Financial Institutions

The small business dilemma

Dave Kinnear1-On Leadership

Well, the President has been “jawboning” the banks to lend to small businesses. Is that really what small businesses need, more debt? Maybe — money is cheap but . . .
where are the sales? Why take on debt if increased revenues will not be realized?

Several posts on this blog, and the ELC newsletter, have focused what we have heard from the good folks at the Institute for Trend Research (ITR). Among several timely recommendations for business was that this is a good time to expand your business and/or invest in real estate. It seems that we have rarely, if ever, had the conditions we have now – that is depressed prices (and perhaps going lower) with cheap money. However, according to Jan Norman over at the OC Register:

The National Federation of Independent Business issued this statement about the President’s announcement:

“The president’s proposal to increase SBA loans and focus on community banks is appreciated and will help some firms looking for that assistance. However it is not the silver bullet that is going to propel small business owners to start hiring again. The primary problem facing small business owners right now in terms of job creation is not access to credit, it’s a lack of sales, customers and confidence. Small business owners are unlikely to invest in hiring or expanding their businesses when sales and profits are so weak.”

Only 4% say “finance” is their top business problem, according to NFIB’s October survey of small-business owners.

I have to say, that’s not the same story I’m hearing from many business owners. I’m hearing that the banks are “back to their old tricks of lending money only to those folks that don’t need the money.” Lines of Credit are being capped, cut and pulled. Banks are failing and creating problems for business owners. I’m not sure who is out of touch, but things aren’t adding up.

Perhaps a year before going into this recession, I had been warning my business colleagues of the predictions that ITR was making and suggesting that things were going to be “bad.” I developed the reputation of being “Mr. Doom and Gloom,” and so I backed off a little (not much, but a little). The people that listened to ITR shook up their businesses, tightened up the finances, jettisoned poor performing employees and were in pretty good shape when the proverbial fecal matter hit the rotating blades.

Now I am shifting my song – again based on the folks at ITR who have been uncannily accurate with their forecasts, and very business oriented in their suggestions for “what to do next.” I tend to listen to them and they are saying we are at the bottom and will bounce along here for a while. No “W” and no “V” shaped recovery. It will be a long slow climb out AND now is the time to expand your business.

I guess I’d summarize this advice as very cautious optimism and a very cautious call for investment in the business. ROI still reigns and it’s still important to watch your cash and keep some powder dry for better deals down the road (or more importantly payroll!)

So what’s happening with you? Are you looking to take on more debt to expand your business? Are you willing to invest in business development to generate sales? Are you planning on hiring anytime soon?

If you’re optimistic, or at least more so than a couple of months ago, then you’re in line with what we’re seeing from the Vistage CEO Confidence Index. So now is the time to begin planning how you will thrive in 2010 despite continued unemployment and a slow climb out.