WASHINGTON – Maryland small businesses are skeptical that a new federal plan expected to be signed by the president soon, will actually provide the fix they need to hire workers and grow.
The Small Business and Credit Act of 2010, passed Sept. 16 in the Senate, creates a $30 billion fund that could be leveraged into $300 billion in lending to small businesses through community banks. It also offers another $12 billion in tax breaks for small businesses, including temporarily increasing the capital gains tax exclusion from 50 percent to 100 percent and allowing for a write-off of health insurance costs for 2010.
“We think that there will be community banks that will take advantage of it and small businesses that will take advantage of it,” Sen. Ben Cardin, D-Md., said. But, he added “we didn’t put all our eggs in one basket,” referring to the other provisions in the bill that aim to stimulate lending: The bill also increases the amount that can be loaned through the Small Business Administration and funnels an additional $1.5 billion into state lending programs.
“Is this the right thing to fix small businesses? The answer is no,” said Christian Dorsey of the Economic Policy Institute. While he doesn’t completely object to the plan, “it’s low cost and has some benefit,” it’s not addressing the main problem, he said: Many small businesses are suffering from a lack of customers and an injection of capital won’t change that.
“This is going to help businesses whose only problem is access to loans,” he said.
But Bemi Lakew, owner of Faith Flowers and Gifts in Hyattsville, said increased lending could translate to more customers and increased sales because it would allow for more inventory and lower prices. And that could translate into increased hiring.
“All of these things are a chain,” she said.
While other small business owners agree that increased lending would help, they fear that the bill won’t deliver.
“It sounds good,” said Charlotte Scott, owner of The Crab Place, an online seafood store based in Crisfield. But Scott thinks it will still be hard to access the money through community banks.
“Community banks tend to know people on a personal level, but that’s not necessarily going to solve it either. Banks are risk averse and entrepreneurs have to take risks,” she said.
“It’s difficult for the government to be effective with giving money to small businesses in my experience,” Scott said. Instead, she said, the government should give small businesses more breathing room in the beginning. “Tax them lightly.”
“Well, I think it’s a great idea,” said Joanne Saltzberg, CEO of Women Entrepreneurs of Baltimore. But she is also concerned about small businesses being able to access the money through community banks. “It’s always a good thing to get capital infusions into small businesses. Is this program going to be able to deliver?”
Non-profit micro-lending organizations might have been a better solution to the delivery question, Saltzberg said, because they “are more realistic on borrower requirements…They’re not throwing out all their standards. They’re more real world about the standards for the small business community right now.”
The bill does include a provision for a three-year pilot program where non-profit intermediaries can make $200,000 loans to small businesses.
Many have compared the bill to the often criticized Troubled Asset Relief Program.
“This is really designed to deal with the deficiencies from TARP,” Economic Policy Institute’s Dorsey said, adding that the description of the Small Business and Credit Act as “TARP-lite” “is probably fair.”
“TARP was eaten up by the big boys and there was very little that trickled down,” Dorsey said, which may explain some of the skepticism from the small business community. ProPublica reported that 20 banks in Maryland received a total of $458 million in TARP funds.
“They’re saying this is separate from TARP,” Saltzberg said. After TARP and the recovery act, “the big complaint from the small business community is ‘The money’s there. We can’t access it.’
“In the end a program’s only as good as it’s accessibility,” she said.
While Cardin disagreed that the comparison to TARP was relevant, he said “It’s been extremely difficult for small businesses to get the financing they need. There’s money sitting on the sidelines.” The money for the Small Business and Credit Act will be monitored, he said, to make sure small businesses have access.