Posts Tagged ‘Unemployment’

Anonymous Banker: Consumers – It’s Time to Go Shopping

Monday, December 21st, 2009

If we are looking to see any meaningful improvement in overall employment in 2010,  we’ll need to boost our spending during this holiday season. 

Consider this:  Following the dismal sales results of the Christmas 2008 shopping season,  2.1 million people lost their jobs in the first quarter of 2009.   

While it’s true that unemployment dropped from 10.2% in October to 10% in November, these results are skewed.  First, there has been an increase in the number of people that are perceived as having “left the job force”, those that haven’t looked for work for the last four weeks.  Second, there was a rise in the number of folks that secured “temporary” employment, which typically always goes up during the Chrismas season.  

Wall Street will put their usual positive spin on increased sales that will be realized by some companies.  But it’s not hard for a Best Buy to pick up market share in the wake of Circuit City closing its doors.  So one won’t always be able to gauge the movement towards economic recovery by individual store results.   

And as we hear announcements comparing this season’s cumulative totals to last years, remember, it won’t be hard to show positive results over December 2008 numbers.   

Consumer confidence is at an all time low.  Yet consumer spending drives 70% of our economy.  Those still employed are worried about losing their jobs.  Many are worried about losing their homes.  Folks are dealing with increase in heating, water and electric costs, while gas prices continue to sneak up.  They’ve been battered by the banking industry’s unrelenting rise in their credit card rates and the slashing of their credit lines.  None of these things will encourage Christmas spending this season.

Still, in this season of giving, please remember that our holiday spending has the power to jump-start 2010.   We need to send a signal to business owners and managers that we are confident that better times are upon us and that we are confident in our nation’s ability to recover.  Consumer spending is the best way to send that message.  And it’s the only thing that will encourage the creation of new jobs early-on in 2010.

To those that are still feeling blessed in these challenging times, embrace the spirit of Christmas.  Buy a toy for the child of a neighbor that is unemployed.  Put together a basket of food and leave it at their doorstep.  For those of us that are less fortunate, donate some time to a local soup kitchen serving others.  If ever there was a time to do this, the time is now.

My heartfelt wishes to you all for a very Merry Christmas and blessings for the New Year.

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Anonymous Banker: It’s time for our leaders to redefine the term “Small Business”

Thursday, October 22nd, 2009

I consider myself a small business banker. In that role, I’ve dealt with start-up companies with, initially, zero revenue to companies with revenue of $160 Million.  I’ve worked for relatively few banks over the last thirty+ years, and the “small business market” has been defined by the industry in various ways. 

Most banks define small business lending by the dollar size of the loan, regardless of the revenue size of the company.  Small Business loans  typically fall under the $3 Million dollar mark for term financing and $1 Million for working capital.    Once a company’s  borrowing needs exceed those limits, both the company and the bank are best served by reassigning that account to the bank’s middle-market group.  Above that is Corporate and Institutional Lending.

While it’s not a hard and fast rule, most Small Businesses  typically have working capital needs under $500,000.  Loans under $100,000 are the hardest to underwrite because there usually isn’t much in the way of collateral for the bank to wrap their arms around and often significantly less historical data on which to measure performance. 

 The SBA defines Small Business by industry type, and sets a revenue size and/or size by number of employees  that a company can be and yet still qualify as a small business for Federal Government programs.  If you review this chart, you will see clearly how they define Small Business and what your business size needs to be to qualify for SBA loans or government contracts.     

The US Senate Committee on Small Business and Entrepreneurship’s website says that

“America’s 27 million small businesses are the nation’s engine of growth, pumping almost a trillion dollars into the economy each year, creating two-thirds of all new jobs annually and making up more than half the U.S. workforce.  I invite you to explore this site and discover what we are doing to promote and protect our nation’s innovators and job creators.”

Today, President Obama gave a presentation describing his commitment to Small Business and outlining his plans to improve lending to the Small Business Sector.

“Over the past decade and a half, America’s small businesses have created 65 percent of all new jobs in the country.  More than half of all Americans, working in the private sector, are either employed by a small business or own one.  These companies are the engine of job growth in America.  They fuel our prosperity and that’s why they have to be at the forefront of our recovery.”

 Here, Here!!!!

Obama’s newest plan calls for increasing the size of SBA 7a and 504 loans to $5 Million.  It also calls for increasing the limits on micro-loans, although I noticed that he didn’t place any dollar value to that plan.  The plan will lower rates (the bank’s cost of funds) for small community banks and provide them with greater ability to access capital.  This last, presumably to be able to lend money in the communities in which they do business.

I won’t criticize the plan as more rhetoric, just yet.  However, in my book, the prior plans to stimulate small business lending, to be kind, were unsuccessful and I don’t hold out much hope for President Obama’s newest plan either. 

  1. The Financial Stability Plan reduced SBA fees and increased government guarantees to 90%.  It also said that the Treasury would buy $15 Billion dollars in SBA loans that were newly issued by the banks.  But the $15 Billion came from TARP money and they couldn’t find an intermediary to involve themselves in the transaction for fear that they would then be subject to the the government’s new restrictions on salaries and bonuses.
  2. The ARC program has been an unmitigated failure.  While it certainly would help many of the small “small businesses” weather this economic crisis, its hard to find a bank that is participating in the program.  Most of them are “big” banks who simply don’t want to allocate any of their resources to the administration required on these credits.  They can take, but they find it hard to give some back.
  3. The TALF program, designed to jumpstart the securitization market which is the engine behind bank lending, provided financing to buy credit card, auto loans, student loans, commercial real estate loans, equipment loans and yes, SBA loans off the balance sheets of the banks.  $21 Billion were credit cards, $10 Billion were auto loans and a mere $580 Million were SBA loans.

I believe that part of the problem lies in how Small Business is defined.  There are some interesting statistics out by the Small Business Administration, Office of Advocacy, based on data provided by the US Census Bureau.  and a chart depicting how small business is segmented into 25 class sizes, by number of employees.  This does not include the other 21 million non-employer firms. 

 The chart that breaks out the 25 class sizes is from 2006.  I’d love to see the SBA present some updated information.  Additionally, you need to examine it quite carefully, for in its very presentation, it is deceptive. 

 Here’s my summary, which excludes the 21 million non-employer firms and farm workers.

 5.3 million firms employ under 20 people each, and in total they employ 21 million people.   Annual payroll for this group was $726 Billion.

 406,464 firms employ between 20 and 49 people each, and in total they emply 12 million people.  Annual payroll for this group was $420 Billion.

 129,401 firms employ 50 to 99 people each, and in total they employ 9 million people. Annual Payroll for this group was $321 Billion.

 99,534 firms employ 100-999 people each, and in total they employ 24 million people.  This segment had annual payroll of $906 Billion.

 9097  firms employ over 1000 people and in total they employ  over 53 milion people with annual payroll of $2.4 Trillion dollars.  More than half of that is from companies that employ over 5,000 people. 

 From where I am sitting, our government needs to decide where this country and our economy will get the best bang for our buck.  It is the truly small business owner, the one that employ less than 20 people that will make a difference.  There are over FIVE MILLION of these firms across America.  If only one quarter of them are each able to employ one additional employee that would create 1.3 million new jobs.  These folks have an average salary of $34,000.  The heart of mainstream America.

Conversely,  the 9097 firms that employ over 1000 people would each need to hire an additional 142 people to have the same impact on employment across America.  And it is this size company that seems to be producing the greatest number of cross-the-board job losses so devastating to our economic recovery.

I’m not a statistician.  There are better people than me qualified to evaluate these numbers.  But when I hear President Obama  speak about increasing the size of SBA 7a and 504 loans from $2 Million to $5 Million, it makes me wonder exactly how HE defines Small Business and if there is any hope for economic recovery.

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