Tag Archives: banks

Federally Funded Small Business Financial Port in a Storm

Business Financing, Entrepreneurship, , , ,

Bridge financing? A few thousand dollars just to tide us over? I’ve been there, and, in fact, I’ve been there to the tune of $65,000 in credit card debt, which is definitely not the best way to do it.

So I’m noticing today that the US Small Business Administration (SBA) is making good on a promise with the announcement of details for what I call its “port in a storm” program, alias ARC loans, meaning up to $35,000 in deferred payment debt for small companies with 1.) a problem; and 2.) a foreseeable future way out of that problem.

How much will it help? Diana Ransom calls it Financial Help for a Few Lucky Shops in her Wall Street Journal Smart Money column.

Beginning on June 15, the agency will begin doling out 10,000 deferred-payment loans of up to $35,000 to small businesses that are struggling to stay afloat.

The most interesting number in that statement is 10,000. On one hand, that’s a drop in a 24-million-small-businesses bucket. On the other hand, though, traditionally only a few small businesses actually find their way through the banking maze into the helpful programs of the SBA.

To get the real info, click here to go straight to the SBA’s page announcing the program. You’ll see fairly quickly there that ARC stands for American Recovery Capital; and, more important, this is for “viable” companies:

viable small businesses facing immediate financial hardship to help ride out the current uncertain economic times and return to profitability.

In her WSJ piece, Diana lists pros (no fees, no interest, deferred payments, and extra cash flow) and cons of the program. The cons start with the limited number of loans, then add some doubt about banks being happy to participate, and then the real heart of it, eligibility:

Businesses are required to show that they were either profitable or maintained a positive cash flow in at least one of the past two years. A business also needs to demonstrate — via quarterly cash flow projections — its ability to meet current and future debt obligations, including future repayment of the ARC Loan.

So eligibility goes straight to the catch 22 of bank financing, which has always been there, and probably will always be there: banks aren’t allowed to take risks. Don’t be hard on them, it’s banking law, to protect the depositors’ money, but still, an important truth: If your company really, really needs the money, then you’re probably not eligible.

Pendulum Swings Against Business. And Banks. And Bonuses

Current Affairs, Economics, , , , , , ,

Two Very Important Sentences:

Fred Wilson of AVC posted my favorite line from the president’s press conference yesterday; and the whole post — brilliant blogging, in my opinion — was this simple quote:

At the same time, the rest of us can’t afford to demonize every investor or entrepreneur who seeks to make a profit. That drive is what has always fueled our prosperity, and it is what will ultimately get these banks lending and our economy moving once more.

Good point. Thanks Fred, and thanks Mr. President. Somebody should say it.

A Catch 22 on Banks

Talk about on again — off again — on again:

  1. They wrote all those banking laws back in the first great depression when banks were caught speculating with depositors’ money. So banks weren’t allowed to invest in, say, a good business plan. Instead, they had to have collateral. The world wanted banks to play it safe.
  2. Then in the great boom days of the last 10-15 years, banks were set free and they started using “yoopeee” as their philosophy of loan management. And we loved it. We said “Yoopee” too. That is, until they crashed and burned. And got bailed out with our money.
  3. Now there’s a credit crunch and we want the banks to lend again. So do I. But do we want them to make bad loans, or risky loans? Isn’t that what got us into this mess.

And How Did Bonus Become a Bad Word?

OK I know the answer; anybody who hasn’t been living in a cave knows how bonuses got a bad name: excess and greed in large business. Bailouts and bankruptcies and lavish bonuses don’t go together. Thank you, big business, thank you, big banks, and, specifically, AIG; but they’re not alone.

But what about the rest of us, in small business, where a bonus is a reward for a job well done? Where people get an extra month or two of salary if — and only if — the company makes a profit? Bonus isn’t a bad word, or shouldn’t be. No profits, then no bonus.

This isn’t lavish excess. This is sharing profits, working and thinking as a team. And it’s a good thing, not a bad thing.