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Rescue for Small Business?

Posted by: Amy Barrett on September 29, 2008

As the debate about the now-stalled government bailout continues, supporters continue to argue the plan is critical to the health of small business in this country. So what’s actually in the package for small companies? Very little.

Certainly the legislation, if it can be salvaged, may help free up the credit markets, improving the odds of success for small companies looking to borrow from a bank. And small banks do get some help in the bill in the form of a more favorable tax treatment of the losses they took from holding stock in the housing giants Fannie Mae and Freddie Mac. But when it comes to broad steps to improve the flow of credit to, or health of, America’s small companies, there is nothing significant in the bill to get excited about.

Jere Glover, executive director of the non-profit Small Business Technology Council and former chief counsel for the Office of Advocacy at the Small Business Administration, argues that is a real problem. Glover puts it this way:

When Wall Street gets a cold, small business gets terminal pneumonia. We hear all the politicians say small business is the engine that drives the economy. Somebody has to focus on that issue and make sure that credit is available to keep existing firms in business and to grow the new firms. I'm concerned that the small business lending crunch will become a crisis very quickly.

So what does Glover propose? He contends the SBA should take steps to jumpstart the pace of SBA-backed loan originations, in particular by waiving fees on those 7(a) loans. And he says a special discount window should be established at the Federal Reserve specifically to provide liquidity to banks for small business lending. Glover says such a move was proposed during the Clinton years but never enacted.

With the Dow plummeting and widespread concern about the health of the nation's financial system growing, Glover's prediction of a crunch becoming a crisis becomes more likely. Hopefully some of the future debate will focus on small business--and not just on Wall Street.

Reader Comments

Carol Eblen

September 30, 2008 02:05 PM

I believe that much of the talk and subsidy of the very "small business" as represented by retail franchises in our economy IS actually a SUBSIDY of big business.

The SBA already subsidizes BIG franchisors and big banking by granting guaranteed loans to prospective franchisees through special lenders who service the franchisors on the SBA Franchise

When we talk about Small Business, don't we have to separate out franchisees, who really don't own a small business of their own but are instead owned under contract by a big or a small franchisor --who may be a BIG or a Small business.

The securitization of franchise royalties means that the big franchisors get to play in the big security markets and any subsidy of small business operations that will come out of this "bailout" will be a subsidy of BIG franchising which is possible because of the investment of the small business person in a franchise, and a loan to buy the franchise that is often guaranteed by the SBA.

It is unfortunate that the SBA software programs have not been very successful in separating out franchise small business loans from independent small business loans, or defaults on franchises from defaults on independent loans.

Thus, we cannot actually determine how large a subsidy has been given to BIG franchisors and small "startup franchisors" who dominate the retail sector of the economy.

But, when the government bails out or subsidizes small business in this country, the government IS subsidizing big business franchisors on Wall Street.

Big Franchisors, and all franchisors, have reduced the risk and the expense of owning hard assets. They have avoided the responsiblity of being employers because they don't own the small businesses that wear their brand names and produce the system gross sales, royalties, P&L, that they own absolutely under contract.

Government has depended on Big Franchising and Small Franchising to help stimulate the economy during Recessions. I'm sure Big Franchising and Little Franchising will be helped by the Bailout. I'm not sure the really independent little businesses will get the same treatment by the banks and lenders.


September 30, 2008 04:17 PM

Being able to get credit is certainly is something to get very excited about, if the alternative is not being able to get credit and going belly-up. Having customers who have money to spend is also worth getting very exciting when the alternative is having none, and again, going belly-up. The "let's have another great depression" crowd just cannot seem to grasp the importance of credit to this economy. Our economy works on credit. Take away the credit and it won't work. If you don't believe me go ahead and kill the next rescue effort and I'll see you in the soup lines.


September 30, 2008 10:54 PM

I'm glad to see someone is taking up the fight for small businesses. I've not heard a single candidate speak of small businesses over the last few months. Small businesses are the backbone of our society.

M.C. Nygard

October 1, 2008 02:49 PM

$700 Billion Bailout?! No way!
It's time to pay back the debt to restore our country and Democrats are the only one who can do it!
Remember that under the Democratic leadership of President Clinton we had ther longest period of peace-time economic expansion in American history -- the Democrats balanced the budget and a reported federal surplus! Today America's debt is over $9 trillion (which means each American owes $31,642*).
Do not allow Republicans to pass the $700 billion bailout plan. Think about your future. Social Security is a $608 billion annual program. The Republicans want to sink deeper in debt. Enough is enough.

Things you can do:
1. Vote for the Democratic party in November!
2. Pay off your credit card balances.
3. Use debit for all your purchases.
4. Invest in strong companies like Wells Fargo.


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