Worse yet are the numerous stories of banks coming back around to their small business customers to ‘reevaluate or review’ a loan package or line of credit. The banks have been doing this with regularity over the past year and a half primarily because they have economic jitters (and regulators breathing down their necks) and, the unconditional right to do so. Often times, this activity requires extraordinary amounts of work on the part of the business owners (a major distraction) in order to provide the bank with an updated inventory count or some other form of business valuation, to appease them enough to move their company off the hot seat.

Speaking as a small business owner, it’s especially frustrating to see all of this going on, knowing full well the significant contributions that small businesses make to the US Economy in the two leading areas that determine the health of the economy at large; real GDP (gross domestic product) and net new jobs created. According to the SBA, “small businesses create most of the nation’s new jobs, employ about half of the nation’s private sector workforce, and provide half of the nation’s nonfarm, real gross domestic product…”

So here’s the good news, sort of: HR 5297 – Small Business Jobs and Credit Act of 2010. This SBA bill, sponsored by Rep. Barney Frank of Massachusetts, is big news for small businesses. It passed the House but… we’ll get to that it just a moment.

HR 5297 stands to benefit small business in some big ways. First, it provides a 90% loan guarantee via the SBA, giving the banks the security that they need to make a loan. Compared to the normal 75% guarantee, it can mean the difference between getting the loan or not. Second, there are no fees associated with this loan package. This alone can save a small business tens of thousands of dollars! Third, the loan limit has been increase to $5 Million. The bill also allows businesses with up to $15 Million in net worth to qualify. The previous limit was $8.5 Million. In addition, small businesses with existing SBA loans that have balloon payments coming due can refinance their commercial loans through this program.

Now for the bad news: Politics…need I say more? HR 5297 passed the House of Representatives on June 17^th with 241 in favor, 182 opposed and 9 abstaining. A small margin for sure but, it passed. It has since stalled in the Senate due primarily to a Republican filibuster.

This post is not intended to be a political commentary. It’s my hope that our representatives in the Federal Government will have the good sense and the higher calling to put aside their differences and truly act in the best interest of the people by passing this bill.

Monday, September 13^th is the day Senators head back to Washington after their summer recess. Waiting for them, front and center, will be HR 5297. As you can imagine, there is a lot of energy and anticipation surrounding this particular bill. With all of its attributes and the fact that it could be very profitable for the banks, it stands to be a win-win-win. Small businesses win, they get funded. Banks win, they make profitable loans. Government wins, they serve their constituency, create real GDP and jobs.

The SBA lending community (approved banks) has started to come alive recently and, according to several business owners that I have talked to across the country, banks are now reaching out to their small business customers in order to reopen funding discussions. Presumably, this is in anticipation of the passage of HR 5297.

If you have not heard from your banker recently and you are interested in seeking funding through the SBA, you owe it to yourself to put a call in to him or her and find out what they are doing to prepare for the potential passage of HR 5297. More importantly, you should find out what they can do for your small business specifically.

Karen Dale Gordon was born in 1950 to Ellen R. and Melvin J. Gordon. She is married to Barry Gordon (an attorney), who graduated in ‘72 from Bowdoin College in Biochemistry and Government, got his PhD in biology from Syracuse University (“Cuse – Go Orange”), and got his JD from Columbia Law School in ‘79. He is currently the president of Bowdoin College in Brunswick, Maine. They have 3 sons, William, Henry and George. Karen did her undergraduate work at Harvard in Economics in 1975 and got her MBA from Harvard Business School in 1977.

Karen’s father Melvin J. Gordon (88) has been the Chairman of the Board of Tootsie Roll Industries Inc. since 1962 and serves as its Chief Executive officer. Mr. Gordon serves as the President of HDI Investment Corp., a (Gordon) family investment company. He has been a Director of Tootsie Roll Industries Inc. since 1952. He serves as a Director of HDI Investment Corp.

Karen’s mother Ellen R. Gordon (76) has been President of Tootsie Roll Industries Inc. since 1978 and serves as Chief Operating Officer. Her father William Rubin originally bought the company from its founder, Austrian immigrant Leo Hirschfeld, in 1935. Mrs. Gordon is also a Vice President and Director of HDI Investment Corp. Prior to her election as President, Mrs. Gordon served as Senior Vice President of Tootsie Roll. Mrs. Gordon has been a director of Tootsie Roll Industries Inc. since 1969 and is a Member of the Executive Committee. Mrs. Gordon has been a Director of Unilever – Bestfoods since 1991.

Tootsie Roll Industries is a top 1000 company and has been very good to the Gordons. Mr. & Mrs., have a reported and combined annual income + options of more than 8.4MM.

So, Karen comes from money (or candy), a lot of it. Is it any surprise then that she went into the Venture Capital industry? She has served as President of MMP Group, a private equity investor and advisor since 1993. From 1999 to 2007 she was a founding partner and a managing director of Solera Capital, a late-stage, ‘controlling interest’ VC firm with $250MM+ under management. “Our operating philosophy is to invest about $15-20 million in each deal and take a controlling interest,” noted Mills.” We like to be the capital that comes in to grow the business to the next level – build the next plant, make an acquisition, or expand the brand.” (…and then flip it and get our multiple.)

The media is reporting that Karen has taken a leadership role in the growth of more than 20 companies in the consumer products, food, distribution, textile and industrial component sectors since the mid 1980s. That’s less than 1 (one) deal per year. Not exactly aggressive lending by any stretch of the imagination. We’ll see how (if) that translates to her role with the SBA.

I am very hopeful that Karen can step up and reform a government agency that is in desperate need of leadership. That she can see her way clear to developing conscientious funding policy, developing flexible and easy to access funding for the majority of small businesses, not the sweetheart deals that she is used to working with in her current life.

At this point, the jury is still out on Karen Mills!

Here’s how it works; they (small business) have a sales opportunity but it’s really not what they do. But, the customers or prospect trusts them, perhaps due to a pre-existing relationship. And that prospect or customer really needs whatever “it” is. Rather than saying, “I’m sorry, we don’t do that. But, I’d be happy to help you find someone who does.” Or, “I know exactly who to point you to, let me make a phone call…” The small business decides that there’s an opportunity to make a quick buck, and “it” really isn’t that far-afield…

Well, I think you probably know the rest of the story (thank you Paul Harvey). The small business takes the job and ends up scrambling (i.e., jumping through hoops) to get it done. They don’t really understand what they are doing so the quality isn’t there. They won’t deliver on time and they spent too much money building or delivering “it.”

Net, net…
Net result? A big looser! Not only did they alienate everyone within their own small business, they lost money on the job, (they would know this if they kept track of such things). And most egregious of all, they broke the trust of a customer who may very well tell all her friends and neighbors about what a pathetic job the small business did for her. Don’t even get me started about the social media implecations of such a message getting out about you. That’s called Word Of Mouth and in this case, it’s not good!

I wish I could say this doesn’t happen very often but I can pretty much guarantee that if you are reading this you have either been involved in such a debacle, been on the receiveing end or, you know of one first hand. Solution? Do what you do best and forget the rest! Your customers, your employees and your banker will love you for it!

An easy way to tackle this problem is through the development of a Customer Composite Index (CCI). Your CCI is a detailed list of characteristics that very specifically and succinctly defines your customers. Ask yourself the following questions: who, what, where, when, how and why.

An example of some of these types of questions are; who are our customers, what do they do, where do they live, (in the case of consumer products)? Or, where are they located (in the case of businesses)? Does their location have any significance to the product or service I’m offering? Does how they live have any bearing? What business are they in – product, service, specialty, commodity? What’s their annual income or revenue? How many employees do they have?

Additionally, are there customer personality or lifestyle traits that are important to your business? And, who are their customers? This is especially important, because if you understand their customer’s needs, you truly know what makes them tick! What are their interests and hobbies? I am sure you can come up with many more relevant questions that will help you to define your CCI. The point is, if you know who your customers are, by virtue of your CCI, then you know what you are looking for in a new customer.

If you have trouble with this exercise, visit an existing customer (or five) and ask them these questions. This gives you the opportunity to kill two birds with one stone. 1) You will meet with them and get some face time, for a very legitimate reason. Which means you can continue to build your relationship. 2) In your questioning, you will inevitably communicate your concern through your interest in understanding your customer better. You never know, you may just uncover an unmet need or two that you can convert into a sale!

The plan, which is being referred to as the Public-Private Investment Program, is based on an initial investment of $100 Billion from the treasury, in addition to guarantees by the FDIC, to buy distressed mortgage securities currently on the banks balance sheets.

The impetus of the plan is to get private investors, speculators really, to buy the securities and support them in doing so in an effort to narrow the gap between what banks are willing to sell them at and what the market will bear.

What’s curious about this plan is the apparent role reversal on the part of the banks in this particular case. Everybody knows that you buy low and sell high, especially bankers? These banks are being encouraged (forced…) to clear this debt from their balance sheet.  All of the major banks have received 10’s of Billi0ns of dollars as part of the bail-out. If you read Geithner’s tea leaves it’s clear that what is now required of them is to liquidate these “assets” for a onetime loss and to take the write down!

Ouch! Those just aren’t words that any banker likes to hear much less as it relates to their own assets. The banks’ hoped, apparently, to get the bail-out money (they got it) and then hold onto the depressed assets until the market returned, dump the assets and profit handsomely. Well, it doesn’t look like that’s the way this is going to go.

It will be interesting to see how much arm twisting will need to take place to get the banks to burn this crop in the field order to fertilize it for next season, so-to-speak.

(Excerpts taken from the Wall Street Journal 3/24)