Last week, the Federal Deposit Insurance Corp. addressed the sharp decline in all loan commitments worth $20 million or more. For the layperson, such a share commitment divvies up risk among several institutions, including, in the case of these, U.S. and foreign bank organizations; securitization pools; hedge funds; pensions; and insurance companies.

Here are are some highlights:
1. $2.9 trillion dollars in loans were reviewed. Total borrowers involved: 5900
2. There was a 72% increase in criticized loans (in other words, the wisdom of making them was somewhat disputed by someone), so that it's now $642 billion.
3. Leveraged Finance represented 40% of criticized loans: $256 Billion
4. Other industy leaders? Media and Telecom Industry: $112 billion; Finance & Insurance: $76 billion; Real Estate & Construction: $72 Billion.
5. FDIC-insured institutions have exposure to 24.2% of classified loans, or $108 billion.

This is not good news for bank capital requirements, and therefore not good news for small businesses that keep hoping and praying that the banks will start to improve lending activities to their sector. Why? Because if the banks are struggling with capital requirements, they simply will not loosen the purse strings anytime soon.

I’ve seen this several times in my career: corporate and investment banking runs amok, retail and middle market banking takes the beating, as do retail and middle market banking customers. As the banks look to the business line to make up the losses created in their corporate and investment-banking divisions, small and mid-size businesses--along with consumers--are forced to pay higher fees and rates, earn less interest, and have less access to the credit they depend.

In the midst of these losses, Treasury Secretary Tim Geithner has proposed that bank capital requirements be increased. While I’m all for that initiative, and I agree with most of his assessments, the immediate effect of that policy's implementation would actually hurt the small business community. When combined with increased loan losses, it would only increase the banking industry’s unwillingness to lend to the small business community.

How then does Secretary Geithner expect to resolve this dilemma? Well, that brings me to my favorite topic: TALF. Since April 7, 2009 the TALF--that's Term Asset-Backed Securities Loan Facility, a program under which the Federal Reserve put crappy bank loans on its own balance sheet--laundered $46 billion dollars in loans off of banks’ balance sheets, virtually guaranteeing them with our tax dollars. For the record, $21 billion were credit cards loans, $10 Bbllion were auto loans, $4 billion were commercial mortgages and a mere $580 million were SBA loans. As an aside, despite the new policy of transparency in these programs, I have been unable to obtain information on which banks are selling these assets and participating in TALF. This means I can’t tell which banks we are bailing out the most. I’ve been told by the Federal Reserve Bank of New YOrk that this information is simply not available to the public. How transparent!

Since the rules of the TALF program keep changing, it would not surprise me one bit if TALF morphed so that these share national credits were allowed in on the deal. First, it was to be only AAA-rated loan portfolios; then they added sub-prime credit card and sub-prime auto loans; and then they added commercial mortgages. We already expect $1 trillionin loans to be processed through TALF. Might the next change in TALF be to allow the banks to divest themselves of the measly $147 billion in toxic shared national credits?

That move would certainly help improve the banks’ capital requirements. But where would it leave the small business owner? Without some form of strong government intervention, the banks will not move back into lending in the small business market anytime soon. Something which, I might add, every government leader agrees is vital to our economic recovery. Merely asking the banks to increase lending functions to the small business community, just isn’t working.

I, for one, plan on holding Geithner to his closing remarks:

We must act to correct the regulatory problems that have left our financial system so fragile and prone to further trouble that Americans come to distrust it as a reliable repository for their savings and a stable source of the credit they need to conduct their lives and build their businesses.

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.

This post was cross-posted, in slightly different form, here.

Via The New Entrepreneur, ADP duly released its September job numbers. The payroll company reports that just over a quarter-million payroll jobs were cut, with small businesses--those with under 50 employees--supplying the plurality of those cuts, at 100,000. "September’s employment decline was the smallest since July of 2008 and employment losses have diminished significantly over the last two quarters," notes one of the report's authors. "Nevertheless, employment, which usually trails overall economic activity, is likely to decline for at least several more months, with losses continuing to diminish.”

Certainly these numbers are a steady improvement over August's. Still, we can't help but wish that a smaller chunk of the job loss were coming out of companies that, at least individually, have fewer jobs to begin with.

Looks like we caught the Gray Lady. One year ago, the New York Times began following six New York City entrepreneurs to see how they were coping with the recession. Six months ago, the paper of record provided an update on them; at the time, we wrote, "We certainly hope all six are in business the next time the Times checks in on them. We're just not sure that we'd bet that they all will be." We take no pleasure in the fact that the Times's latest dispatch features only five of the six entrepreneurs. The article makes no mention of the missing sixth; it's worth noting that he ran a Saab dealership in New Jersey, and that Saab is a General Motors brand. Contemplating what might have happened to that dealership--and we don't know what did--is not a fun activity.

As for the remaining five? Perhaps their views are best summed up by Bronx butcher Michael Menna: "Business is not back to where it’s supposed to be, but we’re seeing light at the end of the tunnel." They have suffered over the past six months, they have had to make do without things they shouldn't have. But they are ultimately still around, and in some cases have genuine cause to believe that things will pick up soon, if they haven't already.

The most poignant of the remaining five might be Mouhamad Shami, who owns a Middle Eastern diner in the Financial District (which, in the past, we offered as an example of a non-financial business that was nonetheless dependent on the financial industry's well-being.) He is actually frank about the fact that, worst comes to worst, he is very confident that he will survive: should he move to a smaller place, then, with the help of a loan, he will get by. "With the amount of business that I’m making right now, I’ll be able to survive in a less-overhead, smaller place." He adds, "This place, it means so much to me. I built it up from scratch. I keep trying to convince myself that I’ll be able to save it, I’ll be able to save it. So I’m going to give it one more chance till the end of this year."

Oh, and an additional problem Shami has faced? "Between my overhead and the drop in the business I couldn’t continue with my health insurance coverage. I dropped it at the beginning of this year. I fell here. They were mopping the floor. I didn’t go to the doctor for X-rays or anything. I just went to an acupuncturist on Nassau Street and he said nothing is broken. So I was in pain for about six to eight weeks."

Ah, the Land of Opportunity.

As increasing worry for a recurrent swine flu epidemic materializes, CNNMoney asks an absolutely fantastic question: why isn't there mandatory paid sick leave? Roughly half of all U.S. employees must give advance notice if they are to take a day off--that is, they lack sick days. And this is made possible, naturally, by a lack of legal requirements on the issue (San Francisco and Washington, D.C. do have such requirements; 15 other states or cities are considering them).

The argument is incredibly simple: you have the federal government itself advising employers that one of the most important ways for them to put a brake on the spread of swine flu is to ensure that sick workers can spend the day at home, whether by telecommuting or taking the day off. Yet the governments themselves don't ensure that employees have that option in the only meaningful way they can: by legally mandating it. (And, we might add, in not requiring paid sick days, the government puts those employers that do offer them--as they're being told they should--at something of a disadvantage.) Something doesn't add up, and it's unfair to small businesses; workers everywhere; and those of us who'd simply rather not get sick.

Every Friday afternoon, we post a list of several articles, under the heading "What You Should Be Reading", and this Friday will be no exception. However, we wanted to devote a separate post to tell you to read Robb Mandelbaum's sensible explanation of why an employer mandate--a pay-or-play mechanism whereby businesses either provide insurance for their employees or find themselves subject to a surcharge--will not only not put small companies out of business, but will also not discourge (and will, in fact, encourage) small businesses from going with the insurance option. Check it out.

In addition to the piece linked to in our previous post, of course.

Payment options galore! Giving your customers more ways to buy things will make it easier for them to buy more things. [bMighty]

Too big to lose? Why having a super-large, central customer isn't necessarily a good thing. [NYT]

Too bankrupt to pay you? How to deal with suddenly insolvent customers. [Small Business CEO]

No Detroit entrepreneurship. A sobering piece argues that the U.S. auto industry is basically just screwed. [Business Week, via The New Entrepreneur]

This one's optimistic. Good news from the National Federation of Independent Business's monthly survey. [You're the Boss]

In this sixth installment of my series on what makes great entrepreneurs who build something meaningful and substantial, we continue analyzing the nine key personality traits that I believe increase your chances of success. These are: big dreamer, natural leader and decision maker, obsessive passion and drive, macro manager, rational optimist, healthy fear of failure, little fear of risk, controlling but not freakish,and disciplined personal life.

Rational optimism is the subject of today’s column. I didn’t make it up; there’s even a blog, by a former judge, called The Rational Optimist. The best entrepreneurs plow ahead believing that the best is right around the corner, but at the same time constantly attempt to quell (and, perhaps, justify) that enthusiasm with preparation for difficulties ahead.

I am a proud graduate of the Wharton School of Business and a former head of its worldwide alumni association. But my fellow grads and faculty get a little miffed when I suggest that business school did not complete my business education--law school did. Why? Because business school classes tend to focus on challenges as a business builds to the stars. In law school, by contrast, we learned about managing risk, something that got little if any attention in my business classes. Managing risk is obviously a crucial talent for any lawyer. But it's also important for any entrepreneur.

Yet neither skill, on its own, is totally healthy. A successful entrepreneur would have a difficult time if he or she spent the day assuming that only the worst will happen and therefore avoided pursuing new opportunities or risk. The best entrepreneurs have little or no fear of taking chances. But behaving cavalierly also does not make sense. Ideally, you want an intelligent balance of the two.

How does this manifest in real life? An entrepreneur who thinks her business will only grow might take actions such as highly leveraging the business with debt, since a growing business generally can handle debt service, all without diluting the founder’s equity ownership. But if a company is too highly leveraged, a downturn can mean devastation, restructuring, possibly even bankruptcy.

On the opposite side, a company founder who is mired only in fear of bad things happening will do everything in a slow and piecemeal fashion. Such caution makes it more difficult to be a fierce competitor.

Here's an example from my own business experience. About 15 years ago, I changed the billing structure in my law firm to more flat fees rather than the more standard practice of billing by the hour. I knew the change would resonate with clients on many levels, and it did. But if I feared no one would accept it, I might not have even tried. Now, 15 years later, it is one of the three key selling points we use in encouraging potential clients to work with our firm, and clients indeed love it. Other firms are beginning to put their toes in this water only now.

But then how to properly manage growth and build a business while protecting the downside? The answer is: there is no easy answer. But it seems to me the smart way (which I admit I do not always follow) is to take advantage of good times and put away resources for the next challenging time. Yes, you really want that Maserati, but a Mercedes E Class will do just fine, and you've just put another $100,000 in reserve for the future.

But preparing for growth also is important. We have managed growth by adding space as we get close to filling space we have. But this leaves empty space. So we have rented out offices we are not using, offsetting the risk of taking on the space. Then, as we grow into the space, our tenants leave. If growth does not come, the cost is still managed by the tenants.

And what about when times are bad? How do you time the next upturn? How can you tell how long things will stay bad? (Many entrepreneurs are facing these questions right now!) In this downturn, I painstakingly slashed my overhead over a period of about four months. I cut it more than the hit my business took, meaning that even if things get worse (luckily, the markets are really improving and we are getting busier right now), I can still manage. But I am also ready for the upturn, as I have already started reviewing resumes of attorneys who are available and willing to work--and they are, frankly, for very little money these days. Let me say that once again: I am ready for the upturn!

Next time: do you have a healthy fear of failure?

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

We've covered Women Impacting Public Policy before, and we very much share WIPP's goal of ensuring that woman-owned small businesses are recognized for their importance to the economy at large, and that public policy in turn reflects that importance. So definitely take note of a new study, sponsored by WIPP, the Center for Women's Business Research, and--wait for it--Wal-Mart, which found that woman-owned businesses (defined as privately-held companies in which a woman or women have an at least 50% stake) take in $3 trillion in annual revenue and employ 23 million people, or 16% of the total workforce.

So, what are the implications of these findings as far as public policy is concerned? Given the sheer size and importance of woman-owned businesses, we think special care for them is justified. How about giving women their fair--oh, and legally mandated--share of federal contracts? How about preserving Small business Administration programs designed to ensure that such businesses have access to much-needed credit? Those are our thoughts, anyway. What are yours?

One of our favorite hobby-horses is the extreme, even aggressive idiocy of U.S. immigration policy, which seems to do all it can to limit the number of talented folks who hail from other countries from coming here to pitch their tents, start their businesses, create new innovations, employ more Americans, create more economic activity, and produce more tax revenue. Our immigration laws actively hurt small businesses, especially in the tech industry; they are helping other countries; truly, they are just terrible.

But it's not just work visas! As progressive blogger Matthew Yglesias points out in a humorous little post, it's student visas, too. "This is a bit regrettably Friedmanish of me," he writes (that's the humorous part), "but last night I wound up randomly meeting a young South Korean guy at a bar who’s in Stockholm as an exchange student and I asked him why he wanted to come to Sweden. He said Swedish people speak English very well and he wanted to improve his language skills. So I asked why he didn’t come to America where we speak better English than the Swedes (no offense) and don’t share Sweden’s perverse aversion to spicy food. He said it was too hard to get a visa to study in the USA." This is lunacy, as Yglesias goes on to point out: "From the very beginning our country has always derived powerful benefits from “brain drain” effects in which a healthy proportion of smart people from all around the world want to come here. There’s no good reason to throw that away."

The U.S. can lure the students, and maybe they make new friends, or they find they like our country's wonderful cities and diverse ethnic cuisine, or they meet their wife and husband--bottom line, they stay, and the U.S. gets to benefit from their considerable talents. Or, the U.S. can make it as difficult as possible for talented foreign nationals to study here, and let its international rivals benefit. A real tough policy dilemma, that.

Via Inc., President Barack Obama took some time in his weekly Saturday radio address to make the small business-specific case for health care reform along the lines he's proposed. "Under these proposals," he argued, "small businesses will be able to purchase health insurance through an insurance exchange, a marketplace where they can compare the price, quality, and services of a wide variety of plans, many of which will provide better coverage at lower costs than the plans they have now." (Here's our take on Obama's proposals; here's our take on the all-important Baucus bill.)

As for the employer mandate, Obama noted--as we have more than once--that all health care proposals take special pains to make special rules for small businesses, so that all but the largest small businesses are exempted from it outright, and those that aren't exempted--as well as those that are, but choose to insure their employees anyway--are eligible for significant, leavening tax credits.

Finally, there is the cost-saving case. "Rising health-care costs are undermining our businesses, exploding our deficits, and costing our nation more jobs with each passing month," Obama pointed out. Amen.

Noting that the utility Exelon, Apple, and other prominent companies (including Nike) have departed the membership ranks of the U.S. Chamber of Commerce due to its hostility to legislation that would effectively regulate carbon emissions, You're The Boss asks, "Is the Chamber of Commerce Right About Climate Change?"

The answer is no. Looks like here is how tell the Chamber that on this issue it is not effectively representing you.

When last we visited the saga of CIT--the prominent small-business lender that found itself at death's door a few months ago, only to postpone its demise with an emergency $3 billion loan--we noted that it once again appeared headed either for outright bankruptcy or for some out-of-court deal with its creditors, chiefly bondholders. What's happened since?

Not much, substantively, except things still look quite bad. CIT came up with an interesting strategy: offer its bondholders a servicing settlement, which would greatly reduce around $30 billion of debt, while simultaneously revealing a pre-packaged bankruptcy plan. The servicing is the carrot for the bondholders; bankruptcy, of course, is the stick. Yet even still the bondholders are not biting: they have threatened to let the country lapse into bankruptcy unless the bondholder exchange offer is sweetened. That initial offer expires Oct. 29. Meanwhile, let's hope that the broader world of small-business credit does not follow CIT's declining and sordid trajectory.

There are two things wrong with the federal government's recently released 2008 contracting numbers. One, as we've already had the displeasure of reporting, is that the amount of federal contracts did not reach the Congressionally mandated level of 23% of agency totals. (It's really worth remembering that the quota is not some suggestion, but actually the law.) But the second problem is that even the new number is bogus: as with last year's numbers, this year's numbers are inflated by reporting as small-business contracts procurement deals that went to small subsidiaries of gigantic corporations. In fact, Fortune Small Business reports, 2008's two top small business contractors, as reported by the Small Business Administration, are one company with $1 billion in revenues and another company that is a subsidiary of a company with $14 billion in revenues.

But don't blame the SBA. For one thing, it doesn't have the manpower or money to do the sort of job we'd want it to. For another, under current rules, those two might count as "small", even though they clearly shouldn't. Besides, and to its credit, SBA was able to scrub about $13 billion from the numbers reported by the individual federal agencies by getting rid of blatant violations and exemptions.

So whom to blame? How about Congress, who has the chance to fix all this, but so far hasn't? They can fix it by passing the Fairness and Transparency in Contracting Act (for which there is bipartisan support). This bill, which was crafted with the aid of Lloyd Chapman and his American Small Business League--the most outspoken voice on the problem of small business procurement--would require that a business that wins a contract be reported as its parent company, and would thereby hopefully end the practice wherein a $14-billion-a-year corporation is reported as a "small business". In turn, real small businesses would get the dollars to which they are morally, and legally, entitled. Sounds sensible to us.

Radicati Group, a technology market research firm, released a recent study finding that the number of worldwide email users is projected to increase, from over 1.4 billion in 2009 to almost 1.9 billion by 2013. The group also discovered that, today, about 81% of all email traffic is spam.

For business owners, though, the biggest e-mail culprit is not spam, but rather lost productivity--which in this economy can be deadly. The lost productivity, of course, comes from interruptions. Via ClearContext Corporate Blog, I came across a study from the U.K.'s Loughborough University that concluded: "If an employee has set up the email application to check for email every five minutes then it is possible, if (s)he is a heavy user of email, that there could be 96 interruptions in a normal eight-hour working day. However, if the email application was set up to check for email every 45 minutes then the amount of possible interruptions is reduced to 11 per day."

Now, this is from a 2003 study. In today's world, I can't think things have improved. All told, U.S. companies lose an estimated $900 billion a year in lost productivity because of information overload, according to Basex, a research and consulting firm.

Basex is a member of the Information Overload Research Group, formed in 2008 by tech firms and researchers to study the problem. However, relatively few companies deal with the issue or help their employees do--particularly small businesses with limited resources.

Here’s how I dealt with it, as a small business owner who has bright, assertive, self-starting employees. I simply pointed them to a series of the email-related animation on the website of the wonderfully creative Animated Explanations. Here are the links:

What is the best way to organize your e-mail inbox? (01:30)

Sorting through huge amounts of email (04:10)

What is the best way to write work-related e-mails? (02:10)

Unlike certain other things we all do during the day, this is seven minutes, 50 seconds well-spent. And I trust my employees, armed with this knowledge, to maximize their own productivity--and my company's.

Now if you'll excuse me, I have to check my email.

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.

Newsweek runs a rigorously reported story that finds--and this is something we've warned about in the past--that for all it seeming entrepreneurial opportunity, Apple's iPhone App Store will probably not make you rich. "Not only have most sellers failed to turn a profit," the magazine reports, "even developers with high-ranking games and applications have made far less than commonly thought. Many come nowhere near recouping their investment at all."

The problems are myriad: Apple's insanely byzantine rules; the limited revenues even successful apps garner for their owners; and the high costs of a professionally done start-up.

Certainly, the market regulator isn't helping matters all that much. "Apple rejects almost 60 percent of submissions at least once, often--according to programmers--with little more than infuriatingly vague or inconsistent explanations." We might remind Apple that a more free and robust app store will create better apps, which will in turn get more people buying the iPhone. It's in its own interest, in other words, for it to be more friendly to its aspiring entrepreneurs.

But please let the Newsweek article resound as another word of warning: not that you shouldn't jump into the iPhone pool head-first, just that you should be extra-careful when doing so.

The Fiscal Year 2009 Small Business Administration loan numbers are in, and they are ... predictable. Notably, 7(a) loans--that's the SBA's flagship program--fell 36% in volume from FY 2008, dropping to a little over 44,000, and 27% in dollars, falling to $9.3 billion. (Which does mean, interestingly enough, that the average loan size must actually have risen a bit.) Does this mean that banks refused to lend, or small businesses did not want to borrow? Both, certainly. We'd wager, however, that the latter cause played at least as great, and probably a greater, role than the former one.

The good news? According to the SBA, the big, bulky fiscal-year numbers mask what has been a steady month-over-month rebound for several months now. In fact, the worst lending month was January 2009, in which loan dollars fell a whopping 48% from January 2008. Since then, however, things have improved significantly, to the point that September 2009 was the best month of the year, with $1.3 billion in 7(a) loans having been backed. Does not bode so badly for FY 2010.

Finding itself unafraid to be service-y, the New York Times has a useful guide for small businesses trying to land federal contracts. (We note with added pleasure that the piece is by Sharon McLoone, who used to write a fantastic small-business blog for our corporate sister The Washington Post's Website.)

In addition to that famous (and famously unfulfilled) 23% quota--dictating that 23% of each federal agency's contracts go to small businesses--McLoone notes that all federal contracts worth between $3,000 and $100,000 must be reserved for small business, and must go to them unless at least two competitive bids are not forthcoming. So what are you waiting for? And how do you get in on this action (in addition to subcontracting to larger and more established government contractors, a tack we've already suggested)?

We'll let you read the piece to see the details, but suffice to say there are a ton of resources, provided courtesy both the Small Business Administration and non-governmental entities, out there, and you're shooting yourself in the foot if you don't try to take advantage of them.

Of course, the one other thing you can do to help yourself land government contracts is to tell your congressperson or senator--next time you run into them--that you trust they'll support the Fairness and Transparency in Contracting Act.

We are feeling quite under the weather today--hence the paucity of posts. While we recover over the weekend, we recommend you take a look at some of these.

401 Okay. Why, despite the market and the hassle, you still very much want to be taking advantage of a retirement plan with tax benefits. [Washington Post]

He's a Locke! Commerce Secretary Gary Locke--whose purview includes the Small Business Administration--speaks about business. [MSNBC]

The insurance mandate's downside? How a play-or-pay set-up could cause more businesses not to play. [You're The Boss]

Looking up. One survey reveals significant small-business optimism. [Reuters]

Small businesses, small claims. Borrowers who feel Advanta has given them a bum rap have a new recourse. [The New Entrepreneur]

Why do small businesses have such difficulty obtaining government contracts? According to the Senate Committee on Small Business & Entrepreneurship, this is due in part to "a maze of complicated laws and regulations that make it difficult for them to succeed."

But to understand this problem further, Congress and President Obama need to look more closely at the banking industy. The general consensus among banks is that they do not want to lend against government receivables--do not want to finance projects deriving from government contracts. When asked why, the answer is invariably, “It’s hard to collect from the government”. Imagine that! The very banks that are willing to be bailed out by the government, and that are willing to sell their toxic assets through government programs, don’t believe that a receivable from a government agency is worth the paper it's written on!

Don’t take my word for it. Ask any underwriter. Banks hate to lend against government receivables. It’s practically a mantra in the small business banking industry. While the customer isn’t told this, underwriters will explicitly cite banks' unwillingness to lend against government contracts and receivables as a primary reason for not approving loans. Perhaps the government needs an oversight committee that requires banks to report how many loans they turn down to borrowers that have government contracts or are seeking financing for new government contracts? This would be a worthwhile project for the Small Business Administration.

There's a further wrinkle to the government-contracting game that frequently sees small businesses coming up short on the credit front. The typical small business that can actually make it through the onerous paperwork and obtain the contract usually needs to borrow significantly more than they have historically borrowed in the past; additional working capital financing is frequently mandated in order to support the contract's cash flow requirements. From a bank's perspective, these small business owners need to have established past revenue, profitability, and debt-service capabilities in order to obtain the new lines or line increases they’ll need to service these contracts. Moreoever, if the business has done work for the government in the past and those receivables are aged over 60 days, the banks discount them completely.

Then there is the general lending guideline that prohibits loans where there is a concentration of receivables. If a small business wins a government contract, it is likely that that the contract will create a concentration in revenue stream and receivables (those from the government) as compared to the rest of the borrower’s customer base. Banks can easily use this as an excuse not to make the loan.

Now, small business that win contracts could turn to non-conventional sources of funding, like accounts receivable financing companies. Here, the business owner will have a better chance of getting the financing through. But here, the cost of funds are significantly higher than conventional bank financing. Add that that to government contracts' typically low profit margins, and you can see how non-conventional sources for working capital can translate into losses on the jobs taken.

Perhaps during this crisis, the government could provide an interest subsidy written into the value of its contracts, so that more small businesses can effectively compete for their share of these contracts. That’s a direction in which I wouldn’t mind seeing my tax dollars go.

And meanwhile, our leaders continue to let the banks get away with their refusal to meet the financing needs of the small business community. Small business doesn’t have a chance in hell of fighting the system from the bottom up, on a case-by-case basis. The only way this will change is if our regulators and political leaders become genuine small business advocates. It is time that they hold the banks accountable for putting up barriers that stop our government from meeting their statutory goals in small business contract programs.

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.

This post was cross-posted, in slightly different form, here.

A perfect way to see the heterogeneity of small business views is to look, as John Tozzi does, at the Main Street Alliance's and the National Federation of Independent Business's respective (and conflicting) views of what would constitute ideal health care reform. (We also did so early last month.)

The Main Street Alliance favors the more progressive solutions articluated in the bills emanating from the House of Representatives: these notably include the public option (a government-run insurance which individuals could buy, and which would compete with other, private plans) as well as an employer mandate, requiring employers to either play--insure their employees--or pay--contribute a surcharge that would go toward covering those who cannot afford insurance on their own. The NFIB, by contrast, casting its lot with the Baucus bill from the Senate, advocates a system of non-profit cooperatives (allowing individuals and small businesses to band together to buy insurance), and would replace a strict employer mandate with a free-rider provision to require companies that don't insure their employees to contribute toward subsidies should it have employees who qualify for them. (Some have pointed out that the free-rider provision would discourage the hiring of the less-well-off.)

It's also worth taking stock of what the two groups agree on. Both, naturally, favor outright exemptions--whether to the mandate or the free-rider clause--for the smallest of businesses (generally, those with under fifty employees), as well as tax credits and a graduated payment scale for bigger-but-still-small companies. And both back some sort of real health care reform, which is certainly a step in the right direction.

Of course, neither the House bills nor the Senate one is the exact thing that will arrive on President Obama's desk should the House and the Senate succeed at passing the same bill. Rather, some sort of compromise will emerge among these several attempts. Where these groups stand on that bill may ultimately prove more consequential, and telling. Which means we'll be watching.

The cover story in today's New York Times Business section concerns the continued tightened state of small business credit. (Reuters ran a similar state-of-small-business-credit story recently, and found similarly cramped circumstances.)

There are two crucial points the Times makes about this particular credit squeeze: one concerns its causes, and one concerns why it's small business-specific.

As for the cause: it's not just the usual things you'd hear about, namely, a combination of a genuine lack of available credit coupled with a drop in demand for credit, which would have the effect on the statistics of making it look like there was a further crunch. In addition to those factors, there's this: "the enduring credit squeeze appears to reflect an aversion to risk among lenders confronting great uncertainty about the economy rather than any lingering effects of the panic that gripped financial markets last fall." And not only is this psychology playing a big role, it's a psychology that is not justified by the external circumstances (well, other than everyone else's risk-averse psychology!): "some economists worry that bankers have overshot the boundaries of a healthy reaction, as even strong companies are finding it difficult to borrow."

Is there a more pro-cyclical force than psychology? Risk aversion leads to data that would seem to suggest the wisdom of further risk aversion, and so on. The trick is to break the cycle. Where the cycle is mostly due to concrete economic circumstances, usually the government can play a pretty substantial role in righting it. But what sort of government intervention can definitively alter underlying psychology? We'd say something like a broader regulatory overhaul, to ensure that, structurally, something like September 2008 will not happen again, is the only thing that can overturn this underlying pessimistic psychology, other than simply the forgetfullness that comes with additional time. And broader regulatory overhaul, unlike the forgetfullness that comes with additional time, has the added benefit of actually preventing another meltdown. But what do we know? End rant.

The other valuable point the Times makes is that small businesses are susceptible to things like the psychology and whims of big and small banks in ways big companies are not. The article quotes a Goldman Sachs economist thusly: "small businesses rely more on bank financing, whereas large businesses have the alternative of raising money in the capital markets.” If you're a gigantic business with access to bond markets, and you need to raise some quick cash, and don't want to dilute your equity, then you float a bond. Small companies simply don't have that luxury, and so are at the whims of banks and other traditional lenders.

This dynamic means that small businesses are disproportionately affected by banks' behavior. (Anonymous Banker offered a great example of this yesterday, when he noted that the federal contracting mess actually involves, yes, banks' reluctance to lend.) In turn, the effects of bank policy on small business ought to be given special, disproportionate consideration.

Good for MSNBC for asking real, tough questions of Small Business Administration official Joseph Jordan. This is how accountability it happens: you confront those in power with their mistakes, in order to let them know they're being watched and judged. It makes us feel better about the prospect of something actually being done to help alleviate the current contracting mess, which sees far too many billions of dollars that are supposed to go to small businesses actually going to big ones.

Beyond that, Jordan offers some helpful procurement advice. In case you missed--or in addition to--last week's post.

The latest CIT news is that beleagured small-business lender's CEO, Jeffrey Peek, will resign at the end of the year, despite a recent contract extension that put the end-date of his tenure in September 2010. Actually, if you read between the lines of the New York Times article on the departure, an interesting notion emerges. As things stand now, CIT is currently trying to get its bondholders--its main debtors--to agree to a servicing deal, while holding out the stick of a prepackaged bankruptcy as a means of enticement. One could see Peek surviving the bankruptcy. It's basically inconceivable, however, that a bondholder deal, which would involve a debt-for-equity swap, would leave Peek in place. In short, does Peek's early exit indicate that a cleaner bondholder deal is in the offing?

As we hope for a Credit Card Vendors' Bill of Rights--one that would regulate the high interchange fees that credit card companies charge businesses each time a customer swipes to pay--The New Entrepreneur provides some helpful thoughts on how, in the meantime, small businesses can deal with the extra costs associated with their customers' credit card use. (Time to note that our sponsor is American Express OPEN.)

The main idea seems to be to pass the cost onto the consumer. This certainly makes sense, especially since it enables you, effectively, to give them a discount for using cash. (You can also charge more for using cards; from a price-marketing perspective, however, it's probably a better idea to build the cost of the card into your prices, and then discount for cash.) Some businesses have also had success at negotiating lower fees with their banks. That sounds like an uphill slope though (if you can successfully climb it, though, then God bless you). Really, what should happen is legislation. Looks like committee hearings were held last week. We'll keep you posted.

MSNBC files a fantastic report on New York's quality food-truck scene. Note how these small businesses find Twitter ideal for marketing ... and at the same time, understand that it is a mere complement, and not at all a substitute, for the basics of the business: quality; pricing; and, of course, location, location, location. (Oh, and by the way: we're personally fans of Calexico.)

Of late, we've been forced toward a bit more pessimism as far as iEntrepreneurship--starting companies to make applications for sale on smartphones such as the iPhone--is concerned. As cool as it sounds in concept, we've reluctantly reported that it actually seems that very few such entrepreneurs manage to make a buck.

Which makes us all the more excited when it turns out that some companies actually do turn a profit in this way! The New York Times profiles Shazam today, the nifty app that can tell you what song is playing after listening to it for about 20 seconds, analyzing it, and using an Internet connection to ... well, to do whatever magic it does. Turns out, it's already profitable, and has also attracted investment money from Kleiner Perkins's iFund. (By the way, Shazam really works! We're big fans ourselves.) So, how does Shazam make money?

Preloaded. Some carriers pre-load the program onto the phones it sells, and when it does, Shazam gets paid.
iTunes synergy. After identifying what that great song they just put on in the coffee shop is, Shazam puts you precisely one click away from downloading said song from the iTunes store right to your phone. When the download goes through, Shazam gets a taste.
Ads. It charges for mobile ads prompted by the identified song.
Market platform. It plans to start selling band merchandise, concert tickets, and the like imminently, once again charging a commission that the bands themselves will be only too happy to pay.

The secrets to Shazam's success appear to be the way it lies at the confluence of several different, profitable trends. It's useful to both consumers and advertisers (and was just made to get the iTunes store extra hits--who wouldn't want to go ahead and buy that great new song for $.99? You can imagine Apple being very pleased with Shazam's success.) It takes advantage of unlimited data plans. It has a social factor, a 'wow' factor, and a utilitarian factor.

Now comes the next step. By the end of the year, Shazam is going to start charging users, on all sorts of smartphones, should they wish to identify more than five songs per month, or take advantage of certain special features. How will that work? Well, so far, Shazam's business acumen has proved pretty spot-on ....

Robb Mandelbaum has two good recent posts on health care over at You're The Boss. Here, he explains why the so-called "mandate" in the Baucus bill is not really a mandate at all (we've argued much the same). And here--it's an absolutely must-read post--Mandelbaum goes through the mandates of the remaining bills: one from a different Senate committee (the one that had been chaired by the late Sen. Ted Kennedy), and two from the House of Representatives. Unlike the Baucus bill, those pieces of legislation's mandates actually are traditional, play-or-pay mandates, albeit with variations.

Mandelbaum astutely points out that the main purpose of the Baucus bill was to garner the support of at least one committee Republican. And here it succeeded: it was voted on by BizBox's favorite senator, Olympia Snowe (R-Me.) The question will become: at what cost? If that terrible, terrible mandate--which encourages employers not to insure employees sensibly and cheaply, but rather to hire rich people--stays in the compromise bill, then that seems bad for all involved. But if one of the more sensible play-or-pay mandates emerges, then we think that would be worth supporting. We're thinking of something that exempts those smallest businesses; further exempts the first, say, 25 or 50 employees of those businesses that are too big to qualify for an exemption; and, finally, sees tax credits going to those still-small businesses who do find themselves within the mandate's reach. What do you think?

States are sometimes known as the "laboratories of democracy"--the thinking being that here you have 50 different sovereignties, which can try out 50 different ways of governing, tax policy, and what-have-you. But just as frequently as being laboratories of democracy, the states are in brutal, cutthroat competition with each other to make themselves more attractive to potential residents and businesses. (A famous example is Delaware, which has designed its corporate taxes and laws expressly to attract big company headquarters.) One good way to attract businesses, especially small ones, is to make the overall tax burden as light as possible. Which leads us to Fortune Small Business's list of the five best states in terms of small-businesses taxes. We won't give the states away. (Our main observation: these are five staunchly Red states, suggesting that the low taxes have at least as much to do with pure ideology as with a definite desire to attract businesses.) Do give it a look.

The list does not suggest--nor does it purport to suggest--that these are the five best states in which to launch your business. It's nearly always better to have more revenue to be taxed than to have less tax on your revenue, and so things like low start-up costs, pre-existing industries, access to state, federal, or university money, and the like are at least as important factors in determining a state's entrepreneurial potential as its taxes. But still, it's good to have this information, too.

When you are self-employed, you are your business. And this goes even when you're not incorporated, or even when you're not really a business under any ordinary definition of the word: an independent contractor of any kind, say (like a freelance journalist!). But either way, if you are self-employed, if you are your own business, and as with any other business, you need good marketing. The headline of this helpful New York Times piece says it all: "Managing Your Career as a Business".

We're beginning to sense a larger trend: an increasing sector of the workforce is going to self-identify as "entrepreneurs," as indeed their careers take more entrepreneurial trajectories--more risk-taking, more gig-hopping, more dyanamism. And this is a good thing! The more "entrepreneurs" there are, the more people will see things from the entrepreneurial perspective. If more people didn't have employer-sponsored insurance, for example, or didn't feel so safe in the fact that they will always have it, we'd likely see a push for more entrepreneur-friendly health care reform. And so on. So, welcome to the fold, everyone!

Small business owners have things to do with their days--like, say, running their businesses--besides following the politics and policy of the health care reform debate to the minutest details. So while it's understandable that, as both Business Week reports and Entrepreneur reports, small business owners hate the health care status quo (since it's awful generally and bad for small business in particular), at the same time, it's perhaps also not surprising--and not necessarily to their discredit--that many small business owners fear a more complicated system that might emerge, even if it is one that its advocates tell them will make life easier on them.

But we would like to see journalists writing about this cut through the thicket of rhetoric and complicated policies and lay out a few basic facts, and do so with a tone of affirmation rather than pseudo-neutrality. So one author writes, "All of the House and Senate bills include an employer mandate, which most of the groups oppose on the grounds that it amounts to a harsh new tax on small businesses." Well, whether or not you consider the Baucus bill to have a proper mandate--and we don't really--the fact remains that the mandate is most certainly not a "harsh new tax on small business": its costs will mostly be passed on to employees; moreover, the mandate doesn't even apply to most small businesses! The article does mention this, but frames it as though it were a matter of opinion, and just politics as usual: "Small Business Majority says mandates, as proposed in the most recent Senate bill, contain exemptions for up to 87% of small businesses, based on size and revenue." Well, whether Small Business Majority says it or a leprechaun says it, it's a fact. Perhaps reporters should not be afraid to present it as such, and not as the he-said to another side's she-said.

One of the oldest lessons of politics is that the status quo possesses the intrinsic power of inertia: no matter how woefully terrible it is, it is always the default choice. We would expect nothing less than extreme skepticism for efforts to change the way things currently are. But at the same time, we would request nothing less than an open mind, and a willingness to treat facts as facts. As the House and Senate move closer and closer toward a magical single bill, please remember that.

Enjoy your autumn!

Final extension. You now have only six months to comply with Sarbanes-Oxley Section 404. Don't know what that means? Then click on the link. [The Small Business Watchdog]

Pig protection. Some additional H1N1 preparation advice. [Inc.]

AdWords? Is Google's ad right for you? [New York Times]

Web security. A primer. [Small Business Trends]

Recovery success! How some small businesses pulled themselves from brink and are now thriving. [Fortune Small Business]

SIMPLE 401(k)s are called “simple” for obvious reasons: they're easy to establish, relatively inexpensive, and a cinch to maintain.

However, if you want to:
• Not cover practically all employees.
• Make larger contributions.
• Favor owners and highly compensated employees.
• Not have 100% vesting of employer contributions.
• Have the Roth option.
• Allow for plan loans.
• Be able to buy tax-deductible life insurance.
Then you can't go the SIMPLE route. You need a profit-sharing/401(k) plan.

(And yes, it is more complicated to maintain and accordingly more expensive. Retirement planning is a lot like life. It’s a series of trade-offs.)

And there's an important deadline coming up! If you you currently have a SIMPLE but would like a 401(k), you must make that decision and provide notice to employees at least 60 days prior to the start of the calendar year--no later than November 1.

Oh, and a nota bete: A SIMPLE plan can be rolled over to a 401(k) plan after a two-year period that begins on the date when the individual first participated in the SIMPLE. Why should you consider making this switch? Well, you new 401(k) will be: available for loans; not subject to a 10% penalty if withdrawn after age 55 if separation from employment; better protected from creditors; and available for unlimited purchase of insurance.

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.

Must-read article from The Kiplinger Letter on new federal workplace regulations, courtesy the Obama administration, with which small business owners will need to be in compliance. In some cases, these are actually new regulations: a proposed rule from the Equal Employment Opportunity Commission, for example, would expand those groups protected from "discrimination" to include individuals will various physical impairments not currently included. The Occupational Safety and Health Administration is going to try to come up with a specific rule on repetitive-motion injuries--something that would definitely affect plenty of small businesses if and when it comes to pass (and if and when it passes).

More stark and important than all-out new regulations, however, is the more strict enforcement of pre-existing ones. (This is as it should be: new rules should be made by Congress.) The National Labor Relations Board, for example, is going to be, if not totally pro-union, then certainly far more so than it was under the previous administration.

Most of these workplace rules are common sense, and small businesses that are just doing honest work are extremely unlikely ever to run afoul of them. But it still pays to know them well, and to keep abreast of trends in enforcement. And if you're ever unsure, it's usually worth it to speak to a lawyer. The small investment at the preventive stage can head off much larger potential costs later on.

CIT, the beleagured small-business lender, continues its long, zigzagging road toward what still appears to be inexorable insolvency. Its latest strategy, of offering its bondholders the carrot of an out-of-court debt-for-equity swap while threatening the stick of a prepackaged bankruptcy, flailed quite a bit, forcing the early resignation of the company's CEO. CIT responded to the general lack of interest in the deal by making it more favorable to the bondholders.

But fewer saw the latest development: today, famed financier Carl Icahn, himself a CIT bondholder, offered the company a $6 billion loan as an alternative to the options it has been offering. It was unclear, however, whether the offer an earnest attempt at further leverage or a general white-knight saving, or instead a "stunt" to forestall what seems an increasingly inevitable bankruptcy filing.

As the leaves turn, it's also the season of open enrollment: when employees can alter their benefits situation for the coming year. And that applies, also, of course, to the self-employed: whether you're a business of one or of several, now is the time to tinker, if you wish, with your benefits. Thus, though the Washington Post's two recent round-ups of open-enrollment advice is directed at employees, both of them--here's one, here's the other--contain plenty of good advice for small business owners, too.

We'll let you check out the articles for the specifics. But the big story, obviously, is health care. While its future is uncertain, you can bank on the situation in 2010 being, at the least, more or less the same as 2009, only more expensive. (Health care is getting vastly more expensive, even adjusted for inflation, perhaps the main reason why we need comprehensive reform.) And we'd leave you with this bit of advice, from Michelle Singletary's piece: "Don't become so wedded to one plan that you don't even investigate other options. Plans change for the better and for the worse. ... You can't assume that what you had will still be available. I know I've said it before. But I'm saying it again. Please study carefully your open-enrollment materials. This isn't something you should put off."

Since it appears that, month-to-month, Small Business Administration 7(a) loans are actually picking up again, now is a good time to refamiliarize ourselves with just exctly how that program--the SBA's flagship--works. OPEN Forum (published by our sponsor, American Express OPEN) runs a nice primer. We'd encourage you to click on over.

Two important things to remember about 7(a) loans are that they are made by banks and only backed, to varying extents, by the SBA; and that they are only available to small businesses that cannot obtain financing by other means. Of course, as the post points out, that's a thoroughly sensible rule: if the bank will give you financing without the SBA's backing--and therefore without the attendant regulations, oversight, and fees (although thanks to last February's stimulus, fees have been temporarily waived)--then there would be no sense in trying to get government backing anyway.

Sorta big news! Faced with complaints that his administration focused on helping the biggest banks at the expense of smaller ones, as well as homeowners and other worthy recipients of aid (like small businesses), President Barack Obama will propose a diversion of some extant money from the bailout of a year ago to aid small business lending, including through the Small Business Administration. While specifics were not yet forthcoming, it appears that the money would come from the TARP fund--remember that?--and, among others things, would go toward increasing the cap on SBA-backed loans (currently set at $2 million, at least in the case of 7(a) loans).

It seems likely that big winners will be community banks, those locally-focused institutions with assets of under $1 billion. Sheila Bair, the much-admired head of the Federal Deposit Insurance Corp., has lobbied for increased help for these small banks recently, as has the American Bankers Association. Such banks are not only themselves frequently small businesses, but they are a vital lifeline for small businesses as far as credit is concerned, known to take more holistic approaches that finds them being willing to lend where larger financial institutions are not.

“When life deals you lemons, make lemonade,” is the familiar inspiration for many new businessowners. This recession has definitely awakened the entrepreneurial spirit, especially among those who have found themselves unemployed. Starting a business is exciting. But it's also complicated, and nowhere more so than in the tax arena. While competent counsel is crucial to choosing the type of entity that maximizes tax benefits and protects an owner’s personal and professional needs, an understanding of the basic advantages and disadvantages of various corporate structures is helpful. So I hope this helps! (Keep in mind that because of legislative tinkering, our tax universe is always subject to change. )

The Least Costly Choice: Sole Proprietorship or Partnership

Sole proprietorships and partnerships are the least expensive to establish. The potential downside to them is that you can be personally liable for all business debts. So, if your car and home are held in your name, collection can be enforced against these personal assets. Translation: if you have a family, the risks associated with potential liability should be taken seriously.

When operating as a sole proprietor, you and the business are the same. Other than tax returns, sole proprietorships require no formal filings. Business income and losses are reported on the owner’s personal Form 1040, on Schedule C. Profits are taxed to the owner in the year that the business earns them. Business losses may be used to offset income that an owner receives from other sources. The most common sole proprietorship scenario is a self-funded one-person service operation where it’s unlikely a customer will sue. Sole proprietors may also benefit from tax-sheltered retirement programs such as a Keogh plan.

If more than one owner is involved, a partnership is the equivalent option.

Basically, if personal liability is not a concern, a sole proprietorship is likely the best initial choice for a solo entrepreneur; for a duo, a partnership is.

Best for Asset Protection: Limited Liability Company

The limited liability company (“LLC”) is most attractive to those owners seeking to limit their personal liability for business debts, including any judgments. When starting a business, look at the industry, including how many employees are anticipated, to help determine whether the owner may be liable for problems. Tax advantages exist here. For example, federal law allows certain costs associated with employees to be deducted as a business expense. The LLC is attractive where there are several owners because it allows more flexibility so far as distributing the profits and delegating management responsibilities are concerned. The downside is that potential investors may hesitate to become part of an LLC.

Better for Certain Professions: Limited Liability Partnership

Because states vary concerning whether professionals can organize into an LLC, the limited liability partnership ("LLP") comes into play. For example, California prohibits professional LLCs--architects and doctors cannot form one. LLPs offer partners some personal liability comfort, with states varying as to the level of protection. In negligence actions, some state laws restrict liability to just the allegedly negligent partner.

Corporation: Good For Outside Funding

When investors are funding the anticipated new business, a corporation is preferable, because it can issue stock certificates to its owners (which also lets you reward employee loyalty with stock options).

Within the corporation category are “C” or “S” selections. If you are just looking for an umbrella to operate under, the C may prove too costly and time-consuming. The C is typically preferred by venture capitalists, especially if the goal is to be bought out by a public company. The S, a "pass-through" entity--under which profit/loss and deductions are passed through to the shareholders’ tax returns based on their proportional ownership interests--involves more paperwork than LLCs and LLPs. Both the C and S have their own tax consequences.

Consult a Competent Professional!

While fees for attorneys and CPAs vary, consulting with competent professionals before operating is cost-effective in the long-run. States and most localities are hurting for revenue, and the IRS is constantly on the prowl. Being greeted with a notice alleging noncompliance with laws you’ve never even heard of, much less contemplated, is stressful and costly.

To those skeptics who think that competent counsel is an unnecessary start-up expense, I ask you: “Am I willing to pay triple later?”

Susan Berson, a partner at the Banking & Tax Law Group LLP, is the author of The Modern Rules of Personal Finance for Professionals, and other books.

Columnist Rieva Lesonsky notes that February's stimulus had directly helped many small businesses to the tune of many billions of dollars. Specifically, nearly 26% of the money from federal contracts that stem from the additional allocation have gone to small businesses, exceeding the 23% mandate that the government has in the past had some difficulty fulfilling. (As it happens, the stimulus did not contain an additional mandate; rather, the money under it is seen as part of all agency spending, to which the broader mandate applies.)

Lesonsky notes a couple other things. One is that the Defense Department--which usually rates near the bottom among federal agencies as far as small-business procurement stats are concerned, particularly once you cease to call some small Lockheed Martin subsidiary a "small business"--has awarded fully 58% of its stimulus-related contracts to small companies. Cheers to the Pentagon!

The other is that, though the small business numbers are good, the woman-owned small business numbers--which are also subject to specific requirements--are not. 5% of all contracts are supposed to go such firms; only 4% of the stimulus-related ones have. Again, there's no requirement as far as the stimulus contracts particularly are concerned, but certainly that's not a great sign.

Today, President Barack Obama headed out just past the Beltway to Landover, Md.--home of, among other things, FedEx Field, the stadium of perhaps the National Football League's most hapless franchise (Impeach Dan Synder!)--to tout his new plans to help small business (which we first reported on yesterday). Accompanied by Small Business Administration head Karen G. Mills, he declared, "There is still too little credit flowing to our small businesses."

Then, he announced how the federal government will try to help rectify that. Under his proposal, community banks--that is, banks with under $1 billion in assets--may apply for particularly low-cost capital from the government (they'd pay a 3% dividend, instead of the current 5%) if it is as part of a broader plan to increase small-business lending; some credit unions (those that qualify as community development financial institutions, a phenomenon we've looked at before) could also apply. Under his plan, the money for all this will come from last autumn's TARP fund. Additionally, Obama wants to increase the ceiling on SBA-backed loans from the current $2 million to $5 million--$5.5 million for manufacturers. The specific terms of the credit program will be hammered out by the Treasury Department. Raising the SBA loan ceiling, meanwhile, will require legislation.

We very much like the notion of going through the small banks, rather than the big ones, in trying to increase small business credit. (We've actually advocated this for months now.) The wisdom of such a move is confirmed by Fortune Small Business's report that the 22 largest TARP recipients--in other words, the country's biggest banks--have lowered their small-business credit balance by over 3%, or $8 billion, in just the past half-year (!).

As for the question: why this, why now? Robb Mandelbaum has a very intriguing, and persuasive, theory. It has to do with our favorite senator, Olympia Snowe (R-Me.). He notes that the proposal regarding the SBA ceiling closely tracks legislation that Snowe--the ranking member of the Small Business & Entrepreneurship Committee--has already introduced. And Snowe's power has absolutely never been higher: also a member of the Finance Committee, she provided the solitary Republican vote for the famed Baucus Bill, allowing Democrats to boast that the crucial piece of health-care legislation received bipartisan support. “The administration is very, very aware that this is Senator Snowe’s top priority,” a "senior Senate Republican aide" tells Mandelbaum. “We’ve been pushing this with senior White House officials and the SBA."

We very much buy this theory. (Eight months ago, we wrote, "as a moderate Republican in a Senate in which Democrats alone come just short of a filibuster-proof 60 votes, [Snowe] can, if she likes, wield lots of power and get the Democratic Senate leadership and the Democratic president to give her lots of what she wants.") The administration needs Snowe; Snowe wants help for small business; therefore, the administration needs to help small business. The juxtaposition of the Baucus Bill vote and these proposals is about as much of a coincidence as the fact that Obama's pick to head the federal agency that oversees small businesses is, like Snowe, a moderate woman from Maine.

One would think the property tax is one of the more fair taxes, and one of those most neutral regarding whom it taxes. It's easy, for example, to adjust the rate to account for value, both absolute and per-square-foot. However, the New York Times points out, in practice the property tax ends up being the biggest bane neither for big businesses nor for homeowners, but rather for small businesses. And right now--as the recession has left governments scrambling to make up revenue shortfalls--is an especially bad time to be in a bad position vis-a-vis property taxes. It doesn't help that, according to many economists, local governments were overdependent on property taxes to begin with.

There are a couple of reasons why small businesses tend to get hit especially hard here. The interests of small businesses are less effectively represented in these policy decisions are made than are those of big businesses (which never lack for political clout, or the money to buy it) and homeowners (which have the sheer power of numbers, both at the ballot box and when organizationally banded together). Property taxes tend to eat up a bigger chunk of small businesses' tax liability, proportionally, as bigger companies are in a better position to exploit economies of scale. If you're already a chain of sorts, moving or even closing a branch in response to raised property rates, while rarely a fully desirable thing to do, tends not to be make-or-break. But if you're a small business with roots in the neighborhood, moving to a less valuable (and therefore less taxable) location can merely lead to a slightly postponed failure, if it's even an option to begin with.

Local governments looking to tinker with these taxes in order to fund their schools and what-not--not in itself a dishonorable motive, of course--would do well to consider the ramifactions not just on homeowners, who tend to be the biggest political football in this realm, but on the entrepreneurs, who frequently constitute some of the most crucial stitches in the civic fabric.

We tweeted this the other day (what, you don't follow us on Twitter? Why exactly not?), but Business Week's New Entrepreneur blog has inaugurated its Small Business Policy Ticker. Definitely a recommended tool.

The blog's John Tozzi reports briefly on the fruits of the ticker. We were particularly intrigued by this report, put out by none other than the White House, which noted that health-care costs are hitting small firms especially hard: "In one national survey, nearly three-quarters of small businesses that did not offer benefits cited high premiums as the reason. On average, small businesses pay up to 18 percent more than large firms for the same health insurance policy. This is due in part to high broker fees (which can be up to 10 percent of premiums), and health plan administrative costs that are three to four times those in the large group market."

Since President Obama's new plan to increase small-business credit envisions a major role for the community banks--those small, locally-focused institutions wither under $1 billion in assets--it's probably important that we take stock of how those banks are doing. According to the New York Times, they could be doing better! Nearly a hundred banks, most of them quite small, have failed this year. Community banks are falling prey primarily to real estate loans gone sour. "Many analysts say that the now-toxic loans could sink hundreds of small lenders over the next few years and place a significant drag on the economy," the Times reports. (They loaded up on these loans throughout the decade to compensate for a decrease in credit-card business, which in many cases was wrested away by larger banks.) Commercial real-estate losses are supposed to get worse. Large banks are relatively unexposed; small banks are not.

It's worth noting that when we talked to a community banker several months ago, he said that most banks he was aware of were not susceptible to crappy real estate assets. We can only hope. And, given what he's staked on the country's community banks, so can Barack Obama.

While we spend lots of talking about the federal government's plans to help small business, frequently left out of the conversation are the states, and yet more local governments--most of whom, in many senses, actually have more to lose as far as failed small businesses are concerned. For Washington, D.C., small businesses primarily represent jobs; for states, counties, and cities, small businesses represent jobs and a tax base! No wonder, then, that frequently it is the local governments taking the lead in providing stimulus and a safety net to its small businesses.

Entrepreneur's Daily Dose looks at how states have helped, and can help. Partly it's a matter of adopting entrepreneur-friendly policies in order to attract new businesses. Partly it's a matter of adopting credit and stimulus programs in order to beef up statewide demand. But leave it to the more locally-oriented governments to realize that small businesses are hugely important, and not just as abstract entities best represented solely by the number of people they employ.

Get those costumes firmed up for next weekend!

Phony mandate. Robb Mandelbaum launches a further assault on the Baucus bill's dreadful "free rider" provision. [You're The Boss]

It's our party, we can skimp if we want to. Times are still tough, and you know what that means: another year of slimmed-down holiday parties. [MSNBC]

What success begets. "One of the first things she did was divorce her husband, whom she still sees frequently and likes. She just didn't want to stay married." [WaPo]

Innovation will set us free. What all those green shoots are made out of. [The Big Money]

De-emphasizing credit. One blogger comes out against Obama's loan proposals. [The Entrepreneurial Mind]

Over the weekend, the New York Times ran a must-read piece detailing a phenomenon we have noticed many times before: how the dynamics of our health care system put a disproportionately heavy weight on small businesses, such that they have the most to gain from real reform--and the most to lose from a missed opportunity at real reform. Premiums for these companies are set to rise 15% this year, and that's not even unusual. And the damning kicker: "Health insurance bills are also rising for big employers, but because they have more negotiating clout, their increases are generally not as steep." And: "Small businesses, besides having less negotiating leverage than big employers, tend to pay more for the same coverage because they cannot spread the cost of expensive medical conditions or hospitalizations over large numbers of workers." Sounds really fair.

We definitely strongly encourage you to read the whole thing. One theory behind the sharp premium rise--sharp even by the insurance industry's past practices--is that the insurers want to get ahead of the reform that is coming. The proposals embodied in the several bills floating around Capitol Hill are criticized for not doing enough to lower costs. (Many have argued that, if health care reform is driven by two main imperatives--not everyone is insured, and health care is too expensive--than the focus has been on rectifying the former.) President Obama's thoughts on the subject, which we'll get to more comprehensively in a future post, are brought up. Mostly, though, the piece is valuable for illustrating both the severity of the cost crisis and for confirming that small businesses do indeed lie at that crisis's epicenter.

What's the latest with CIT, the small-business lender last seen trying to sell its bondholders on a debt-for-equity swap all while threatening a bankruptcy filing? This week, even as famed financier Carl Icahn continues to try to head off the swap in favor of his own plan of a $6 billion loan, CIT continues to hold fast to its bankruptcy threat. The lender has warned bondholders that failure to accept the swap will result in them returning only six to 37 cents on the dollar on their outstanding loans, a problem that will likely be compounded by a $1 billion fee CIT is likely to owe Goldman Sachs pursuant to the $3 billion emergency loan that CIT secured a few months ago.

This is getting exciting!

Robb Mandelbaum takes a look at the politics surrounding President Obama's new small business lending proposals. As we noted at the time, some of these proposals--most prominently, raising the ceiling on Small Business Administration-backed loans from $2 million to $5 million--will require new federal legislation, with all the committee-jumping and jockeying among both houses of Congress that such a thing entails.

A bill already exists: Obama, without exactly saying so, was effectively putting his weight behind a bill that came from Sen. Olympia Snowe (R-Me.), who is BizBox's favorite senator, and, given her recent support for the Baucus health-care bill in the Finance Committee, is surely among the administration's as well (a fact that is far from coincidental when it comes to Obama's support). Snowe is the ranking member of the Small Business & Entrepreneurship Committee. Its chairwoman, Sen. Mary Landrieu (D-La.), has her own bill, subsequent to Snowe's, which would raise the loan ceiling and also extend the 90% guarantee granted in last February's stimulus, which was scheduled to phase out.

In the House, on the other hand, the small business committee's ranking member, Rep. Sam Graves (R-Mo.), is against Snowe's bill. More intriguingly, and more troublingly so far as the bill's chances go, the chairwoman, Rep. Nydia Velazquez (D-N.Y.--if you live in Williamsburg, Brooklyn, she's your congresswoman), has also expressed a certain cautious skepticism: "Duplicating existing programs or instilling initiatives that only benefit the lenders does nothing to help grow our economy," she argued. (Not a bad point, frankly!)

Politics is the art of the possible. Are Obama's proposals possible? Stay tuned ...

President Obama’s small business lending plan calls for increasing the maximum size of SBA 7(a) and 504 loans to $5 million. It also would increase the limits on micro-loans. The plan would lower rates (the bank’s cost of funds) for small community banks and give them greater ability to access capital--presumably so they can lend money in the communities in which they do business. I won’t criticize the plan as mere rhetoric; not just yet. But I think a look at the relevant precedent gives one cause for the opposite of hope. More profoundly, I think there is a fundamental problem that is damning all of the Obama administration's attempts to help small business: a failure to properly define "small business" in such a way that truly small businesses--the ones most capable of helping the economy at large--are effectively aided.

It is possible that the administration's reduction of fees and increase of guarantees for Small Business Administration loans did improve those loans' position. However, other than that, previous plans to stimulate small business lending were unsuccessful. To wit:

* Early on in its tenure, the administration reduced SBA fees and increased government guarantees to 90%. It also said that the Treasury would buy $15 billion in SBA loans. But the $15 billion came from TARP money, and they couldn’t find that many intermediaries to involve themselves in the transaction for fear that they would then be subject to the government’s new restrictions on salaries and bonuses.

* The America's Recovery Capital microlending program has been an unmitigated failure. While it certainly would help many of the smallest “small businesses” weather this economic crisis, it is hard to find a bank that is actually participating in the program. They can taketh, but they find it hard to giveth some back.

* The TALF program, designed to jump-start the securitization market that is the engine behind bank lending, provided financing to buy credit card, auto loans, student loans, commercial real estate loans, equipment loans, and finally SBA loans off the banks' balance sheets. The actual figures? $21 billion were credit-card loans, $10 billion were auto loans, and a mere $580 million were SBA loans.

As I said before, though I believe that the real problem lies in how small business is defined. The SBA Office of Advocacy has some interesting stats that pertain to the matter, though they do not include the 21 million non-employer firms. Here's my summary:

5.3 million firms employ under 20 people each, and in total they employ 21 million people. Annual payroll for this group was $726 billion.

406,464 firms employ between 20 and 49 people each, and in total they emply 12 million people. Annual payroll for this group was $420 billion.

129,401 firms employ 50 to 99 people each, and in total they employ 9 million people. Annual payroll for this group was $321 billion.

99,534 firms employ 100-999 people each, and in total they employ 24 million people. This segment had annual payroll of $906 billion.

9097 firms employ over 1000 people, and in total they employ over 53 milion people, with annual payroll of $2.4 trillion dollars. More than half of that is from companies that employ over 5,000 people.

From where I am sitting, our government needs to decide where this country and our economy will get the best bang for our bucsk. It is the truly small business owner, the one that employs fewer than 20 people, that will make a difference. There are over five million of these firms across America. If only one quarter of them are each able to employ one additional employee, that would create 1.3 million new jobs, with an average salary of $34,000.

Conversely, the 9097 firms that employ over 1000 people would each need to hire an additional 142 people to have the same impact on employment across America! And it is this size company that seems to be producing the greatest number of across-the-board job losses so devastating to our economic recovery.

I’m not a statistician. But when I hear President Obama speak about increasing the size of SBA 7(a) and 504 loans from $2 million to $5 million, it makes me wonder exactly how HE defines small business, and if there is any hope for economic recovery.

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.

This post was cross-posted, in slightly different form, here.

We've already noted that while contracts stemming from February's stimulus act have gone to a solid number of small businesses generally, woman-owned small businesses in particular are doing less well by it. Now comes this article, from MSNBC.com, detailing how women entrepreneurs continue to feel disheartened about the prospect of landing those federal contracts--5% of which they are legally required to receive--particularly those in the green industry.

Basically, the general problem, of woman-owned businesses not getting their due, is compounded in the green industry because a higher-than-normal percentage of the relevant businesses there are owned by men to begin with. On top of all that, some have not been afraid to mention the d-word: discrimination. What we find bizarre is that it should be so hard to accomplish something that should be (and probably is) so uncontroversial.

Two separate posts--one from Henry Blodget at OPEN Forum (published by our sponsor, American Express OPEN) and one from John Tozzi at The New Entrepreneur--tackle the same phenomenon: the rise in small business bankruptcies. The graph at the bottom of this post (from the OPEN Forum post--the shading indicates where the recession began) shows a clear, and sharp, rise in bankruptcies over the past year. Last month was not the high; May was, and they have fallen off slightly since then. Still, Tozzi warns, it's not uncommon for firms to hold off on filing in the second half of the year, in the hopes of the fourth quarter saving them--so January could well bring new carnage.

Blodget points to the credit crunch and lower consumer spending as the main culprits in this unfortunate trend. And he predicts a continued high rate of filings even as the economy as a whole begins to recover. So Merry Christmas, and Happy Easter too.

Looks like prominent small-business lender CIT--last seen in the throes of a likely imminent bankruptcy filing--will live to fight another day! And not in one of the ways we would have thought. It had been offering its bondholders, whose bonds come due at the end of this month, a debt-for-equity swap, while threatening a prepackaged bankruptcy filing (which, by wiping creditors out to some degree, is not favorable for bondholders). Meanwhile, famed financier Carl Icahn, himself a big CIT bondholder (he says he owns $2 billion worth), was itching to make a $6 billion emergency loan to head off bankruptcy; he said he was also willing to pay CIT's bondholders 60 cents on the dollar to vote down the company's bankruptcy plan, should it have come to that.

But, instead, a different group of CIT's bondholders got together and offered CIT a $4.5 billion emergency loan--presumably to complement the $3 billion one it got a few months ago. CIT accepted it, after having already rejected Icahn's offer, thus staving off a Chapter 11. For now. Will the saga ever end?

Though the main target of President Obama's plan to increase small business lending is, naturally, small businesses--particularly those in need of credit--it appears to be something that would help the community banks, too. After all, they would be permitted to borrow money from the government to make small-business loans more cheaply than before (paying a 3% dividend instead of 5%), which sounds like a pretty good business proposition to us. Yet, Reuters reports (via Inc.), the banks are not biting.

It's not that they feel it's a bum deal on paper (it isn't). Their problems are, one, implied association with the bailout, and the negative publicity that could bring, should they benefit from the program (which is being funded, after all, with money from that original TARP fund). And, two, an old refrain: they simply do not see enough demand for small business credit to justify expanding their activities in the area. (A further complaint is that improving Small Business Administration-backed loans is all well and good, but the extensive paperwork remains a deterrent to applying for them.)

But clearly the main point here is the demand issue. The whole thing is just giving us one more opportunity to question why the administration is so focused on credit when other factors--primarily consumer spending, which can be tinkered with by wise stimulus--seem to be more important to the nation's small businesses.

We've written about this problem--actually, "scandal" is probably a better word--before. But now Kaiser Health News has a new article detailing how woman-owned or -dominated small businesses tend to get hit particularly hard by high health care premiums. The reason is simple: women, particularly under 55, tend to require more health care than men of the same age, primarily due to maternal and infant care. If you think that means it's okay for women to have to pay more, then we suppose you're entitled. But we don't think that makes it okay, and we suspect more people agree with us than with you.

But even if you feel that way, there is simply no good argument for why so-called "gender rating" should apply to small businesses and not to large ones. You see, under current law, insurance companies are banned from gender rating among large-group markets. So if you have 51 employees, you're okay; if you have 50, you're out of luck. Of course, most of the legislation currently circulating on Capitol Hill would change that, and would establish that the small-group market be treated essentially the same as the large-group one. One more reason to hope for reform's success.

Generally, we're big on to-do lists. Short and simple (and easy to read!), they can be very helpful, offering direct bullet-points of instructions worth following. So we're taking a risk here in linking to You're The Boss's ... well, you might call it a don't-do list. In other words, if you do do these things, you're putting your company at risk. So, you know, don't do them.

What we most like about the list is its mix of the big and small, and, for lack of better terms, highbrow and the lowbrow. So, don't understate your vaule when it comes to insurance; and, don't allow your employees who are using company vehicles, or vehicles on company time, to text while driving. Make sure your accountant fills all your needs; and also, use only three-pronged electric cords. Part of being a small business owner is prioritizing. But another part of it is knowing that even the smallest things matter!

We frankly don't know enough about the retail and hospitality industries to pass sure judgment on the Small Business Administration's decision to change its standards so as to allow more, bigger businesses in those industries to claim to be small businesses, and therefore to be eligible for various federal small-business programs (so the Washington Business Journal reports). Maybe office supplies are priced in such a way that stores with $30 million in annual revenue are still small businesses? (Seriously, we really don't know: if you do, please tell us in the comments.)

All that said, color us skeptical of this move. At a time when SBA loan programs are only expanding, and especially at a time when the federal government continues to fail to meet its legally-mandated quota of small-business contracts, now does not strike us as the ideal time to institute radical expansions of the ranks of small businesses.