Craig G. Francis

Free Market Rejection?

More of the media are picking up on one of the major flaws of the recently passed Small Business Jobs Bill - the $30 billion no one wants. Or to be more precise, the money that, as the Christian Science Monitor puts it, the free market is rejecting. As guest blogger Jeff Cornwall points out, there is a fear among some community banks that not only will this money come with chains attached (forget about just “strings”), but that once the banks take it they will be “encouraged” to once again make loans to overly risky prospects. Does this sound familiar? It’s the same government strategy that helped get us into the home loan mess in the first place.

Small businesses are primarily concerned with surviving the current Recession - which, in spite of the government’s insistence, did not end for most people in the summer of 2009. Yes, there are still businesses out there that are looking for credit, but many of them are simply trying to put off the inevitable by taking out emergency loans. More useful for the credit-worthy businesses out there were the short-term and permanent changes to the SBA loan programs. We already had something that was working for credit-worthy businesses, it’s just too bad that it took so long to renew it.

For any small business out there that has good credit, decent income, collateral, and a reason to expand, this is a time to move. The floodgates have already opened on SBA loan applications that had been held up waiting for the renewal of the guarantee increases and fee reductions. Banks that have money to lend will be more willing to work with these companies in order to show that they are not just “sitting” on their funds. If they choose to take advantage of the $30 billion pot, they will want to lend that money to businesses they consider good risks rather than having the government tell them whom they should lend to. I strongly encourage business owners to talk to an expert before they decide to apply for any loan - sometimes borrowed money is not what you need. If you contact me at SBALoanStore.com, I will provide you with two complimentary reports in addition to some straight talk about your needs.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722

SBA Increases, Good; $30 Billion Loan Program...

There was good news this week when the House approved its own version of the Senate’s Small Business Jobs Bill. President Obama has already indicated that he will sign it early next week, and then the floodgates should open for SBA loans once again. However not everyone is enthusiastic about the complete bill, especially the $30 billion community bank loan program that was the center of both the bill and the debate about it.

One of the biggest disappointments about the bill was that it lumped the very successful SBA Loan Program in with what many Republican Senators called “TARP Junior.” Had there been a stand-alone bill extending the SBA program, it might very well have passed sooner - which would have provided the very aid that many lawmakers professed to support. As it is, we will have the next three months to push through needed financing before the extension of the increased loan guarantees and lower fees end again. What will not run out, though, is the increase in lending limits for SBA loans, from $2 million to $5 million. This will be a huge benefit for qualifying businesses.

It is interesting to see what is already coming out regarding the centerpiece of the legislation. In an article carried in Bloomberg Businessweek, AP business writer Pallavi Gogoi reported that the enthusiasm for the community bank loan program appears tepid at best. Several bankers indicated that they already have enough capital to lend; what they lack are qualified customers who want to borrow. Others fear the possibility of regulations attached to any money from the program. As Triumph Bank, Memphis, CEO William Chase put it, the bank didn’t want the government as a regulator and a partner at the same time. Chase also pointed out that, although there are not currently the same draconian regulations as in TARP, rules can always be changed.

At the same time, demand from small businesses for credit has dropped because of the drop in business most are experiencing. In a recent survey by the National Federation of Independent Businesses, only 4% of small business owners contacted indicated that a lack of financing was their number one concern. The number of businesses planning to spend capital on projects was also at a 35-year low. The primary concern of most small business owners is keeping enough income flowing to remain in business until the economy strengthens.

One other element of the bill, tax breaks, seems to be less advantageous as they would seem. For example, retailers and restaurant owners would receive breaks if they remodeled or built new locations. However the majority of restaurants and retail locations are just working to keep their heads at sea level. They are not looking to put money into a facility that might not provide a return on the investment before they go out of business. Tax breaks for major purchases of equipment such as computers and vehicles will likely be more beneficial to large businesses that have the resources to do this, not to struggling small businesses. Finally, a provision to allow small business owners to write off health care expenses from self-employment taxes is good, but it only applies to 2010 taxes. With the expected changes from Obamacare, an extension beyond the current tax year would have been a major benefit to small business owners.

After $3,400,000,000,000 (Trillion) in stimulus funding that does not appears to have done a bit of good for the business community, real estate, and unemployment, I view this $30,000,000,000 (Billion) as coming very late in the game and with some hooks that will not help the banks or businesses. I am exceptionally skeptical of a government that waits 18 months to help the real economic engine, the small business owners.  My skepticism is based on the formula that concludes; this is too little too late.

But I also know that business owners are enormously optimistic, a little crazy in a good way, and risk takers par excellence.  My 30 years in this field tells me that a little SBA funding can go along way.  FedEx, Apple, Compaq, AOL, and many other major public firms got their start with SBA loans. So  like my business brethren, I hold out hope that we will muddle past this rough patch, start a few million businesses, create 8-10,000,000 new jobs, and be back to the races.

These changes to the SBA program are a vote of confidence in my mind. Not just because the Obama administration and his pack of collectivists think it is politically expedient to ram this bill through in hopes of garnering a few votes to save their political party. The three main benefits of these programs are the reduction in loan fees to near zero, a 90% guaranty on 7(a) loans, and a $5,000,000 well for guaranty authority for those businesses brave enough to dive into the deep end of the loan pool.  Call this the law of unintended consequences, but this might be a good way to show business owners the government is finally serious about helping Small Street after bailing out Wall Street.  We can only hope.

But if you read the last 3 or 4 blogs, you know I will be skeptical until I see results on Main Streets, not just at 1600 Pennsylvania Ave., Washington, D.C. I have my finger on the pulse of everything that happens to businesses, and that pulse is still weak.

So where does this leave us? With too much time wasted when SBA loans could have made real impacts for companies and with relatively little time left before the extended guarantees run out again. But while they last, now is the time to move forward if you have thought about an SBA-guaranteed loan. Your first step, if you have not done so already, is to speak with someone who can explain how a 7(a) or 504 loan could benefit your company. Contact me at SBALoanStore.com and receive two complimentary reports, along with a chance to discuss your business needs.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722

The 2011 Depreciation - Help or Hindrance?

President Barak Obama has proposed another way to “help” small businesses, what amounts to an accelerated depreciation program for non-real estate investments, but is it really going to make a difference? This is a temporary tax benefit that lasts only for 2011. Supposedly this will help a business, but the entrepreneur does not exist in a vacuum. It takes real money to invest in equipment and business infrastructure. It is only through these types of investments that the business owner can garner the depreciation write-off; but again, only for 2011. As I mentioned in a previous post, a closer analysis shows this one-time break actually does nothing long-term to help businesses. And now Scott Shane, professor at Case Western Reserve University, is also questioning the benefits in an article in the Bloomberg Businessreport.

Any large investment must yield return on capital and productivity boosts for years in the future. In other words, the purchase of a piece of equipment must produce a long-term benefit greater than the final cost of that equipment. If the business owner is considering spending the cash they have been 'hoarding' - or saving, while they try to calculate the costs due to the multitude of new regulations promulgated by this administration - they may conclude the risk is too great if the returns are not substantive and sustainable for a large part of the equipment's life span. They will then decide to continue to hold on to their money in the face of the new health care bills, cap and trade, employee costs and the effects of the new financing bill, while at the same time trying to figure out if they can get financing to build their own businesses.

Professor Shane points out, rightly, that business are already able to depreciate these investments over 3-20 year periods already. Is it worth it to a business to put all that deduction up front, especially when most businesses are currently losing money or barely getting by? Besides, as he so rightly points out, very few businesses make large-capital investments simply for tax reasons. They invest because they see a long-term return on the money from increased productivity, higher sales, or increased profits. Besides, they can already deduct the first $250,000 already, and this will increase to $500,000 for 2010 and 2011 under the new jobs bill.

Of course, there is also the issue of the huge tax increases that will take place in 2011.  So if a business owner does try to make a go of it into the 2011-2015 time period and buy equipment, they face the effects of these taxes one year after the temporary benefits of the one-time write off.  It takes years to pay off equipment and recover its costs through productivity, just as it takes years from employees to reach their optimal skill levels.  Getting a quick fix of write offs is not going to induce a business owner into a false sense of security that he will keep the majority of rewards from his hard work and investment.

What would be the best way to spur small businesses and improve the economy? As we have already seen twice during this economic malaise - in both 2008 and 2009 - accelerated depreciation is not the answer. Professor Shane suggests, and I concur, that keeping the current tax structure and NOT allowing the expiration of tax breaks for those making more than $250,000 would go farther to improving our situation than any artificial “breaks.” This was explained exceptionally well by Kevin Hassett and Alan Viard of the American Enterprise Institute in an opinion piece in the Wall Street Journal earlier this month.

If anyone is going to bring us out of the current economic crisis, it will be the small business owners and entrepreneurs who have an amazing belief in themselves and in the free market system. And there is good news for these people with the movement of the Senate’s version of the Small Business Jobs Bill, with its extension of the higher SBA Loan guarantees. If you are an entrepreneur or small business owner and you would like to learn more about how an SBA Loan can help you move forward, contact me and we can go into the details.

 

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722

A Closer Look at President Obama's Ohio Speech

If  you want to analyze something about the content of President Barak Obama’s Ohio speech, savor this: President Obama seems to be intent on demonizing the upper 3% (read top income/wealthy of the US). He also insists that the middle class, those making $250,000 or less, will get tax cuts. Where? When? Those making less than $250,000 a year are working class people, 60% of whom own stocks. Stocks produce dividends and capital gains. The taxes on those are slated to go up to 39% and 20% respectively. Marginal income tax rates will increase at least 10% as well. That is not a tax cut. Obama is trying to get the middle class to ignore this obvious truth by excoriating and demonizing the richest 3%.

It seems that Obama can't stand rich people, because his heart and soul are devoted to the 'poor downtrodden people' who got him elected. What he is emotionally and psychologically unable to embrace is that top 3% consists of two types of people - those who benefit the economy and those who take advantage of its opportunities.  

The first 50% or so of people targeted for his wrath are the entrepreneurs and business owners.  Obama tries to talk a good story about his short-term tax reductions when he knows full well that the marginal tax brackets will go to 50-60% on this entrepreneurial class; the class that accounts for 85-95% of all new, good-paying jobs.

He stated that a person making over $250,000 a year will have to fork over a considerably greater amount of his or her income once they breach this income barrier.  Even though taxes will still increase for income levels lower than $250,000, the onus of this burden falls heaviest on this business group.

And they will NOT sign up for this suicide pact of wealth redistribution, even with the offer of a supposed tax break through an Obama plan for tax benefits through accelerated depreciation. The problem with this proposal is that the benefit applies only to 2011, after which everything returns to where it was. If businesses are unable to realize the full potential of the qualifying equipment purchases by the time 2012 rolls around, and they won’t, the full brunt of old and new taxes will likely put them farther behind.

Business owners will not work that much harder just to end up sending 50-60% of their income to the feds and another 10% to the bankrupt states. If their temporary reprieve from these massive tax increases lapses in 2012, just when their productive investments begin to produce significant increases in taxable earnings, their efforts will be penalized within one year by the excruciatingly heavy taxes. This cycle of taxation will not end well for entrepreneurs and they know it.

The second 50% of that infamous top 3% are the millionaires and billionaires that Obama mentions with scorn and derision in his tone of voice. As he said, we will even give them a tax break up to $250,000 but after that we will take much more. What the president seems to ignore is that these wealthy people are very capable of getting their income off the radar. They can hire attorneys and CPAs by the droves to protect their hard-earned wealth.  Don't you suppose that on the long, hard road to building 7, 8, or 9-figure wealth - and generally paying 50% of their income to taxes - they have figured out how to avoid the worst of the tax-and-spenders in government?  To them, Obama is just one in a long line of Presidents and politicians who want to separate them from their money. But all the while, as tax increases loom in the near future, these same people are going to sequester their money, reduce their taxable income ,and absolutely refuse to put their wealth into the business-building ventures that made them wealthy in the first place. (And, likewise, which would benefit the overall economy.) If a person is worth $50,000,000 and makes 5% or $2,500,000, they live well.  If they move their funds to tax-free municipal bond funds and make 3% return (6% post-taxable) they have not lost "one thin dime' of spendable income.

Their money is safe. Their taxable income will probably drop substantially, depriving the Federal government of taxable income, while they wait out this collectivist rabble in the White House.  It is axiomatic that when tax rates are reduced and capital gains taxes are dropped, the government revenues increase 30-50%  This has been proven true at least 5 times in the last 100 years.

But this is not why President Obama wants more taxes from the wealthiest 3%  He knows full well, just like the rest of the tax-oriented politicians, that progressive redistributive tax rates are designed to separate the wealthy from their money and hand it out to the 'mooch class,' now numbering 1 of 6 Americans. This is the focus of his hatred of the wealthy and productive people in this country - they have money and the ‘mooch class’ does not, and it is the ‘mooch class’ that votes for him and his policies. He made it clear that his presidency would 'fundamentally transform America.' What did that mean? We are seeing it in full with the most restrictive and redistributive policies since FDR and Woodrow Wilson, the poster children of the Progressive movement.

Welcome to the New Age.

 

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722