Finally, someone has started noticing the importance and impact of small businesses on the economy!
I do not know if any of my messages to the White House, through the special Web site for change that President Obama set up from early on, had an influence on yesterday’s announcement on the government setting up a program to help small businesses, but the main thing is that someone finally noticed!
Even though they are called “small businesses”, there is nothing small about them. My previous posts and available statistics demonstrate clearly that small businesses are the engine of the economy. The President’s message reiterated that 99.7% of all businesses are small businesses, and 70% of all new jobs of the pas decade have been created by small businesses!
The financial help that has been announced was in the form of assistance to the secondary market. What this means is that it is going to free more funds to finance small ventures. However, this does not mean a free ticket for someone to improvise and try her hand at starting a business without being prepared. Anyone undertaking a new venture should be well prepared, and that is what the Whiz Biz in Changing Times is helping you with. But here is an overview of the most immediate action this plan should have.
At the moment, certain community banks provide financial assistance to small businesses in the form of loans. They have a certain amount of money at their disposal to do so. Once they have used up this fund, there is none left for any new loan.
A percentage of each loan is guaranteed by the government. What the bank does is bundle up that proportion of small loans (1) into a bigger bundle (2) that can then be sold to a larger financial institution (3).
This larger institution does not normally get involve with small loans, because there is not enough money to be made on them. You see, it is as much trouble doing the work for a $50,000 loan as it is for a $5,000,000 loan. But the profit is not the same. However, buying larger loans (2) does make sense for them and they do not mind that it is a bunch of smaller loans. This, in turn, frees money (4) for the community bank to offer more loans (5).
What the government wants to do is increase the guarantee and various conditions, so the community banks can sell a higher proportion of loans to the secondary market, freeing more funds to finance new small businesses. They also want to see a decrease in fees charged by banks for those loans and for other business services.
As President Obama said, making things easier for small entrepreneurs will allow more people to say “Why not me? Let me try!” And isn’t it uplifting to learn be told by the President of our country that we are limited only by our willingness to take a chance?
This BLOG is brought to you by www.WhizVentures.com and is originally published by Danielle Vallee at http://blog.whizventures.com
