We are a two weeks away from the July Jobs number and with the pitiful jobs creation in June, one wonders what July will bring. We hear out of the mouths of economists, politicians and CEOs that small businesses that are the job generators in our country. But with regulation and tax uncertainty, what's a small businessman to do?
I asked, Barry Sloane, CEO of Newtek Business Services (NEWT), which has over 100,000 small business clients and is the largest non-bank SBA lender to small to mid-sized businesses, about the health of the small business sector. What's interesting with Newtek is the company keeps its pulse on this market through its SB Authority Index. Its made up of eight indicators: the monthly ADP National Employment Report, monthly Russell Microcap(r) Index, Prime Rate, Retail Sales, Newtek Merchant Processing Volume, SBA Loan Originations (Approved SBA 7A Loan Volume) , GLS Estimated Small Business Loan Default Rate and Delaware NewBusiness Formations.
The Index is up 1.17% from April to May and shows a spike in SBA 7a loan approvals. So will this translate into more hirings? Sloan laid it all out.
LL: From your research how would you grade the health of small business loans?
BS: We see the small business lending market being dominated by the government lending programs like the SBA 7A program. Not too dissimilar to what has occurred in the conforming residential market with FNMA and FHLMC . The SBA 7A program ending Sept 30 2011 should create 16-17 billion of small business loan credit.
The lack of capital in the banking system has slowed this type of lending.
LL: What is the dollar range of the loans? What types of small businesses are benefiting?
BS: Start ups, restaurants and retail are suffering from very little to no funding. Businesses with 3-10 years of history, good cash flow and collateral with Commercial RE to pledge are getting funded.
This space is really a 50K to 5mm dollar space.
LL: Are you concerned about the business climate. What headwinds are small businesses still facing and what new ones are brewing?
BS: Uncertainty is the biggest problem in the lending environment for small business. Tax rates? Deficit Reduction? Obamacare and over all levels of consumer spending are dramatically concerning small and independent business owners
LL: When it comes to the 2012 election, are your clients talking about any candidates yet?
BS: Business clients in the aggregate lean toward candidates that promote lower to current tax rates as well as abolishing Obamacare.
LL: Are your clients concerned about the uncertainty over the debt ceiling
BS: Uncertainty over the debt ceiling is a huge issue because small businesses believe the government will confiscate their wealth through higher taxes. Estate tax, dividend income, personnel tax rate or depreciation changes in the tax law. Most small business strongly favor deficit reduction thru spending cuts not tax increases. They are reluctant to hire until uncertainty over their income tax rates is more certain to make sure they have the cash flow to pay for the new hire.
A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."
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