Home Wealth Project

Supporting small business was among the top economic stories of the year, and the rise in lending to those growing companies was the most important development in 2011.

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It’s a story we saw developing since the credit crunch tightened the spigots on funding for small businesses. When the big banks said no, small banks and non-bank lenders increasingly said yes. Over the course of 2011, big banks rejected loan applications about 90 percent of the time. Smaller banks approved nearly half of small business funding requests, while alternative lenders granted approvals more often than not.

Many people ask me, “Who are the alternative lenders?” They are comprised of credit unions, CDFIs, micro lenders and accounts receivable financers.

Credit Unions
A credit union is a cooperative, not-for-profit financial institution owned and controlled by its members. Credit unions are established and operated for the purpose of promoting thrift and providing credit at competitive rates and other financial services to their membership. They are locally focused and lend at reasonable rates, which accounts for their tremendous growth in small business lending in 2011.

Credit unions are becoming more aggressive in soliciting deposits and are seeking to double the 12.5 percent cap on small business lending set by the government. The National Association of Federal Credit Unions (NAFCU) provides a list of its members online.

Community Development Financial Institutions (CDFI)
Community Development Financial Institutions are financing entities that have a primary mission of community development. Established by the Reigle Community Development and Regulatory Improvement Act of 1994, CDFIs are certified by the Treasury Department, which provides funds to them through a variety of programs. Biz2Credit has helped numerous small business owners in New York to get funding from the New York Business Development Corporation (NYBDC).

The organization helps provide term loans to small businesses that sometimes are unable to meet the requirements for traditional financing. In many cases the financing incorporates multiple participations, SBA guarantees, flexible amortization and long-term payouts.

NYBDC also manages the Empire State Certified Development Corporation (“The 504 Company”), which is licensed by the Small Business Administration (SBA) to provide SBA 504 Loans that are designed to stimulate economic development and spur job creation for eligible New York State businesses.

Micro Lenders
Micro lenders provide small loans designed to spur entrepreneurship in economically disadvantaged areas. Often they are granted to women and minority entrepreneurs and to companies that have been established in economic empowerment zones. Often the startup businesses in these neighborhoods are created by individuals who lack collateral or a long credit history and therefore are unable to meet even the most minimal qualifications of traditional creditors.

ACCION USA is a microfinance organization that lends with the mission of empowering business owners with access to working capital and financial education. ACCION offers business loans up to $50,000 and financial education throughout the U.S. and specializes in working with small business owners who cannot borrow from the bank due to business type, a short length of time in business, or an insufficient credit history.

Accounts Receivable (AR) Lenders
Accounts Receivable (AR) financers — often known as “factors” — purchase a company’s accounts receivable, at a discount, to provide them with working capital when they need it. With factoring, financing is provided to the seller of the accounts in the form of a cash “advance,” often 70-85% of the purchase price of the accounts. The balance of the purchase price is paid upon collection, often as a percentage of credit card transactions. Interest rates generally are higher with factoring.

However, the lender is assuming a higher level of risk, which justifies the return. Many times, small business owners who have little or no credit history or who need a lot of money quickly turn to AR financers. In the past few months, my company has connected a number of entrepreneurs with lenders such as Cash Advance Network (CAN), the largest lender in this category.

In November, so-called alternative lenders approved 62 percent of small business funding requests in November, a rise from the 61.8 percent during October, according to the Biz2Credit Small Business Lending Index, an analysis of 1,000 loan applications.

Among alternative lenders, credit unions granted 57 percent of small business funding requests, up from 56.6 percent in October. Meanwhile, loan approvals by small banks were 47 percent in November and approvals by large banks reached 10 percent in November — for the first time since April.

Overall, I believe optimism is returning in the credit marketplace. We have seen a steady increase in loan applications, a good sign for the economy. We can all hope that this momentum in the fourth quarter of 2011 bodes well for the coming year.

Money Story Photo via Shutterstock

Small Business Story of the Year: The Rise of Alternative Lending

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Qaddafi’s Fall, Small Business’s Potential Rise

Aug 31st

Politics aside, the end of Cololnel Qaddafi’s reign in Libya should be good news on the economic front. If oil production rises in post-Qaddafi Libya, oil prices will drop, resulting in lower gasoline and transportation costs for consumers and small business owners. World events don’t always translate so easily into genuine impact for small businesses, but in this case, the end result will likely be positive.

Meanwhile, President Obama is working on a new economic plan. The President has said that a strong economic recovery has to begin with small businesses. Since small businesses (companies with fewer than 100 employees and less than $5 million in annual revenues) are the engine of job creation in the economy, Obama’s reelection prospects in large part depend on how well he stimulates small business growth.

While on Martha’s Vineyard, the President and his economic team were examining options to stimulate the economy, and this week announced some efforts to streamline government regulations designed to create a more “business friendly” atmosphere.

Wisely, the Administration seeks to eliminate misspent tax dollars in every agency of the Federal government. It is refreshing to see Washington behave in the same manner that small business owners do. The stated goal of saving businesses $10 billion over the next five years by reducing waste and simplifying procedures is a good one.

The President has called for an unprecedented government-wide review of regulations already on the books. As a result, more than two dozen agencies identified initiatives to reduce regulatory burdens and save money, and the White House says that these plans reflect feedback it has received from industries, small businesses and individuals from around the country.

For instance, the Department of Labor is finalizing a rule to simplify and to improve hazard warnings for workers, likely saving employers more than $2.5 billion over the next five years without compromising safety. The Defense Department’s 60,000 contractors will soon get paid faster as the agency will implement a system, formerly used only for disadvantaged businesses, that will speed up payments to all small businesses.

Additionally, the Small Business Administration (SBA) is looking to create a single application that will enable small businesses to apply for several loan programs. As co-founder of a company that identified the benefits of streamlining and then automated the loan application process for small business owners more than four years ago, I applaud this measure. It is something that should have happened a while ago.

In a move that should make everyone happy, the IRS will cut 55 million hours in annual paperwork burdens by consolidating reporting requirements and streamlining various tax forms by the end of this year. Additionally, it is widely reported that the President is seeking to extend the payroll tax cut, which is good news for small business owners as they struggle to control costs in this tough economic environment.

America will greatly anticipate the President’s new jobs plan, expected to be unveiled shortly after Labor Day.

Qaddafi’s Fall, Small Business’s Potential Rise

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Small Business News: Social Entrepreneurship on the Rise

Jan 18th

In recognition of Martin Luther King Day, we present a roundup about an important new trend, the rise of social entrepreneurship. Instead of profit, the social entrepreneur seeks social change. But, unlike the social reformer of only a generation ago, the social entrepreneutr goes about accomplishing this change using the tools and precision used in building a for-profit sustainable company. In a sense then, starting one of these new ventures is perhaps less like starting a non-profit organization and more like starting a small business. The product? A better world!

Basics

What is a social entrepreneur? Check John Garger’s definition: “…a change agent who works with missionary zeal to create and sustain social values.” Garger goes on to chart the shape of social entrepreneurship today, from a further definition to a comparison of social and business entrepreneurship, challenges of the social sector and more. Here’s social entrepreneurship 101 in a few digestible paragraphs. Bright Hub

Can social entrepreneurship be taught? One leading university has begun experimenting with teaching about social entrepreneurship in the classroom. Yale has begun instructing business students about the problems faced by social enterprises in the real world. What will be the result of a generation educated in the disciplines, needs and ideas of social entrepreneurship? Beyond Profit

Trends

Business schools embrace the social entrepreneurship ideal. Specifically, beyond simply studying the problems of social entrepreneurs as indicated above, the Kellogg School of Management at Northwestern University announces an $80,000 social entrepreneurship award. The funding will be granted to students proposing a business model addressing social or environmental challenges and will include mentoring opportunities. Stay tuned. Stacy Blackman

The growing trend of social entrepreneurship. Just like traditional entrepreneurship, social entrepreneurship, as an alternative to addressing social needs and challenges, may be gaining momentum not only in academia but among investors and a new generation of philanthropists less willing to hand out money to large foundations and other organizations. The key to success in social entrepreneurship, experts say, is to treat it like a business. National Public Radio

Success Stories

Some social entrepreneurship goals can be simple. In a world of high tech gadgets and gizmos, one opinion piece argues that one of the greatest social achievements still to left to accomplish is to provide this technology to a huge portion of the global population who still have little or no access to the bare necessities. This is the story of one such simple venture. NYTimes.com

Social entrepreneurship focuses on the underserved niche. Take the Excel Center of Indianapolis targeting the very real problem of high school drop outs. Unlike scores of other programs that focus the majority of their energies on keeping kids in school, however, the Excel Center focuses on a very different task, addressing the issue of too many drop outs by getting adults without high school diplomas back into school. Dowser

Resources

Top social entrepreneurship programs. Like top business schools, social entrepreneurship programs of high repute are springing up around the globe. These programs at top schools are a great place for future social entrepreneurs to start in their quest for creating business models that will bring us a better and more just world. Like more traditional business entrepreneurs, social entrepreneurs make change on their own by creating a sustainable model that helps achieve their goals. Beyond Profit

Finance

So, what do social entrepreneurs make? Maybe it seems like an inappropriate question in a business model not necessarily created to make a profit, but then again the concept of social entrepreneurship is about creating sustainable operations. That includes having enough money to pay someone to manage the company and therein lies the problem, because some social entrepreneurs are making little or nothing at all. Social Enterprise Network

Crowdsourcing social entrepreneurship. From small business owners to independent filmmakers, it seems everyone with an idea has jumped on board the crowdsourcing bandwagon. In fact, using crowdsourcing is a trend that should make sense to entrepreneurs since many must first approach those who know and believe in them including family and friends to fund their enterprises. What may be more surprising, is that social entrepreneurship did not latch onto this much sooner. Trailblazers for Good

Global

Promoting social entrepreneurship in Asia. Ashoka: Innovators for the Public announced the opening of an office in Japan this month. The new facility signals the U.S.-based organization’s first permanent presence in Asia. Ashoka has been instrumental in aiding social entrepreneurs the world over and the new headquarters demonstrates another step in that mission. The Japan Times

Small Business News: Social Entrepreneurship on the Rise

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Rise of Google Chrome threatens Internet Explorer, Mozilla

Oct 10th

Posted by Home Wealth Project in General

LONDON: Web browser Google Chrome, which emerged in mid-2008, has hit Internet Explorer hard and stalled the rise of Mozilla Firefox.

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See Profits Rise

Oct 1st

1 comment

See Profits Rise

I still play with toys. In fact my office is pretty much covered with LEGO bricks, action figures, tin robots and the like. And, as you might suspect, I still watch cartoons. I think there’s something about being a cartoonist that requires some sort of perpetual connection to childhood.

One day while shopping for groceries I was drawn to a rack of calendars, one of which was a sort of tribute to the old Dick and Jane books. You know - “See Dick run. Run, Dick, run!” And it hit me that those simple books and their simple sentences were a cultural touchstone that I had yet to poke fun at.

Take that simple sentence, superimpose it onto a business meeting and hopefully laugh, reader. . . laugh.

See Profits Rise

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Health Insurance Costs Rise—But Workers’ Costs Rise More

Sep 15th

Health insurance is on my mind right now because my company is reviewing its policy options. Our premiums are about to rise, and like most small businesses, we’re watching every penny, so we’re trying to figure out where to cut back.

A new study from The Kaiser Family Foundation and the Health Research & Educational Trust shows that we’re not alone. Health insurance premiums have gone up for just about every company—which is nothing new. But what is notable is that employees are shouldering a bigger share of these cost increases than ever before.

“Premiums increased just 5 percent for single coverage and 3 percent for family coverage between 2009 and 2010,” the study reports. “At the same time, workers saw their share of the premiums for single and family coverage grow for the first time in several years.”

“In 2010, covered workers contributed a greater share of the total premium, a notable change from the steady share workers have paid on average over the last decade,” the report continues. “Covered workers on average contribute 19 percent of the total premium for single coverage (up from 17 percent in 2009) and 30 percent for family coverage (up from 27 percent in 2009).”

When you look back further in time, the change is even more dramatic. Between 2000 and 2010, premiums increased an average of 114 percent—but the amount employees contributed increased an average of 147 percent.

Bigger premium contributions aren’t the only change adding to employees’ costs. More companies are enrolling in health insurance plans with higher deductibles. The percentage of workers in a high-deductible health plan with a savings option (HDHP/SO) rose significantly from 8% in 2009 to 13% in 2010.

The report also highlighted some significant differences between large and small firms (small firms were defined as those with 3 to 199 employees, large as having 200 or more workers). Almost half (46 percent) of employees in small firms had a deductible of at least $1,000 for single coverage, compared to 27 percent in large firms. And workers in small firms were more likely to pay 50 percent or more of their premium costs (8 percent, compared to just 1 percent of workers at large firms).

I certainly don’t blame businesses for putting a higher percentage of the burden on employees. Employers responded that in order to keep pace in the economic downturn, they had either increased cost sharing, reduced coverage or increased the amount workers pay (such as copays and deductibles). Those are the same options my partners and I are debating right now.

But one interesting fact stood out to me. Sixty-eight percent of small companies offered insurance—a sizable jump over last year’s figure. The bulk of that jump came from a 13 percent increase in the number of companies with 3 to 9 employees offering insurance. Noting it’s unlikely that that many small companies really added insurance in the middle of an economic downturn, the report’s authors theorize, “A possible explanation is that non-offering firms were more likely to fail during the past year, and the attrition of non-offering firms led to a higher offer rate among surviving firms.”

To me, that points to the importance of health insurance as a benefit for today’s employees. Poll after poll shows the health insurance benefits offered are an important consideration when looking for a new job and an equally vital incentive to keep current staffers. When the economy picks up (and it eventually will) it will get increasingly difficult for you to attract new and retain your current staff if you’re not offering a competitive health coverage policy.

Health Insurance Costs Rise—But Workers’ Costs Rise More

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PaperG’s Flyerboard Adds LATimes, Media News, As Revenues Rise 70% Each Month

Aug 23rd

Posted by Home Wealth Project in General