Posts Tagged ‘Small Business Policy’

Small Business is Too Big to Fail

Saturday, June 12th, 2010
Not So Welcoming in Washington

Not So Welcoming in Washington

The National Small Business Association published “Squandered Opportunities and Misplaced Priorities: Why Small Business is Too Big to Fail”, a report chronicling certain of the largest opportunities Congress and the administration missed in addressing the biggest challenges facing U.S. small businesses.

“There are more than 70 million people in the U.S. who work for, or run a small business – one-third of the voting population in the U.S.,” stated NSBA President Todd McCracken. “Despite that number, and the increased public profile of small business, not enough has been done to actually help small businesses survive the economic downturn.”

NSBA’s campaign, “Small Business: 70 Million Strong…And Voting” educates lawmakers, candidates and the public on the importance of small business to the U.S. economy. In the two years since the campaign was launched, the U.S. economy has plunged into recession, resulting in a new (at least in word, if not deed) recognition of the importance of small businesses to job creation. But speeches have not led to constructive policy.

“Squandered Opportunities and Misplaced Priorities” highlights Washington’s most disappointing failures, including the failure to enact long-term reauthorization of the Small Business Innovation and Research Program, the exclusion of small business credit card accounts from the protections afforded by the CARD legislation; failure to correct the distorted incentives of the estate tax and the failure to ensure fair labor law processes. The report compares the cost of addressing these key small business priorities to the cost of other initiatives of the administration, such as the Troubled Asset Relief Program (TARP) and health-care reform legislation. The cost differential is staggering: $2.9 trillion spent on major initiatives vs. $358 billion, the estimated cost of small business programs called for in pending legislation.

“Despite our very-well earned frustration at these many missteps, NSBA’s small-business members still believe there is a way forward,” stated NSBA Chair Keith Ashmus and co-founding partner at Frantz Ward, LLP in Cleveland, Ohio. “However, more can and must be done—small business will no longer accept rhetoric in the place of action.”

The Single Best Policy Option for the U.S. Treasury in Support of Small Businesses

Wednesday, June 3rd, 2009
Better Than Green Shoots

Better Than Green Shoots

I have written several blog entries on the topic of government policy to unblock the flow of credit to the small business sector. I was motivated to do so by the recent hearing of the U.S. Senate Banking Committee at which small business credit was the topic that absorbed most of the focus of Treasury Secretary Geithner and the Committee members. Clearly their constituents are making known their displeasure with the fact that while small businesses create more than half of all U.S. employment, Wall Street investment banks, whose payrolls were shrinking even prior to the credit crisis, availed themselves of substantial government bailouts, with virtually nothing going to small businesses. Having critiqued the substance of what was discussed at the hearing, I would now like to put forward my own recommendation for a positive policy option.

The U.S. federal government has substantial purchasing power; it is the world’s largest buyer of goods and services. Contracts with the federal government are typically on net thirty day payment terms. Yet the federal government has been stretching out payments to its small business vendors to 140 – 150 days. I have had dealings with this issue as my small business was a bidder for microfinance contracts of the U.S. Agency for International Development. I know that this experience is not unique to me; I travel around the country speaking to small business groups and hear that this is a universal phenomenon. Last June, for example, I spoke at a small business awards luncheon of the Colorado Springs Small Business Development Center. As the Air Force Academy is located in that area, there are many local small businesses that are contractors or sub-contractors to the federal government. Their owners reported to me the same issue of delayed payments, to 140 – 150 days.

This means that small businesses are unwilling creditors, financing interest-free purchases to the federal government for up to five months at a time. If the federal government were to pay its obligations in a timely manner, that could substantially alleviate, but not eliminate, the strain on working capital that many small businesses are experiencing. This would allow small business contractors, in turn, to pay their obligations in a timely manner and would recycle funds in the economy. But wait, you say. We have a credit crisis. The federal government is printing money to monetize its debt. It cannot afford to pay its obligations in time. But it does – selectively. The banks that received TARP aid (Troubled Asset Relief Program) all received their funds within days. Paying small business promptly, as they are contractually obliged to do, for work performed is the best “assistance” that the federal government can provide our sector.

If the U.S. federal government were to pay its small businesses in accordance with the terms and conditions for payment, which are typically net 30 days, we would be playing catch-up with what other governments are doing to support their small business sectors. In Ireland, for example, Fine Gael leaders have proposed a small business rescue package that requires prompt payments to businesses from the government for procurement contracts.