eBook: Impact of the Stimulus Plan on Small Businesses

Since the passage of the stimulus package (officially the American Recovery and Reinvestment Act of 2009) in February, we have been researching how it will impact the small business sector of the U.S. economy. 

The results of our research are included in the recently released free eBook The Stimulus Package: What it Means for Growing Businesses. 

The key finding from our work is the stimulus package will likely create or save roughly 1.6 million small business jobs. 

The eBook also contains:

1.  Noted small business expert Barbara Weltman's review of the dramatic tax law changes and how they will impact small businesses.

2.  Entreworks founder and Small Business Administration expert Erik Pages analysis of the changes at the SBA.

3.  Descriptions of the major spending areas contained in the stimulus package. 

The goal of the eBook is provide small businesses with a reference guide on the impacts of the stimulus package. 

The eBook is produced by the small business information and community site MyVenturepad and SCORE, a non-profit dedicated to educating entrepreneurs and the formation, growth and success of small business nationwide.  The eBook is sponsored by SAP.

There has been a lot of debate on the merits of the stimulus package.  And many feel that small businesses will see little benefit from the package.

But with small businesses employing over half of the private U.S. workforce, it is hard to spend billions of dollars on infrastructure, clean energy, health care, education, etc. without impacting small businesses. 

Comments

[Chuck Blakeman]

This research is co-sponsored by SCORE, a federally funded non-profit. SCORE's existence depends on federal funding and is not about to fund research that shows the government's centralized bailout policies are not working.

So this research has to be looked at as possibly having an agenda. Independent research supports quite a different conclusion, as does the simple math.

$787 billion is going to the stimulus. At last count, the total possible part of this stimulus directed at small business is $730 billion. This is less than 1% of the stimulus for 99.93% of all businesses that contribute over 50% of the national GDP.

And this isn't actually the amount that wil get to an actual small business. The proposed $730 million (it could still be less - early estimates were as low as $26 million) is being given to the government's own Small Business Administration (SBA), which will likely use tens of millions of it to administrate what's left.

There is no statistical way that well less than 1% of the stimulus will create or save around 50% of the proposed "created or saved" jobs. (The administrations use of "create or save" creates enormous fudge room to begin with - no one can prove or refute jobs saved - they can simply make the number up. A responsible government should not make job claims for which there is no possible measurement.)

Read this research, but know where the authors sit before you read their stance.

[Steve]

We don't have an agenda and our work is independent and non-partisan. Yes SCORE is involved, but I see that as a plus.

One of our key goals is to provide small businesses with information for finding business opportunities being created by the stimulus package. SCORE is a excellent partner for distributing this information.

I should also point out that SCORE had no role in the forecast or analysis.

It is important to note that we are looking at the entire package, not just the money allocated to SBA. The entire package includes hundreds of billions in infrastructure and related spending.

The logic behind our forecast is quite simple - spending billions of dollars on construction, clean tech, health care, education, etc. creates opportunities for small businesses.

And since we made the forecast, thousands of stimulus related contracts have been signed and thousands of small businesses have won all or part of those contracts.

For a third party view of this, visit www.propublica.org.

Will all or most small businesses benefit from the package - no. But will a lot of small businesses benefit - yes.

And the more information small businesses have on the stimulus package, the more likely small firms will win their fair share.

Steve

[Chuck Blakeman]

Time to check in again and see how the above pros and cons are working out.

I claimed true small businesses under 20 employees were not going to see anything directly and almost nothing indirectly from the stimulus. SBL claimed that "a lot of small businesses would benefit."

First, the ARC loan - the only loan created in the last 50 years by the SBA that is truly targeted at small businesses (under 20 employees). The $255 million program constituted 1/100th of one percent of the $1.5 trillion doled out in Oct 2008 and Feb. 2009 - the rest went DIRECTLY to big banks, big business, and big government (states, etc.)

Of that miniscule $255 million aimed at the 56% of GDP and 65% of job creation created by small business, $131 still has not been loaned ten months later!

Of the $124 millin that has been loaned, almost all of it has gone to extremely healthy businesses with perfect credit who are laughing all the way from the bank. Karen Mills, head of the SBA, claimed ten months ago that the ARC loan would provide "immediate relief" for "distressed but viable" small businesses. Didn't happen. (FYI - I've worked with hundreds of small biz's and are aware of only three that got the ARC loan - all three were accelerating right through the recession. I myself was rejected solely on the basis of a 758 credit rating - two points from perfect - this was reversed after a series of articles in major magazines by me embarrasing that bank.)

It gets worse. Not only is the direct aid to small business 1/100 of one percent of the pie, not only has only half of the crumb been doled out, and not only has the half of a crumb gone to businesses that largely don't need it, the politicians are now hell-bent on shutting down that program immediately and cutting off everyone involved.

On Monday, Olympia Snowe, the self-proclaimed small business advocate and ranking member of the Senate's small business committee, quietly slipped in place legislation to kill the ARC program IMMEDIATELY and return the remaining $131 million to the treasury, leaving even those who have been approved but have yet to receive the funds high and dry. It's an unconscionable move, but demonstrate as clearly as any action that the politicians are handled by big business.

Snowe's excuse? She claims the projected "60% default rate" is too high. Interesting facts she left out of that sound bite:

1) She knew the projected 56% default rate (her 60% is a self-serving exaggeration) last February and fully support the bill as one of its sponsors.

2) Not a single ARC Loan has come anywhere near default - not one.

3) Almost no "distressed but viable" businesses have received these loans. The bank requirements for this ARC loan have been more stringent than for standard conventional loans (I got offered three of these on the way to being rejected for an ARC loan). If the default rate goes about 5% I'll eat my hat.

Snowe knows all this perfectly well and yet used the bogus default stat as a convenient soundbite. The real fact is that her big bank cronies are getting killed in the court of public opinion and they are putting pressure on her. More importantly, Karen Mills is from Snowe's state of Maine and is whining in her ear about all the bad press she is getting for her own "immediate relief" and "distressed but viable" comments.

And what of the trickle down effect that SBL claimed as the "logic behind our forecast"?. We went from 8% to 10.2% unemployment - that's the only hard statistic we have as to how the stimulus has directly affected small business (small business accounts for 65-70% of all job creation - if job losses are going up, small businesses are not getting the "stimulus" they need to create jobs.)

SBL will likely respond with more anecdotal and theoretical "logic", but the statistics say something quite different. And if we randomly acquired 1,000 anecdotal stories of how the stimulus has affected small business, the negative stories would be very close to 1,000.

Your last comment - "and the more information small businesses have on the stimulus package, the more likely small firms will win their fare ahare" is a deceptive comment.

You aren't giving them the full scope of the information and the information you are giving them doesn't even apply to them.

Example - You said "Will all or most small businesses benefit from the package - no. But will a lot of small businesses benefit - yes." And that is basically the deceptive information you claim will be so helpful. The problem is you define "small business" as 500 or less employess, which is 99.7% of every business in America.

With that broad of a definition of small business, it would be impossible to prove you incorrect, but your study is nothing different than saying - "we have found that some small people, under 7 feet tall, will benefit from the stimulus package."

When those small businesses that SCORE works with read your report that "some small businesses will benefit", they are thinking you mean them - true small businesses. In the case of SCORE counseling - almost all of their interaction is with businesses under 5 employees.

It's totally deceptive to give them a report that researched companies with 500 employees and let them think it applies to them. The SCORE sponsorship is the biggest part of that deception - putting that on the cover just reinforces that you did research for that constituency that you clearly did not.

Do the same report for businesses under 5 employees and then if would make sense to stick the SCORE logo on it. Otherwise it's just political noise and biased research.

[Steve]

Chuck: We've been working on a follow-up to our report on how the stimulus is working. Expect to see some posts on this in the near future.

We've got some survey results and have collected other data. You will like some of what we found - we agree the ARC loans have been failure - and you won't like or agree with other results:).

More after the holidays.

Steve