Over Stimulated

It has been too long since my last post and I apologize for my absence. I’ve been real busy at work and much of my time hasn’t been as productive as I would like it to be. A major reason is because of the American Recovery and Reinvestment Act passed by Congress last February, which is often referred to as the “Stimulus Bill.”

My problem is not with the American Recovery and Reinvestment Act. The President of the United States and the members of Congress should be given kudos for their efforts to take an active role in trying to get our economy on the right course. While no legislation is perfect, I am not going to waste one ounce of energy noting where this bill falls short of meeting the needs of small businesses. There are still plenty of positive programs that are coming out of this piece of legislation; some have already been implemented and some programs are still under development.

My challenge has been the volume of phone calls that have been coming to my office from both existing and aspiring small business owners who want to know what is in the stimulus package for them. More specifically, I have been getting a number of requests for grants that may be available to businesses from the “stimulus money.” Frankly, I am over stimulated with these requests!

I’ve actually taken the time to read the portion of the American Recovery and Reinvestment Act that relates to the Small Business Administration (it is just one section of a very large piece of legislation). No where in that legislation does it say that grants are being made available directly to for profit businesses. It has been a long standing policy of the US Small Business Administration not to offer grants to for profit enterprises. See this link: http://www.sba.gov/services/financialassistance/grants/index.html

Unfortunately for me, this gets lost on many existing and prospective small business owners. They still call up our office seeking their “stimulus money.” I then explain the programs of which I have been informed. When they find out that there is no free money available, some just hang up, while others give me an explanation why they are more deserving of government money than those “big investment banks that were bailed out.” While I may not disagree with them, I didn't write this legislation. Still, I try to be tactful in my responses and I can honestly say that the same courtesy has not been extended to me.

I understand that many small businesses are facing challenges in this economy. Yet I have said this before and I will say it again; no matter what the state of the economy may be, there will always be challenges for small businesses. The responsibility of dealing with those challenges falls squarely on the shoulders of the small business owner who chose to enter the world of self employment. If a business owner is not prepared to accept accountability for the risks of owning a small business, then they should not enter the field of self employment.

The rationale behind the American Recovery and Reinvestment Act is to spur the economy. Business owners who wish to be candidates for some of the programs available need to put together a strong business plan showing likelihood that they can contribute to economic recovery. This simply entails showing a profitable business model. Yet most of the inquiries I am getting are from people who have yet to think through the business planning process. When I tell people that a business plan showing profitability is going to be a requirement to funding, I am often told that “I just don’t have time to do that.”

Many people forget that most of the troubles with our economy stemmed from lenders who did not do proper diligence in ensuring their customers could service their loans. Part of that is not assessing whether clients had contingency plans to pay back their debts, which is a component of any good business plan.

All of the government programs still require working with lenders and whether they received TARP (bailout) money or not, lenders are not going to approve loans without responsible underwriting practices. In other words, banks cannot afford to make more bad loans. So most lenders are paying closer attention to contingencies, or second form of repayment, should the business model not satisfy the debt paymnets. That is where our economy is faced with a slight dilemma. Banks need to make more credit available if our economy is to grow, but banks can't afford to take too much risk.

There are provisions in the American Recovery and Reinvestment Act that will help loosen these credit markets and allow for more investment in small businesses. Still, there is a fine line between loosening credit and irresponsible lending. That is why any loan application that utilizes government resources needs to include a well thought out business plan making a strong case that the business is likely to generate profit, no matter what the state of the economy may be. Like it or not, our government can't take too much risk. The onus is still on the business owner to assume the lion share of risk.

As more small business owners use their creativity to find ways to be more profitable despite the challenges in the marketplace, we will quickly see a recovery. These successes will create a ripple effect on our economy. Spending will increase, more jobs will be created and our economy will become more vibrant.

There are opportunities for those who wish to be a part of the solution to the current economic challenges. All it takes is a good plan and an unending dedication towards profitability. Now is not the time for small business owners to be looking for the government for solutions, but rather to show the government that they can succeed despite any challenges. Perhaps it would help if more people thought about the American Recovery and Reinvestment Act from the perspective of what they will provide in return for the government's assistance. I think of the inspiring words that John F. Kennedy spoke at his inauguration, “And so, my fellow Americans, ask not what your country can do for you; ask what you can do for your country.”