Grow - March/April 2010
The Reality of Recovery
More than a year ago, NFIB opposed the giant stimulus bill. Today, as we feared, the positive effects on small business are negligible. We caught up with five small business owners to find out what happened when they tried to follow the money.
Janet Liao
Business owners remain wary about what the $787 billion stimulus package has done for them—and they have good reason. Although half the dollars from the American Recovery and Reinvestment Act have already been spent, and about 90 percent of the funds will be committed by September 2011, the majority of small business owners have yet to see a single dollar.
According to the Stimulus Package Survey of 1,000 small business owners conducted last September by business intelligence and software provider SAP, only 30 percent of business owners said they benefitted or expect to benefit from the stimulus package. Of those, 7 percent said they benefitted directly as a government contractor, and 14 percent said they benefitted indirectly as a subcontractor.
Recent studies have confirmed the inefficacy. Despite lip service from government officials, who constantly wax philosophical about the importance of small business, the stimulus has done little for that sector. According to a recent report from the Government Accountability Office, almost 85 percent of Recovery Act spending has gone to health, education and training. A January analysis by the Associated Press found that even in the construction industry—a huge outpost for stimulus dollars—the effect on the unemployment rate was virtually nil.
During consideration of the stimulus, NFIB proposed the payroll tax (FICA) be eliminated for a specified period. The rationale was as simple then as it is now: Cutting the payroll tax puts more cash directly in the hands of businesses and consumers, who are likely to spend rather than save the money. In addition, it lowers employers’ labor costs.
To help small business, NFIB has also been urging Congress to extend the current tax rates, which are set to expire at the end of this year. In addition, NFIB has been pushing a plan to enhance small business expensing for 2010 to provide business owners with an immediate deduction on investments made in their businesses this year.
So where does that leave you now? Well, about $224 billion in stimulus funds is headed toward Social Security, Medicare, Medicaid and other social support programs—but not to business. The remainder of the $787 billion is split between tax benefits (about $288 billion) and contracts, grants and loans (about $275 billion).
When it comes to business spending, three sectors are poised to benefit most: construction, renewable and clean energy, and information technology, says Steve King, partner at Emergent Research, a nonpartisan small business research firm and think tank in Lafayette, Calif.
If your business doesn’t fall directly into one of these categories, it’s possible you can still position yourself to benefit. Larger companies pursuing stimulus contracts need localized services, usually fulfilled by smaller businesses. Opportunity, though, remains elusive.
In the meantime, MyBusiness caught up with five business owners to get a behind-the-scenes look at the brick walls they hit when they tried to snag stimulus money.
Following the money trail
Satellite Laboratory Services, 150 employees,provides lab testing services and related software for dialysis in Redwood City, Calif. Paul Beyer is CEO and Maryann McLaughlin heads Satellite’s efforts to snag stimulus funds.
Last Year: The recession didn’t have a negative impact on Paul Beyer’s business because of the necessity of dialysis. In fact, Satellite’s operating costs have dropped because of lower fuel prices, and because vendors like FedEx had to slash prices to stay competitive during the recession.
Recovery Strategy: Beyer says he was initially hopeful for a piece of the $20 million in stimulus funds allocated toward healthcare IT projects, but he is increasingly disappointed by how difficult it has been to find contracting opportunities. “We’ve spent at least 80 hours looking on Recovery.gov and Grants.gov, reaching out to our congresswoman and talking to other people who are in the electronic healthcare business,” says Maryann McLaughlin. The company’s software streamlines reporting and ordering for healthcare facilities.
What’s Next: Satellite’s efforts to engage its congresswoman have yet to yield leads. “Stimulus money seems to be hard to come by unless you’re in construction,” Beyer says. “We have run into brick wall after brick wall.” Despite being disappointed that it’s hard to find information, he says he’ll keep looking—up to a certain point. “It has got to be easy to figure out how to navigate the system to get funds, because if it’s so complex, then it’s not worth the hassle.”
Networking for leads
Jones, McAden & Associates is a veteran-owned public relations firm specializing in association management, meeting planning and public affairs in Columbia, S.C., with three employees.
Last Year: Owner and NFIB member Joe Jones says he hasn’t “chased” government contracts in years, but as his business clients took hits, so did his firm. “It became evident that we needed to look for additional revenue that we haven’t pursued,” he says.
Recovery Strategy: Last year, Jones learned that nearby Savannah River Nuclear Solutions had been awarded a $1.4 billion contract from the U.S. Department of Energy to clean up radioactive waste. Jones’ major clients are engineering associations, and he was eager to find out if his company could provide public relations services to the contractors hired for the project.
To find out more, Jones attended a day-long Recovery Act Small Business Forum last November in Augusta, Ga., an event co-sponsored by the DOE and Savannah River Nuclear Solutions. Jones was among 200 vendors eager to find work and network with recruiters. Procurement officials showed Jones how to bid for federal work through the Central Contractor Registration System, the primary gateway for stimulus and other contracting opportunities.
What’s Next: Jones says he was told that most engineering firms have in-house staffs for PR work. “But I haven’t given up, and if they match me with a job they’ll give me a call,” he says. Nevertheless, Jones says he is disappointed there is nothing more proactive he can do. “I was thinking that maybe I could realize the advantage of being a partially disabled veteran. Most speakers at the seminar pushed small business, which I was, and veterans, which I am. Their whole pitch was, ‘We want to get money into small business,’ but it hasn’t come [to my company] yet.” In the meantime, Jones is focusing on marketing his business in other sectors and, as advised, following up with the buyers he met at the forum.
Looking for loans
Allan Griff is a consulting engineer in El Cerrito, Calif.
Last Year: Allan Griff has been in the plastics extrusion industry—providing factory troubleshooting, in-house training and legal advising—since 1955. The downturn has not treated him well. In 2009, a top client folded under credit pressure, still owing him more than $75,000. On top of that, Griff often works on a fee-for-service model, making cash flow a challenge because clients pay only when the service is complete.
Recovery Strategy: Griff considered taking advantage of the American Recovery Capital program, part of the $730 million in recovery funds the U.S. Small Business Administration received. The ARC program offers deferred-payment loans of up to $35,000, backed 100 percent by the SBA. Griff says an ARC loan would help him make payments on an existing loan and free up time to find other revenue streams. The stimulus also includes provisions to help small businesses get SBA-guaranteed 7(a) and 504 loans by temporarily waiving application fees and guaranteeing up to 90 percent on some types of 7(a) loans.
What’s Next: Griff is still in discussions with lenders to find ways to take advantage of stimulus loans. “After inquiring further, I discovered that the ARC loan process was lengthy—several months—and I need help sooner than that.” At 76, Griff hasn’t given up on the idea of applying for an ARC loan, but has had to spend much of his time on what he calls “faster-responding options,” such as increasing efforts to market his business via e-mail and online webinars.
On hold until the dust settles
Company Flowers is a floral design studio and gift shop in Arlington, Va., with 10 full- and part-time employees.
Last Year: Co-owners John and Marnie Nicholson initially planned to take advantage of a tax write-off to invest in a new computer system to help the studio better communicate with its service providers, deliverymen and partners. But as sales declined, the couple, who are NFIB members, had to postpone the upgrade, despite the added tax benefits. The couple cut two part-time employees from their staff and spent more than $50,000 of their retirement money to meet payroll. “Turning capital into others’ salaries leaves a bad taste in one’s mouth, even if for a good cause,” says John. “If it weren’t for our retirement fund,” the company would be in even more dire shape, he says.
Recovery Strategy: John has tried to get a business loan, but he has not had much success—largely because the shop has posted losses for the past two years. “Any SBA-type loan won’t work, because we don’t have much collateral, other than flowers that die in four days,” John says. “Instead, we have to borrow on credit cards, and our 12 credit card accounts have all been cut back so we cannot add debt without a struggle if we wanted to.”
What’s Next: John is critical of the recovery policies coming out of Washington, D.C., and is uncertain that they’ll have a positive effect on his small business. “Even if I could show a profit, the lenders will be influenced by the amount of credit card debt outstanding. And of course our credit rating has suffered because the credit card bankers cut back our lines to virtually nothing, which means it looks like we borrowed to the limits,” he says. He worries, too, about lingering uncertainty and weak consumer confidence. Until the economy recovers, the couple plans to quickly sell off as much existing inventory as they can.
Last Year: The past year and a half has been difficult for NFIB member Alan Wiessner, whose business sells mostly to community banks and credit unions that are not privy to Troubled Asset Relief Program funds. After the banking industry plunged in late 2008, Integra took a hit. Wiessner reduced manager salaries and cut marketing expenses and business travel. “I have to find ways to develop new business opportunities while not realizing the gains until well into the 2010 calendar year,” he says.
Lobbying for a change
Integra Business Systems is a software development firm founded in 1988, specializing in electronic content management for financial institutions and the financial services industry in Safety Harbor, Fla., with 27 employees.
Recovery Strategy: Wiessner, whose company produces green banking software to advance paperless offices, says he’s open to servicing companies that secure stimulus money in the areas of renewable and clean energy and information technology. “We can aid any business burdened by regulatory guidelines and reduce costs at the same time.” For his own business, though, he’d rather see tax breaks and incentives—not direct stimulus funds.
What’s Next: Until Wiessner finds a more defined stimulus-related opportunity for his business, he remains critical about the program. Instead, he believes, a payroll tax holiday for small business or a flat tax on individuals and businesses would offer a break to employers and employees. “Many startups are sole proprietors, and they are taxed both as an employer and employee,” he says. ”If you have to tax, tax money that I have already earned—income tax—and not payroll taxes, which are levied whether you make money or you don’t.” Wiessner hopes that if the government approves additional provisions to stimulate the economy, they include tax incentives which will encourage business in the high-tech corridor—in particular, software companies—rather than granting stimulus money to Wall Street and big businesses like auto makers.