Obtaining a Small Business Loan Should Become Easier

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President Obama and Treasury Secretary Geithner’s March 16th announcement of plans to “Unlock Credit for Small Business” should have a very positive impact on small business lending in the U.S. Specifically, they have temporarily increased the Small Business Administration 7(a) loan program guarantees from 75% to 90% of the loan value, as the lower percentages had not been large enough to give banks the confidence they need to lend. As most small business owners realize the first time they apply for a small business loan, the SBA is not the actual lender, there still needs to be a lending institution that is willing to take them on as a credit risk. This recent action by the Obama administration shifts more of that risk to Uncle Sam, and should have a very favorable impact on how lending institutions view the risk-return of small business loans, increasing the flow of credit to this essential part of the U.S. economy.

Q4 ’08 Venture Capital Fundraising Drops to $3.3 Billion

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According to the National Venture Capital Association, 43 Venture Capital funds raised $3.4 billion in the fourth quarter of 2008, down sharply from both the previous quarter amount of $8.4 billion, and the fourth quarter of 2007 ($11.7 billion). Mark Heesen, president of the NVCA, said he expects the slowdown to continue well into 2009, until economic conditions improve, and institutional investors can “recommit with confidence.”

How Does Your Company’s Profitability Stack Up?

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Suppose you are a retailer with $600,000 annual sales, what would be a normal amount to expect to achieve in annual gross profit? In net profit? Inc. Magazine’s November issue includes a profitability calculator, based on surveys of key financial metrics for 19 different industries by Sageworks, in partnership with Inc Magazine. The retailer mentioned above would have annual gross profit of $192,000 and net profit of $16,200, based on typical gross profit margins and net profit margins for retailers of 32% and 2.7% respectively. For those interested in a survey of private company profitability with even more granular data, and willing to pay for it, try Annual Statement Studies, published by the Risk Management Association.

How Does Your Company’s Profitability Stack Up?

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Suppose you are a retailer with $600,000 annual sales, what would be a normal amount to expect to achieve in annual gross profit? In net profit? Inc. Magazine’s November issue includes a profitability calculator, based on surveys of key financial metrics for 19 different industries by Sageworks, in partnership with Inc Magazine. The retailer mentioned above would have annual gross profit of $192,000 and net profit of $16,200, based on typical gross profit margins and net profit margins for retailers of 32% and 2.7% respectively. For those interested in a survey of private company profitability with even more granular data, and willing to pay for it, try Annual Statement Studies, published by the Risk Management Association.

Financial Bail-Out News Quiz

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It’s been a momentous two weeks of business news, leading to the Federal Bail-Out bill being signed into law yesterday, October 3, 2008. How many of the following news quiz questions can you answer correctly?

1. How much is provided for in the Federal Bail-out bill?
a. $7 billion
b. $70 billion
c. $700 billion
d. $7 trillion

2. What department of government will have primary responsibility for administering the bailout?
a. Treasury
b. Interior
c. Federal Reserve
d. Homeland Security

3. What did the stock market (i.e., Dow Jones index) do the day that the bailout bill was signed into law?
a. Up 778 points
b. Down 778 points
c. Up 157 points
d. Down 157 points

4. What unfavorable economic news was reported the same day as the bail-out bill was signed into law?
a. Record U.S. trade deficit
b. Oil prices back up to $120/bbl
c. Very unfavorable jobs report
d. U.S. economy officially in recession

5. Which financial institution was not offered a Federal bail-out in time to avert its bankruptcy?
a. Freddie Mac
b. Fannie Mae
c. Lehman Brothers
d. AIG

6. Which politician made a speech in March of this year “tracing the sub-prime crisis to lax oversight, and calling for a major overhaul of regulatory policy?”
a. George W. Bush
b. Barack Obama
c. John McCain
d. Michael Bloomberg

7. What led General Electric to sell $3 billion of convertible, 10% preferred stock to Warren Buffet?

8. What accounting provision, in conjunction with the sub-prime crisis, has led to weaker bank balance sheets?
a. Accounts receivable aging
b. Accelerated depreciation
c. Pooling of interest
d. Mark to Market

9. Which perk was not rolled into the bail-out bill that Congress eventually approved?
a. Extended mortgage forgiveness for homeowners
b. New/extended tax credits to promote reduced energy
c. Increased tax credits for real estate developers
d. Middle-class protection from alternative minimum tax


10. For each of the acquired, or to-be-acquired banks (a, b, c, d), match it to an acquiror, choosing from 1, 2, 3, or 4. (This one is tricky!)

a. Merrill Lynch
b. Washington Mutual
c. Countrywide Financial
d. Wachovia

1. Citigroup
2. Wells Fargo
3. Bank of America
4. J. P. Morgan Chase

Congratulations to Drew Keeling, of Kusnacht, Switzerland, for being the first to get back to me with correct answers to all 10 questions:

1. c
2. a
3. d
4. c
5. c
6. b
7. to strengthen its balance sheet
8. d
9. c
10. 2d, 3a, 3c, 4b