Friday, February 20, 2009

Economic Stimulus for small business

This is slightly off topic, but somewhat relevant.

I am concerned about our economy in the coming years, and the direction it's heading. One way I feel Obama can help turn this around is instead of "handouts" or tax breaks which does very little but (in my opinion) gets us more of the same thing that got us into trouble in the first place....spending without real production increase. We need to focus on value creation...not wealth creation.

Instead of handouts, why not inject 10 to 100 billion of zero interest LOANS to the banking system that is specifically set aside for lending for small business and start ups. These are loans TO the banks...this means, the bank has to be left holding the bag if they underwrite bad loans. The money is then lent out to small businesses at a low 1 to 3%. Should the business fail...the money is still owed by the person taking out the everyone has a risk and stake in the game. No "free money".

The reason I suggest giving the money to the banking system instead of having the "SBA" handle the loans is because in my opinion, private institutions are a lot more efficient and better at handling this than bureaucracies government institutions are known for. Banks have existing infrastructures for loan underwriting and servicing, and the 1-3% mark up is their profit and payment for underwriting the loans. It is still (in my opinion) a lot cheaper than rebuilding the infrastructure for the SBA to support this program. The banks are also the ones at risk as they still owe the government the money if the loans go bad.

Small business is what America was founded on. The land of opportunity. Anyone with the will, fortitude and persistence can start their own company and have as much a chance as anyone. Small business is where there are huge opportunity for job creation and value creation. We should go back to actually making things and selling them (as oppose to mostly being consumers of things as we currently are).

With money made available to small business and start ups, these new companies will be hiring people, invest in computers, buying capital assets and other things that will genuinely stimulate the economy.

Some people may argue "but 95% of small businesses fail within their first 5 years?" That's because the people quoting this are not looking at the statistics with deep introspection. While it is true that many small businesses fail, many people have half baked business plans, lack of capital, and sometimes register companies and not follow through.

As part of this "small business stimulus" package, we should also boost up small business education programs and business reviews. These are often provided by local Chambers of Commerce. In Oregon, we have SCORE - a great resource for anyone wanting to get help starting their own company. These types of organizations can dramatically increase the chance of success for many would be entrepreneurs.

Look, even in the WORST case scenario...even if these ventures is no worse than the government giving free handouts to average citizens (as it currently propose to do anyway)....but at least to people who are doing the best they can to further themselves and our country by starting their own company.

I don't have all the answers and possible angles of this idea...but it's just an idea that seems to make a whole lot more sense than what's currently proposed.

Would love to hear your input.

1 comment:

  1. I completely agree. The government should really emphasize on the small businesses and entrepreneurs rather than handing out free money. Plus these small businesses are the one who can solve your un-employment concerns.