests to do so. One official at a major SBA lender, who declined to speak publicly, said that the loans' small size and bureaucratic overhead mean they probably won't be a 'profitable, effective solution' for his bank."

There are numerous legitimate reasons for these banks' skepticism. For one thing, since the loans are interest-free, the only money in them for the banks comes from what the government gives them as subsidy, an amount the SBA hasn't really crafted yet. For another, the SBA has not yet laid out its specific guidelines for which businesses would be eligible for the loans--only that the borrowers must be both behind on existing bank loans and also "viable".

This is all too reminiscent of the the fate of the plan to use $15 billion from the TARP fund to buy small-business loans on the secondary market. That plan is in turmoil because the holders of the loans--like these lenders, they are private actors--are hesitant to participate in the program for many perfectly valid reasons stemming from the perfectly valid reason of self-interest.

This pattern almost suggests that the government would be better off taking the $250 million allocated in the stimulus package for the ARC loans and just making the loans itself, without all this extra overhead and hassle. Almost suggests just that.

Happy long weekend! Why not use the extra time to get some interesting reading done?

Dispatch from Small Business Week. Hope! Optimism! [AllBusiness]

Small bank, big technology. How one credit union has made itself competitive with big banks. [bMighty]

Prez sez. Obama thinks small businesses are important and such. [AP]

Best-laid plans. Outside investors go with their guts, not with your formal plans. [NYT]

How failure happens. Frequently, it's not for lack of hard work. [Fortune]

See you Tuesday.

When we covered Treasury Secretary Tim Geithner's speech to the Independent Community Bankers of America two weeks ago, we focused on the main bit of news: that the feds are reopening the Capital Purchase Program, under which capital is injected into banks, to institutions with under $500 million in assets--which is to say, for community banks, which frequently lend to small businesses and are small businesses themselves. But another thing Geithner said in his speech was, "The administration fully supports the FDIC's request to increase its permanent statutory borrowing authority from $30 billion to $100 billion under its line of credit with the Treasury Department. This could prove an important step towards decreasing the FDIC assessment fees that your banks now face and that we know you are deeply concerned about." The idea being that community banks tend to get disproportionately hit by Federal Deposit Insurance Corp. fees, which are tied to deposits. And in fact, a law allowing that increase in credit passed this week.

Well. News comes today that the FDIC will collect $5.6 billion more from banks than it had origianlly planned, for a total of $17.6 billion (so that's a huge increase percentage-wise). More specifically, banks with over $100 billion in assets--so some community banks, but mostly big banks--will contribute half a billion more than had originally been planned. Score one for the little guys!

In fact, the article doesn't mince words here: "The decision is a victory for community banks, which have argued that federal rescue programs disproportionately benefit the largest banks, leaving smaller companies at a growing disadvantage."

And nor did FDIC Chairwoman Sheila Bair: ""Over the past 18 months, large banks, as a group, have posed much greater risks to the banking system than small banks have," she said.

Actually, there was apparently a disagreement as to this $500 million change on the FDIC's board. One person argued that the increased funds were required because of small banks' failures, and therefore the imbalance in assessment fees was justified; Bair's rebuttal was that the government's bigger obligations over all were to bailing out the big banks (TARP, anyone?), so a greater balance is deserved.

All in all, a splendid day for community banks. Karma, perhaps?

As the federal government prepares to spend all those stimulus billions, now would seem like an especially ripe time to ensure that small businesses are getting the share of federal contracts that they are legally mandated to win. You might recall that, currently, they don't: because of a 6% error reporting rate, in which ostensible "small business" contracts actually go to large companies, small businesses do not receive 23% of all federal contracts, as the law requires (and furthermore, many individual departments do not meet their quotas either for small-business contracts or women- and minority-owned-business contracts). The group at the forefront of protesting this problem is Lloyd Chapman's American Small Business League, which we've covered extensively.

Well today looks to be a good day for Chapman and the ASBL (and, well, for small businesses). According to a press release they sent us (send us press releases!), a bill that Chapman actually wrote, called the Fairness and Transparency in Contracting Act, was submitted today by Rep. Hank Johnson (D-Ga.). What the bill would do, mainly, is redefine small businesses such that the subsidiaries of large businesses would no longer apply. Mainly, it would do this by requiring that a business that wins a federal contract be reported as its parent company. If enacted, the change could divert over $100 billion per year to small businesses, Chapman estimates.

“It’s unconscionable that some large corporations are the beneficiaries of SBA contracts,” said Rep. Johnson in a release. “Especially given how many small businesses are struggling in this recession. H.R. 2568 will go a long way in helping correct this egregious error.”

The question of course becomes: where will President Barack Obama stand? Although the ASBL and this issue are generally Democratic, it's worth remembering that Chapman has in the past criticized Obama, alleging that he has turned his back on small businesses by not making better contract procedures a priority and by appointing Karen G. Mills, a venture capitalist, to head the Small Business Administration.

Developing...

Somehow we missed this when it ran over a month ago, but the New Yorker published a wonderful little paean to the virtues of continuing to grow--and continuing to spend what it takes to grow--in recessions. "Numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts," the author writes. As for marketing specifically, "although deep pockets help in a downturn, recessions nonetheless create more opportunity for challengers, not less. When everyone is advertising, for instance, it’s hard to separate yourself from the pack; when ads are scarcer, the returns on investment seem to rise."

The piece isn't gung-ho. These things are ambiguous. Though "the uncertainty of recessions creates an opportunity for serious profits," the piece acknowledges, "the record is also full of forgotten companies that gambled and failed." It really comes down to how risky you feel like being. Certainly no one wouldn't understand if you felt the recession was the time to cut back on absolutely everything in the hopes of maintaining short-term profits--or even to avoid going under. All that said, if you're the type of person who decided to drop everything and start his or her own business in the first place, we're guessing you're also the type who might just consider going against the grain and picking right now to grow.

Part of being a business owner is managing risk. Some risk we can insure against, some we can’t. And in today’s economy, the risks are more complicated than ever before, and the ability to manage them can be the difference between success and failure.

But how do we measure and prioritize risks? A recent survey by Aon Corporation provides some insight. In October and November 2008, Aon worked with leading organizations around the world in more than 40 countries and across 31 industries to find out their views of emerging and escalating business risks, and the steps they are taking to address these challenges.

The results were published in Aon's 2009 Global Risk Management Survey report. The 551 respondents included in this report represent a broad range of industry sectors around the globe. 37% of them are privately-held companies.

Here are the top ten most pressing global risks according to the respondents:

1. Economic slowdown
2. Regulatory/legislative changes
3. Business interruption
4. Increasing competition
5. Commodity price risk
6. Damage to reputation
7. Cash flow/liquidity risk
8. Distribution or supply chain failure
9. Third-party liability
10. Failure to attract or retain top talent

Interestingly, risk to reputation was rated as the #1 risk in Aon’s 2007 Global Risk Management Survey. This year, it has dropped to #6. This decrease in rating, I am sure, is due in large part to the global economic slowdown.

But to many small business owners--including me--“damage to reputation” has a much higher priority than #6. We are the business, and whatever happens reflects directly on us. So while “cash flow/liquidity risk” might be #1 instead of #7 to many of us, “damage to reputation” might be a close #2.

But let’s think positive. The opposite of suffering damage to reputation is making yourself referable. Dan Sullivan, who runs the Strategic Coach program for enterpreneurs, in which I participated, says that in a world of unreliable people, the four referability habits will make you a prized resource. And what are they?

1. Show up on time
2. Do what you say you’re going to do
3. Finish what you start
4. Say please and thank you

Sounds simple, doesn’t it? But if it was, we’d have a lot more competition.

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 just hosted Don Gabor, author of the new How to Turn Small Talk into Big Deals, on our BizBooks author discussion series. Don discussed the virtues of small talk, how to use Twitter to advance the conversation and how to practice your conversational skills, and more. Do check out the whole thing!

We could blog these articles ad infinitum. The Times reports that while national banks have cut small-business lending, small-business lending is actually up. The people you can thank? The community banks, which are apparently, according to one study, three times as likely to give small businesses loans as big banks are. (Of course, the same survey found that 70% of small businesses had not applied for any loans over the past year--further evidence that credit is not the main thing hindering small businesses' recovery). Our very own Michael Taylor found a bank that actually lends, and it was of course a local bank. It seems he's not alone.

It's no secret why these smaller banks are more open to small-business lending than the big ones: their finances are stronger because they never binged on the types of assets that have since crashed; and, anyway, their more holistic approach to lending decisions gives creditworthy small businesses a better showing.

So what do you do if you want a loan from one of these folks? Here's where the article comes especially in handy.

The main thing to remember is that if you want community banks to treat you as a human being, rather than a collection of impersonal metrics, then you should reciprocate the courtesy. Develop a relationship with your local banker. No, seriously, go do it now: even if you're not looking for credit at the moment. It's also worth knowing all those impersonal metrics, like debt-to-equity ratio, the article says. At the same time, and perhaps most importantly, you should be able to explain, convincingly, exactly what you plan to do with the money you're asking to be lent.

Whether now is the time to go into debt is of course another question altogether. But if you feel it is, or needs to be, then it seems pretty clear that your local community bank probably should be the first place you look.

Several months ago, when a credit-card consumer-protection bill was being considered, we talked about how the proposed new rules actually wouldn't apply to small-business credit cards. (Here's where we disclose that our sponsor is American Express OPEN.) Well, such a bill has since been passed, signed by the president, and made into law. Consumers are now protected from rate hikes on pre-existing balances; from all manner of onerous fees; and other things that credit-card companies have used in order to draw revenue from their customers with weaker credit. Consumers are protected from these things...unless those consumers happen to hold corporate small-business cards, that is.

This Fortune story explains it well. The law that this new law amends applies solely to personal cards. So if you have a personal card, then, even if you use it to make business purchases, you should be protected; and even if you have a business card that is nonetheless tied to your personal credit, then this law does protect you. But if you use a traditional corporate card--which is not at all uncommon for owners of small, say, limited-liability corporations--then this law does not affect you. Additionally, the Los Angeles Times reports, cards--any cards--with credit limits of over $25,000 are exempt from the protections. While that no doubt simply exempts plenty of more well-off people who are likely in little need of these protections anyway, it's also likely to exempt the less-wealthy who nonetheless require bigger limits because they use their cards for both personal and business purposes.

Okay. So on the one hand, it's not entirely clear how many (or how few) small businesses remain unprotected: it's extremely difficult to collect precise data on this stuff. The National Federation of Independent Business has reportedly found that three-fourths of small businesses have corporate cards (though it doesn't know how many of these are tied to personal credit, and therefore still protected), and that 39% of small-business owners use a personal card (again, still protected) to make business purchases. On the other hand, there are clearly some out there left out in the cold.

Ultimately, we think that passing this law only to leave many small business owners out is a big error, and a disservice to the country's entrepreneurs. Over at Business Week's The New Entrepreneur blog, John Tozzi--who, generally, has owned this issue for a while now--has two good posts illustrating why small business owners need credit-card reform that actually applies to them. Here, he sums up a recent report that found that "two-thirds of small business owners reported seeing their rates go up in the last 12 months, and 41% said they had their credit limits reduced"--this, of course, at a time when rates generally have been low. And here he talks about the shuttering of Advanta, which is in the very business of small-business credit cards.

One valuable point Tozzi makes is that small-business cards, particularly right now, are if anything more likely to carry balances than personal cards as small business owners, in this credit environment, have been forced to resort to taking on debt through their credit cards. Indeed, 60% of these folks report carrying a balance.

And now that credit-card companies' previously most valuable customers--personal consumers--are no longer subject to the high and retroactively applied rates and fees that used to be these companies' meal ticket, where might these companies turn to maintain profits? Some have worried that they will figure out ways to make more money off those personal users who don't carry balances, and no doubt that's true. But might they not also turn to small-business owners--who not only still carry balances but also remain open to high rates? Especially since, as the Los Angeles Times notes, the number of small-business cards has risen dramatically over the past decade, thanks to aggressive marketing campaigns?

The Times reports that an amendment put forward by Sen. Mary Landrieu (D-La.)--chair of the Small Business & Entrepreneurship Committee--would have extended the protections to corporate cards tied to businesses with under 50 employees. The amendment also would have exempted cards with $50,000, not $25,000, limits. It was voted down before the final bill passed. Ooops.

"We will look into other legislative vehicles" for meaningful reform that applies to small-business cards, a Landrieu spokesperson said. We hope that "we" encompasses just about everyone.

Earlier this month, we reported on the Small Business Administration's plan to open up some of its lending programs to new types of businesses--most notably, car dealerships (who tend to be small, or at least small-ish, and with the bankruptcy of Chrysler and imminent bankruptcy of General Motors are facing incredibly tough times).

Today, the SBA released further details of what it's now thinking of as a "pilot program" for dealerships, the Washington Post reports. The structure is kind of interesting on its own terms: it will allow dealerships to purchase inventory--the vehicles (and mobile homes) they sell--by borrowing against it. In other words, they obtain credit to buy cars, and then pay down their debt when they sell those cars (with the option of re-upping on their credit lines). They're calling it "floor plan financing". Clever!

As for the loans themselves? They must be between $500,000 and $2 million. They come due after five years. And, yes, they're 75% guaranteed by the feds. You didn't think these were direct loans, did you?

SBA Head Karen G. Mills was set to announce the plan today with the Obama administration's car-community czar in what is presumably the car-centric community of Kokomo, Indiana (and which is presumably not the Kokomo from that Beach Boys song). "Countless small businesses, including dealerships, across the country are facing significant challenges as a result of the uncertainty in the auto industry," said Mills in a statement.

Certainly you don't need to inform us that the Big Three's crashes (well, actually Ford is apparently doing okay) affect more than just the Big Three. Still, though, we're ambivalent. Certainly these places need help, but are indirect loans really the most efficient and productive way for the government to help them? And even as a congressman submits a bill that, for contracting purposes, would identify small businesses that are parts of larger companies as their parent companies, should the SBA's focus really be on helping dealerships that are linked to much larger companies? Are there no better government agencies for that, so that the SBA can keep its focus on truly independent small businesses?

Two separate articles examine what might be termed cloud computing's messy early adolescence and how small businesses ought to respond. (For more of our take on cloud computing--we're big fans! particularly for small businesses--see here.) Both articles suggest there is probably some turbulence ahead as cloud computing software becomes increasingly specialized and professional. Which is to say, growing pains: temporary, but important, bumps in the road to cloud computing's future as an inexpensive, efficient, and productive way of conducting business.

A column at bMighty observes that "Cloud services have evolved in a willy-nilly fashion," with as many developers as possible trying to jump on board as quickly as possible, and leaving questions such as universal standards and compatability for later. However, such larger and important questions are finally beginning to be tackled, the author says. His conclusion? "Small and midsize companies need to be aware that these services' management functions may be lacking. Their option then is to deploy services with limited functionality or hold off for a year or two until the vendors get the kinks out of the emerging services."

We'd take this a step further, and note that many cloud computing applications are, frankly, unsophisticated. We think, for example, that Google Docs is as worthwhile as Microsoft Word because of all the cloud advantages. But the damn thing doesn't even have a word-count function yet! But, we can safely assume, one day it will.

Caution, in other words, might be the better part of wisdom for the time being. Stick to what you know works, and let cloud computing work out its kinks, and then join the party. But, we'd add: be careful you don't join too late--before your competitors experience the ultimate savings and boosted productivity that we think will come to be associated with cloud computing.

Meanwhile, that charming English newsweekly The Economist runs a solid article on open-source cloud computing software. "The argument has been won," it concludes. "It is now generally accepted that the future will involve a blend of both proprietary and open-source software."

And what about cloud computing? The magazine is quite keen on the pluses: "There are many advantages to this approach for both customers (lower cost, less complexity) and service providers (economies of scale)." But it warns against what bMighty does: the lack of universal standards (it comes up with a brilliant way of thinking about this: imagine transferring your MySpace profile to Facebook--you'd literally just have to retype everything!). "The obvious answer" to this obstacle "is to establish agreed standards for moving data between clouds," the magazine says. "An industry effort to this effect kicked off in March. But cloud computing is still in its infancy, and setting standards too early could hamper innovation." Good point.

So where does that leave small businesses? "Buyers of cloud-computing services must take account of the dangers of lock-in, and favour service providers who allow them to move data in and out of their systems without too much hassle." Don't, in other words, to any single cloud computing software or software suite in a manner that becomes effectively irrevocable.

The general lesson seems to be that while cloud computing is no doubt the future, and may even be the present, at this point the buyer ought to beware somewhat. The cloud might not be thick enough to catch you. Not just yet, anyway.

What could possibly come after May flowers? As you ponder this and other questions, find some time for the following.

The recovery that isn't. One small business owner explains why she's not feeling all too optimistic. [Newsweek]

What else you should be reading. Some new books for the recession-era entrepreneur. [NYT]

Livin' large. How to land more lucrative customers. [Entrepreneur]

Stimulating small business. How you can get in on the stimulus money. [OPEN]

From fired to self-employed. Guess what the lamentably laid-off are increasingly deciding to do? [The Franchise King Blog]