Capital Strategies

Good News for those of you contemplating starting (or buying) a business right now! According to a New York Times article, businesses are NOT more likely to fail during a recession. Yippee! The article says that those started during a recession have just as much chance of survival as ones started in good economic times. Okay so what's the downside? Well, only 48.8 percent of new businesses started are still operating five years later. And from personal experience, I believe this is accurate. So why don't more businesses survive past the five year mark? Here's what I think (and my opinion is based on numerous analysis of small business owners financial situations) - Half the businesses started don't last beyond 5 years because: 1) the owner runs out of funds and can't borrow more. The owner may have a great product or niche but the learning curve in starting and running a business was greater than the cash flow generating ability of the business. 2) the owner is tire...

There is talk from Washington about giving small business owners a “bailout”. This is a step in the right direction. However, some additional thought needs to be undertaken before rushing headlong into approving another non-workable government solution. Here are some key things to remember - the Small Business Administration does not make loans. The SBA provides a guarantee to banks that make the loans. If banks aren't going to change their standards to approve these "rescue loans", then there is no rescue. And I know from personal experience that bankers superimpose their rules over that of the SBA. (I was a commercial banker for over 20 years). Just because the SBA says it’s possible to make a loan a certain way ….it doesn’t mean that bankers will make the loan. And let’s not make the proposed small business bailout a paperwork jungle. The widely touted ARC "America's Recovery Capital" (SBA loan of $35,000 to small business to help them stay curr...