The question has once again come up: How vital is the role of the federal government in promoting the role of small businesses in America? And specifically, how vital is the Small Business Administration in that promotion? That is what the Wall Street Journal is asking in this latest installment of the Abolish the SBA argument. The SBA’s critics say that the agency’s loans do more harm than good, the article says. The loans go to only a tiny fraction of the small businesses in the country, for example, and help the recipients compete with small businesses that aren’t similarly subsidized. Thus, instead of playing a crucial role in the U.S. economy, the critics say, the agency really is directing resources where the market has determined they aren’t needed. Click here to read more about the argument, including comments from the Abolish SBA movement’s biggest proponent, Veronique de Rugy.
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I'm sure we have all seen CEO Patrick Cox and his TaxMasters commercials by now; after filing bankruptcy this weekend, we may not have to see them anymore.
The Houston-based firm TaxMasters, which had a prominent ad campaign featuring CEO Patrick Cox on numerous cable networks, filed for bankruptcy protection last weekend. The firm had already been facing complaints from the attorneys general of Texas and Minnesota, which accused it of deceptive practices, CNN Money reports.
The first complaint, filed nearly two years ago, brought a slew of consumer accusations against TaxMasters, including unlawfully misleading customers about their service contract terms, failing to disclose its no-refunds policy, and falsely claiming that the firm’s employees would immediately begin work on a case. Sometimes the fact that TaxMasters did not actually start to work on a case until customers paid in full meant that taxpayers missed significant IRS deadlines. The Minnesota complaint filed in December 2010 alleges TaxMasters got customers to pay advance fees of $2,000 to $8,000 by misstating the help it would provide people with unpaid tax bills. In some cases, the company claimed it could reduce people’s tax bills by up to 90%, but then delivered little or no help, according to the complaint, pocketing the non-refundable deposits.
The Better Business Bureau says it has received more than 1,000 complaints about TaxMasters over the course of the last three years. The bankruptcy filing says the firm owes creditors between $1 million and $10 million, and that its assets total $50,000 or less. The creditors include between 1,000 and 5,000 people and businesses. This is the third such tax settlement service to go bankrupt recently, following the demise of Roni Deutch and JK Harris. All three of which had been actively advertising their services.
Read MoreThe Celebrity Worshipers will never learn… Here comes yet another story of ex-professional athletes entering the business world, this time from QSR Magazine. Somebody has to be financing them! “A closer look reveals logical ties between the athlete and the role of quick-service franchisee. There’s the shared risk-reward mindset, a commitment to teamwork, the ability to strategize, and a drive to win,” the article reads. At least they recognize the risk. One attorney interviewed said that athletes are routinely pulled into higher-risk ventures like hospitality and entertainment ventures. He says restaurants with a franchising model are lower-risk and can keep the athlete from crashing. I think this all comes down to the franchisors trying to sugarcoat the numbers so they can ignore the facts, and try to recruit a famous face for their franchise… But hey, that’s just me. Read More and Judge for Yourself.
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UK Chancellor of the Exchequer George Osborne is scheduled to announce the government's latest attempt at credit easing today.
UK Chancellor of the Exchequer George Osborne will launch on Tuesday the government’s latest attempt to remedy the lack of credit available for small businesses, the Wall Street Journal reports.
The funding problem has arisen in the wake of the financial crisis after tighter regulations required banks deleverage and recapitalize, which made them more risk averse and less likely to lend to small businesses.
“The message is a simple one: Britain’s recovery is being imperiled by the parlous state of the very institutions that caused the crisis in the first place,” Business Secretary Vince Cable said in a recent speech, in which he called credit for small firms the “lubrication” of economic growth.
For the past four months, treasury officials have been working on a program that will allow banks to raise up to £20 billion of funding that is guaranteed by the government. The guaranty means the banks can get the money they are lending at a low interest rate because of the UK’s triple-A rating. The difficulty encountered by treasury officials has been finding a balance between making the program as commercially attractive as possible to the banks, while also ensuring it’s economically viable and meets the European Commission’s state-aid rules that are designed to ensure government interventions don’t hamper competition.
Read MoreA government-commissioned taskforce looking to boost alternatives to bank funding recommended last week that Britain should look at creating a body to bundle loans to SMBs and sell them on to investors, Reuters reports. “Access to finance is expected to become more acute as business confidence and growth returns, whilst continuing bank deleveraging is likely to leave a significant funding shortfall,” said taskforce leader Tim Breedon. The report estimated the business sector faces a funding gap of £84 billion to £191 billion ($132 billion to $299 billion) over the next five years, with £26 billion to £59 billion of that shortfall relating to smaller companies. Pooling a large number of loans would give small businesses access to public corporate bond markets, which are usually beyond the reach of most SMBs due to upfront costs and other issues. Other suggestions were to create a single brand and business support agency to streamline to government’s “alphabet soup” of existing programs for business funding. The growth of alternative financing could also be boosted by direct support from the government.
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Another small business proponent speaks out against Dodd-Frank's Section 1071.
“The devil is always in the details,” Paul Gessing writes for the Daily Caller, “Nowhere is this statement truer than in the area of federal legislation. Nowhere are those details more devilish than in Dodd-Frank legislation that was passed in the wake of the 2008 banking and financial crisis.”
Gessing is referring to Section 1071 of the Dodd-Frank Act, an issue we covered in the Coleman Report nearly a month ago. Section 1071 amends the Equal Credit Opportunity Act to require that financial institutions collect and report information concerning credit applications made by women- or minority-owned businesses and by small businesses. Though the intent may be well placed, to ensure fair lending practices, the legislation is still problematic. “In order to ensure that lenders aren’t discriminating against minority groups on price, it will take away lenders’ ability to flex with borrowers, to custom-make loans,” Gessing says, “This will make it impossible for lenders to make the loans their customers need.”
That flexibility is often the selling point for smaller banks versus the big guys. Small businesses rely on flexible lending from small banks to grow. “This growth spurs economic and new business development, but will suffer incalculable harm if Section 1071 of Dodd-Frank becomes effective,” Gessing said.
What do you think? Comment or Post on Coleman’s Small Business Lending Page on LinkedIn.
Read MoreEver since the IFA in Orlando earlier this year, the franchise industry has been overflowing with optimism. Why? Because franchising is expected to grow in 2012 and play an important part in private-sector job creation. After three years of decline, the number of franchise establishments is expected to increase nationally by 1.9% in 2012 – adding 13,928 new locations, a Salt Lake Tribune article reports. A recent report expects the 7.9 million franchise employees number to grow by 168,000 jobs in 2012 and also forecasts that franchises will fuel a 5% growth in economic output this year. Franchises are also expected to increase their 2011 GDP by 4.8%, or an additional $21 billion from 2011’s $439 billion. “Franchising is poised for a modest rebound in 2012,” IFA President and CEO Steve Caldeira said, “So while that’s good news for franchisors and franchisees after three years of declines… the industry could be growing even faster.” Something to keep an eye on as 2012 continues on…
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An Arizona man is charged with misrepresenting his father to obtain SBA loans.
According to Arizona Central, a Scottsdale man who owns several car washes is accused of fraudulently obtaining $3.5 million in SBA loans and of mortgage fraud. Joseph Gagliano plead not guilty to charges last week including bank fraud, wire fraud, and false loan and credit applications. He faces up to 30 years in prison for each count.
According to the indictment, between June 2006 and August 2010, Gagliano falsely represented that his father was applying for loans and loan modifications because Gagliano would be unable to obtain the requested loans and loan modifications for himself. Gagliano submitted, in his father’s name, loan applications and requests to modify loans that contained false information regarding his father’s income, assets, liabilities, and his intent to occupy the properties as his primary residence, the indictment says. Gagliano also allegedly submitted false information to lenders regarding his father’s ownership interest in car wash ventures that Gagliano actually owned.
Gagliano also misrepresented on the SBA loan applications that his father had provided a cash injection into the construction of the carwash, that his had a personal net worth in excess of $1.5 million and assets valued at just under $4 million, and that his father would be the primary on-site manager of the carwash. All in all, Gagliano obtained in excess of $3.5 million in SBA loans, which went into default.
Read MoreABC News is reporting that authorities have found two young children living on their own in an abandoned school bus in Texas. An 11-year old girl and her five-year old brother had lived there alone since the beginning of the year, when their parents went to federal prison for fraud. Officials say the children’s parents conspired to embezzle money from victims of Hurricane Ike in 2008 by assisting them in obtaining a SBA loan for the repairs to the damage the victims’ house sustained during the hurricane. They were charged with conspiracy and plead guilty in June 2011. In January, the father was sentenced to 18 months in prison and the mother received the same term at her sentencing in February. Investigators discovered than an aunt does come in the evenings and stay with the children, but since she works, they are alone during the day. After hours of interviews, Child Protective Services took temporary custody of the brother and sister. They are in foster care now. Click Here to Read More
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One UK Bank is leading the way of financing small businesses in China.
According to Bloomberg, Standard Chartered PLC, the UK’s second largest bank by market value, says it’s lending more to small companies in China than its international rivals, as the government calls on lenders to support entrepreneurs.
The Chinese government has pledged to bolster domestic banks’ financing for small businesses, to curtail defaults that may destabilize the economy. Limits imposed by the government to fight inflation had restricted lending availible to smaller companies, forcing them to turn to non-bank lenders that usually charge higher interest rates.
Loans to China’s small enterprises rose 26% last year to a record 110.8 trillion yuan ($1.71 trillion), more than double the pace of lending to larger companies.
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