Tag Archives: small business owners

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A Priority For The Next Governor

Three of Arizona’s five Democrat members of Congress last week joined all four of their Republican colleagues from the state to accomplish what a similar bipartisan majority in the Arizona Legislature did earlier this year: It loaded a badly needed shot in the arm for the small-business owners who generate almost every new job in the state and nation.

The U.S. House of Representatives voted to make permanent a tax provision that would allow small businesses to write off up to $500,000 in new equipment purchases, and some improvements to real property, instead of depreciating the costs over time. H.R. 4457, titled America’s Small Business Tax Relief Act of 2014, would provide small businesses with expensing levels that are permanent, predictable and at a level adequate to their needs.

This change to Section 179 of the federal tax code, which overwhelmingly passed the House on a 272-144 vote, would prevent the expensing level to fall all the way to $25,000 in 2014, after being at $500,000 from 2010 through 2013. It also indexes the level to inflation. In addition, the House also passed a bill that eases the tax burden on small businesses that change from taxable C-corporate status to S-corporate status.

A quick sample of the small-business owners benefitting from the H.R. 4457 expensing levels would include:

* Your local pizza shop owner who might want to install new ovens and countertops that cost $100,000. He could deduct these capital improvements the same year he makes them, instead of waiting for the current 39 years to get his full depreciation.
* A farmer considering equipment purchases of $300,000 could do so with much more ease, knowing it could all be deducted the year she bought it, instead of only $25,000 of it the first year.
* A contractor looking to buy two work vehicles costing $60,000 would be more inclined to do so. Under current law, only $35,000 could be deducted—spread over five years—instead of all of it immediately.

On June 12, Arizona Democrats Ron Barber, Ann Kirkpatrick and Kyrsten Sinema joined Republicans Paul Gosar, Trent Franks, Matt Salmon and David Schweikert in supporting this pro-jobs legislation. Congressmen Raul Grijalva and Ed Pastor, both Democrats, voted against H.R. 4457. The measure now goes to the U.S. Senate for its consideration.

Earlier this year, a similar tax relief act, House Bill 2664, passed the Arizona Legislature with overwhelming bipartisan majorities. It, too, would have created an immediate state income tax allowance, similar to federal Section 179 expensing for qualifying business equipment investments valued up to $500,000.

In a tragic misreading of the needs of Arizona’s economy, Gov. Jan Brewer vetoed HB 2664 because “the money would be better utilized” on her spending priorities. Undaunted, NFIB is committed to vigorously lobbying Arizona’s next governor and the new Legislature next session to finally realize our own $500,000 allowance to spur new job creation.

Last week’s strong bipartisan House vote to pass H.R. 4457 is very encouraging to small business, especially as demonstrated by the votes of Arizona’s congressional delegation. If Congress and the president do succeed in making it federal law, Arizona’s next governor must match it. If Washington fails, then establishing the small-business expensing allowance in Arizona’s tax code will be all the more critical.

Farrell Quinlan is Arizona state director for the National Federation of Independent Business.

Prepare loan package, secure loan

Small businesses get loans in record numbers

A common complaint since the financial crisis began was that some of the Wall Street banks that were being bailed out by the federal government weren’t doing enough to help the mom-and-pop shops on Main Street.

“In 2008 when the recession hit, the impact on small business lending was pretty catastrophic,” said Greg Lehmann, managing director of Biltmore Bank of Arizona. “Not only did you have small businesses struggling with lost revenue and weakening balance sheets, but all the banks were retrenching and looking inward.  The unique element about the Recession was that it hit every business sector; small business, large businesses, banks, etc. Nobody was immune to its impact.”

In 2013, small business owners and entrepreneurs have a little more reason for optimism. So far this year, big banks are approving small business loans at the highest rate in more than two years, according to Biz2Credit, which calculates its monthly Small Business Lending Index using 1,000 loan applications made over its online lending platform.

“With an improving economy, Wells Fargo is growing new lending commitments, providing more dollars to help small businesses stay competitive today and for the long term,” said Jennifer Anderson, business banking manager for Wells Fargo Arizona. “The business owners who see increased demand for their products and services are investing in their businesses now. As business owners become more confident and find more opportunities to grow and improve their businesses, we expect to do more business.”

Wells Fargo literally puts its money where its mouth is. According to SNL Financial, the bank was the nation’s largest lender to small business in 2012, lending $32.8 billion to small businesses.

But Wells Fargo isn’t alone. If you look at recent reports, small business lending is up across the board:

* Biz2Credit found that big banks — those with more than $10 billion in assets — approved 15.9 percent of the small business loan applications in February 2013, up from 11.7 percent in February 2012. Small bank approval rates have also ticked up — 50.3 percent in February, up from 47.6 percent in February 2012.
* Government-guaranteed loans have increased 6 percent year-over-year in fiscal 2013. That represents $9.2 billion, an 18 percent increase over the dollars approved during the same period a year ago. Approvals in the last two years have set Small Business Administration records.

Despite the positive reports, the general belief is that small businesses aren’t getting loans, which isn’t true, said Dee H. Burton, executive vice president of Alliance Bank of Arizona.

“Yes, small businesses can get loans now,” Burton said. “At Alliance Bank, we have always been actively engaged in lending to small business — and we never stopped lending even through the toughest times of the Recession.”

What about the perception that lending standards have changed or tightened? That’s another misperception, bankers said.

“General underwriting guidelines have not really changed over the years,” Burton said. “Unfortunately, the Recession has made it more challenging for businesses to qualify. For most businesses, a reduction in revenue may have resulted in a negative impact on cash flow or resulted in a more leveraged balance sheet. Further, the value of assets which banks often look to take as collateral — equipment, real estate, accounts receivable, etc. — are not at the levels they were pre-Recession. All-in-all, these factors have impacted small businesses’ ability to meet the typical standards under which banks underwrite business loans.”

While Lehmann said banks were more willing to bend on some of the fundamentals prior to the Recession, he said banks always look to cash flow, collateral, and capital levels to make a credit decision.

At Wells Fargo, Anderson said lending standards have remained consistent. Before the bank extends credit, it looks for a business to show:

* Steady cash flow. Cash flow is a key indicator of a business’ financial health and its future prospects. When it can show reliable cash flow, we can see it has the resources to repay new loans.
* Debt load is manageable. Banks want to make sure a business has the ability to take on additional debt and is in a strong financial position to manage its debt payments.
* Good payment history. Payment history provides an important record of its ability to responsibly pay down debt.

As for lines of credit for small businesses, Ward Hickey, business banking manager for National Bank of Arizona, said, “Small business lines of credit are based on  business cash flow and collateral values. As both of these improve for small businesses in Arizona, the underwriting standards will ease and more small business lines of credit will be available.”

As the economy in Arizona continues to strengthen, bankers see a better environment for small business.

“We can point to a number of positive signs in small business lending,” Anderson said. “There is more small business activity in our stores, more small businesses are applying for credit, and loan delinquencies continue to decline.”

As businesses shift from survival mode to growth mode, the outlook for lending to small and medium-sized businesses — which Lehmann called “the life blood of the Arizona economy” — continues to be positive, which will help small businesses grow and add workers.

“Arizona will continue to be a growth state and businesses that have survived this Recession will be able to grow as the state continues to grow,” Burton said. “We see businesses are now investing in items such as new equipment and new expansion, which had been put on hold during the Recession. Businesses are also taking advantage of the current interest rate environment to fund their expansion.”

Lehmann agreed.

“As the economy continues to heal and grow,” he said, “so will the small businesses of Arizona.”

small business training

W. P. Carey School & SRP Host Small Business Leadership Academy

Small businesses play a key role in our economic recovery, creating jobs to help get our community back on track. The W. P. Carey School of Business at Arizona State University is offering a program to help small business owners and executives learn how to improve efficiency, streamline operations and raise profits. The fifth annual Small Business Leadership Academy is available to the leaders of small and diverse local businesses.

“We’ve had phenomenal feedback from business owners who attended the academy over the past several years,” said Dawn Feldman, executive director of the W. P. Carey School of Business Center for Executive and Professional Development, which hosts the program. “Classes are held just one night per week, so they fit right into busy executives’ schedules, and they’re taught by top professors from the highly ranked W. P. Carey School. Participants not only take away great business knowledge, but also a new support network of peers that will exist long after the program is over.”

Salt River Project (SRP), the program’s founding co-sponsor, is offering a number of scholarships to its current suppliers and small business customers.

“The academy offers an outstanding opportunity for small business owners to gain knowledge from highly acclaimed professors and establish lasting relationships with other community small business owners, all in a well-structured academic, but practical environment,” said Carrie Young, senior director, corporate operations services for SRP. “The partnership we have with ASU, coupled with the sponsorship and scholarships we offer to the academy, is a natural fit for SRP in supporting economic development within our own community.”

As part of a larger partnership with ASU focused on small business support, JPMorgan Chase is also joining as a top sponsor, providing 15 scholarships to the academy.

“As Arizona’s number one SBA lender, we know how important small businesses are to our economy,” said Joe Stewart, chairman and CEO of JPMorgan Chase in Arizona. “Entrepreneurs who participate in the Small Business Leadership Academy will get the best of ASU in a format that fits their busy schedules.”

The 10-week academy will run on Wednesday nights from Aug. 29 to Nov. 14. The curriculum will cover business strategy, team-building, negotiations, procurement and competition through service offerings. Program applications are due July 13.

Participants must come from companies that have:

  • Been in business for at least three years,
  • Annual revenues between $1 million and $10 million,
  • Fewer than 100 employees.

Applicants must be able to attend all scheduled classes and related activities. Those who complete the program will receive four Continuing Education Units (CEUs) from Arizona State University. These units are widely used as a measure of participation in non-credit, professional development courses.

Other sponsors of this year’s program include the Arizona Lottery, Blue Cross Blue Shield of Arizona, U.S. Bank and the Hahnco Companies. These firms are also sponsors of the school’s Spirit of Enterprise Awards, which recognize some of the state’s best businesses. The W. P. Carey School’s Spirit of Enterprise Center helps hundreds of small businesses each year.

For more information about sponsoring a scholarship or applying to the small business leadership program offered through the nationally ranked W. P. Carey School of Business, call (480) 965-7579, e-mail wpcarey.execed@asu.edu or visit www.wpcarey.asu.edu/sbla. Current SRP vendors can also contact Art Oros, SRP procurement services manager, for information about this year’s SRP scholarships at (602) 236-8773 or Art.Oros@srpnet.com.

Small Business Year In Review

The Small Business Year In Review 2011 & Outlook For 2012

The Small Business Year In Review 2011 & Outlook For 2012

Being a part of a slow economic recovery can take its toll on anyone, especially those who are trying to maintain and grow a business. Particularly, small business owners have had a lot to overcome throughout 2011, including a credit crunch and general uncertainty about the future. Through it all, they’re heading into 2012 with an optimistic outlook. According to this infographic by Intuit, the company’s Small Business Surveys have tapped into how small business owners are reflecting on 2011 and how what they expect 2012 to bring.

Own your own company? How have you gotten through 2011, and what do you see on the horizon for 2012?

The Small Business Year in Review 2011, Outlook 2012 [INFOGRAPHIC]
via: The Small Business Year in Review 2011, Outlook 2012 [INFOGRAPHIC]
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Infographic Credits, courtesy of Intuit:

Source: Intuit
Designed by: Column Five

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Small Business Leadership Academy: Understanding Corporate Procurement Practices (Part II)

Small Business Leadership Academy: Understanding Corp Procurement Practices (Part II)

Small Business Leadership Academy: Understanding Corporate Procurement Practices (Part II)

One company’s purchasing is another company’s marketing.

If small and mid-sized businesses can keep that in mind, they will have discovered one of the secrets of success for a supplier, according to Joseph Carter, the Avnet Professor of Supply Chain Management at the W. P. Carey School of Business and instructor for the procurement classes in the 2011 Small Business Leadership Academy. Carter, a leading academic in the supply chain field, is also a Certified Purchasing Manager (C.P.M.) and Certified Professional in Supply Management (CPSM), designations granted by the National Association of Purchasing Management.

“The eye-opener for these business owners is self-awareness,” Carter said. “They are beginning to understand the role they play in their customers’ supply base.”

And that’s when procurement meets marketing.

“The owners of small businesses are so wrapped up in surviving that they don’t have the time – or the personnel – to specialize,” Carter said. “As a result many feel that their companies are under-appreciated by their customers.”

A company like SRP wants value from all of its customers, but a purchasing manager may be managing hundreds of suppliers. “A company, because it’s a large company, is not going to understand the supplier’s business and the supplier’s potential for adding value as well as the supplier does,” Carter said. Understanding the buying process and how the purchasing groups at large companies think enables suppliers to figure out what and when to communicate.

Suppliers must show how they add value to their customers’ enterprises. Sometimes that means understanding who the customer is. “The procurement officer is not your final customer,” Carter says. “Your customer is the user.” So small business owners cannot just try to compete on price. When dealing with procurement officers, they must elaborate on the total value that their company brings to the table, including “what’s in it for the procurement officer.” Elaborating on why working with their company will be worth the additional work of changing vendors, adding a new vendor, and the inherent risk of working with a new vendor, will enable that procurement officer to make that difficult choice with confidence.

The Small Business Leadership Academy (SBLA) is an intensive executive education program designed to strengthen the business acumen of small business leaders in Arizona. The program was jointly developed by the W. P. Carey School of Business and the Salt River Project (SRP), the program’s founding sponsor. Other seat sponsors this year include: Arizona Lottery, Blue Cross Blue Shield of Arizona, Hahnco and U. S. Bank. Each week we will bring you a few salient points from each class as well as comments from the professors themselves and the impact the information has had on the students.

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For more information about the Small Business Leadership Academy, please visit SBLA’s website.

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Small Business Leadership Academy

Small Business Leadership Academy: Understanding Corp Procurement Practices (Part I)

Small Business Leadership Academy: Understanding Corporate Procurement Practices (Part I)

If you are the owner of a small or medium-size business interacting with a big corporation, you need to know how that company thinks about procurement. That’s what students in the 2011 Small Business Leadership Academy are learning from Joseph Carter, the Avnet Professor of Supply Chain Management at the W. P. Carey School of Business.

Typically, suppliers concentrate on the internal operations of their companies, Carter says, but if that’s their predominant focus, they will miss out on the advantages of optimizing their relationships with the companies that are their customers. Jeffrey Campbell of Western Truck Equipment Company, Inc. had the right idea when he asked, “What can I learn to better service the companies that we work with?”

“Today, the creation of value often requires careful coordination of activities across the boundaries between functions, business units and firms,” Carter explains. “In short, organizations that learn how to leverage procurement collaboration can obtain speed, innovation, dependability, flexibility, cost and/or quality benefits that go far beyond those potentially realized from solely optimizing a single firm’s internal operations.”

Carter is one of the top scholars worldwide in the field of supply management. He has published 60 articles about sourcing and supply management issues, and he has shared his expertise with firms all over the world.

Students are learning to understand strategic sourcing and their role as suppliers. To begin, they need to understand the importance of developing a collaborative relationship with a customer and how to manage it efficiently. Carter is taking the students “inside” their client companies by explaining the various roles and functions of a procurement department.

“Business owners need to understand the primary importance of sourcing when developing their strategy,” Carter says. “We’ll be talking about what they need to know in order to drive success for the buyer’s company as well as their own.”

Each week we will bring you a few salient points from each class as well as comments from the professors themselves and the impact the information has had on the students.

For more information about the Small Business Leadership Academy, please visit SBLA’s website.

[stextbox id=”grey”]The Small Business Leadership Academy (SBLA) is an intensive executive education program designed to strengthen the business acumen of small business leaders in Arizona. The program was jointly developed by the W. P. Carey School of Business and the Salt River Project (SRP), the program’s founding sponsor. Other seat sponsors this year include: Arizona Lottery, Blue Cross Blue Shield of Arizona, Hahnco and U. S. Bank. [/stextbox]

Increase demand Arizona commercial real estate

Changing Office Demands In Arizona: Is Office Space Becoming Obsolete?

An estimated 450,000 U.S. office jobs have moved offshore in recent years, and that number will likely grow as high as 3.4 million by 2015, according to a study performed at Columbia University in New York. And those aren’t the only jobs that are vacating U.S. offices. Further research shows that 44 million U.S. workers have traded in their cubicles for home offices; the number is projected to rise to 51 million by 2012.

I am sharing these statistics because they spell opportunity, not trouble. In fact, real estate economists predict new demand for office space will exceed 410 million square feet by 2015, 75 million of those square feet are here in Arizona alone.

With this increase in demand for commercial space, it is no wonder one must move quick in Arizona’s commercial market. However, you need to be smart.

No matter how competitive the real estate sector is, you need to keep in mind what trends are most likely to shrink and expand.

First look at industry movement; we all know that industry shifts are nothing new. Starting with farming and agriculture, the next in line was factory jobs and later corporate and information technology. Experts say the service, creative and design industry jobs will drive the demand for commercial space over the next five to 10 years.

You can check with your local community economic growth reporting offices, which are located within city hall, government reporting or small business administration offices. Colleges and universities will often release economic area growth reports so you can stay informed as to what the growth patterns are in your Arizona community.

Another great approach is to check economic reporting in major metropolitan papers so that you can keep tabs on national growth trends that could ultimately affect your community.

Arizona is widely becoming known for it’s industrial and major corporate office space growth; however, we seem to be more industry niched in the online product arena, such as godaddy.com in Scottsdale, and professional focused companies in the medical and representative areas, such as insurance and legal.

Every now and then you will find an international brand headquartered here such as Dial soap, also based in Scottsdale. With all of that said, reaching out to the professional, focused office categories such as medical and information technology seem to occupy at a faster rate and have longer term leases.

Commercial real estate here in Arizona is ripe with opportunity for investors and small business owners alike. Small Business Administration (SBA) lending is at an all-time high with interest rates lower than they’ve ever been, so there is no time like the present to get out, create an opportunity for yourself, and take advantage of good prices on commercial real estate. Last but not least, it is extremely important that you hire a broker that is not only knowledgeable about the area but also has an understanding of your business.

[stextbox id=”grey”]These tips are provided by Pete Baldwin, designated broker and owner of Platinum Realty Network with offices in Scottsdale and Flagstaff, Ariz. With over 25 years of experience in business and real estate, Pete specializes in country club communities and second home investments, including large commercial portfolios. He also owns an Arizona branch of a family-owned, Montana-based company Baldwin Log Homes – Arizona Territory and has become the area leader in full- custom, handcrafted log homes in Northern Arizona. For more information, please visit www.PeteBaldwin.com.[/stextbox]

Scottsdale Area Chamber of Commerce’s prestigious Sterling Award.

Scottsdale Area Chamber Of Commerce Gives Out Its Annual Sterling Awards

Four Scottsdale businesses received the Scottsdale Area Chamber of Commerce’s prestigious Sterling Award.  The 25th annual Sterling Awards were handed out yesterday, Nov. 16, to a packed house at the Scottsdale Resort and Convention Center.


The Sterling Award is presented to companies that make Scottsdale a great place to live, work and play. Four teams of judges narrowed the field from 12 and selected one winner in each of the following four categories–micro, small and big business, and nonprofit.

Celebration of Fine Art was awarded the Sterling Award in the micro business category, which is awarded to businesses with fewer than seven employees that exhibit success through innovation, creativity and collaboration. Celebration of Fine Art champions art in all forms, from furniture and jewelry to watercolor and pastels, and gives visitors the opportunity to converse with the artists as they work.

Human Capital Strategies won the Sterling Award in the small business category, which is awarded to businesses with seven to 99 employees that demonstrates innovation, quality, professionalism and commitment to community. Jason Knight started Human Capital Strategies in 2007 to “do what small business owners and office managers don’t like to do, don’t know how to do and, often times, don’t even know they are supposed to do.®”

Scottsdale Fashion Square was awarded the Sterling Award in the big business category, which goes to businesses with more than 100 employees that significantly impacts the community’s economic fabric. Scottsdale Fashion Square is one of the Valley’s premier tourist destinations, but also gives back in many ways, including partnerships with nonprofit organizations and employee volunteerism.

St. Mary’s Food Bank Alliance received the Sterling Award in the nonprofit category, which is awarded to a charitable organization that contributes to the social, cultural and educational well-being of those it serves. As the world’s first food bank, St. Mary’s Food Bank Alliance is committed to improving the quality of life in Arizona and serves 13 of Arizona’s 15 counties.

Other businesses were recognized in the four categories. Reliable Background Screening, Sonoran Studios, Payroll Experts, Hot Air Expeditions, DMB Associates, Mayo Clinic, Gabriel’s Angels and Every Kid Counts, Inc. were all recognized at the ceremony, which was emceed by Good Morning Arizona anchor and host Tara Hitchcock.

www.celebrateart.com
www.hcscando.com

www.fashionsquare.com

www.firstfoodbank.org

www.scottsdalechamber.com

The idea of starting your own business can be frightening with the recession - AZ Business Magazine Nov/Dec 2010

6 Tips To Launching Your Own Business In A Down Economy

The idea of starting your own business can be frightening, particularly with the recession stubbornly choking the Arizona economy. However, by following a few tips for getting started, launching your own company doesn’t need to be scary.

In fact, there are a few advantages to launching a business during an economic downturn. Commercial space is available at extraordinarily good prices. Talented professionals are looking for work. Goods and services can be found at discounted prices. And, depending on your industry, competition may be scarce.

1. Practice Due Diligence
It’s critical to objectively evaluate your proposed venture. Asking yourself some hard questions may discourage you from pursuing your first venture, but that is not a negative or pessimistic approach. It’s a useful tool for evaluating your business. Start with these questions: Is there a genuine need for the product or service you are offering? Is that need already being met by established companies? If so, what improvement or unique feature are you bringing to the table? Do you have the necessary skills and resources to start your business? If not, are you prepared to bring in the people with the skills and capital that are needed, and possibly give up some ownership?

2. Prepare a Business Plan
Too often, entrepreneurs articulate a great idea and foresee success, but gloss over the hard work. That hard part is thinking through the idea for your business and writing it into a plan, including the steps you’ll need to take to implement your idea. Start with an outline and consult a book or online guide about writing business plans. It’s important that your end result is a completed plan that includes a budget for your business.

3. Determine Capital Requirements
Most small businesses are funded with the business owner’s own money and funds from family and friends. A venture capitalist or angel investor may provide the necessary capital in exchange for part ownership of your business. It’s critical to focus on the amount of money you will need to start and operate your business, including at each stage of the company’s development.

4. Create a Board of Advisers
Creating a network of advisers can be a tremendous asset to a start-up business. It’s helpful if that board consists of advisers with a diverse array of professional backgrounds. That diversity will ensure you receive insights from a wide range of perspectives. Good choices for advisers may include your attorney, accountant, suppliers, customers, bankers and realtors.

5. Tap Into Available Resources
There are myriad advisers, consultants and nonprofit agencies that will assist you in developing your business — marketing it, creating websites and raising capital — who work for free or a nominal fee. The Small Business Administration (SBA), for instance, is a valuable and cost-effective resource. Moreover, SCORE: Counselors to America’s Small Business, provides free advice and mentoring for small business owners. If you pay for a similar service, be sure to get recommendations from a trusted adviser. Then, check that company’s references.

6. Listen
The more you listen — the more you truly hear an adviser’s ideas — the more advice you will be able to translate into actionable plans for your company.

Still, while these recessionary times may present a good opportunity for entrepreneurs, there are several considerations to keep in mind.

Select an industry that is doing well, despite the recession. The health care industry, senior care and information technologies are financially better off than many other industries.

Choose a business sector with a bright future — Businesses that tap into growing consumer demand for green or sustainable products may be an avenue worth pursuing. There was a 41 percent increase in consumer purchases of green products and services from 2004 to 2009, according to the research firm Mintel. Moreover, there may be federal or state subsidies or tax credits available for green companies.

Select a company with low capital requirements. Home-based businesses with low start-up costs may be good choices, notably because the ongoing credit crunch will likely make it tough to get a loan to cover these expenses.

If you are considering starting your own business, you will be in good company. More than half the companies listed on the Fortune 500 in 2009 were launched during a recession, according to the Ewing Marion Kauffman Foundation.

Moreover, in 2009, an average of 558,000 new businesses were launched each month in the United States.

The trick to joining these ranks is to get started. There’s no better time than now, recession or not.

“The critical ingredient is getting off your butt and doing something,” Nolan Bushnell, founder of both Atari and Chuck E. Cheese, once said. “It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer.”

Arizona Business Magazine Nov/Dec 2010

Many Arizona Small Businesses And Banks Say A Federal Loan Program Isn’t Needed - AZ Business Magazine Nov/Dec 2010

Many Arizona Small Businesses And Banks Say A Federal Loan Program Isn’t Needed

President Barack Obama has signed a bill that aims to increase small business lending. But it’s not exactly popular among Arizona’s small companies and community banks. They question whether a multibillion-dollar loan fund created by the legislation will achieve its goal.

The Small Business Jobs and Credit Act of 2010 will establish a $30 billion Small Business Lending Fund within the U.S. Treasury. The Treasury will use that money to purchase preferred shares in small- to medium-size banks that voluntarily participate in the program, injecting new capital that the banks would be encouraged to lend to small businesses. The more loans the banks make, the lower the dividend rate they pay the Treasury.

“As a small business owner, I am allergic to government intervention,” says Charlie O’Dowd, president of Westcap Solar, a Tucson company that sells and installs solar photovoltaic and solar hot-water systems. “I don’t think that this legislation is going to be any more effective than the TARP (Troubled Asset Relief Program) legislation. In this economy, it’s not that there isn’t money to be borrowed. It’s qualifying for the loan that’s the problem.”

The new law also gives John P. Lewis a bad taste in his mouth. Lewis is president and CEO of Southern Arizona Community Bank in Tucson, and a member of the FDIC’s Advisory Committee On Community Banking.

“Last January, the committee had a robust discussion (on the legislation),” Lewis says. “The committee said, ‘We don’t want to be a part of this.’ Community banks don’t need the additional capital. I have more money than I know what to do with. I need qualified borrowers.”

O’Dowd and Lewis describe a situation that is frustrating for both and that neither believes government policy will resolve. O’Dowd says small businesses’ sales are slow, impacting their ability to qualify for loans. Lewis says his loan demand is flat because there are fewer qualified borrowers.

The Arizona Small Business Association points to a wary small business community that’s in no mood to take on more debt. Earlier in the recession, small businesses tried in vain to obtain bank loans, but now they are in survival mode, says Donna Davis, the association’s CEO.

“Bank loans are not at the top of their list now,” Davis says. “Some businesses have lending fatigue. They just gave up (trying to get loans). Now they are focused on lack of sales. If sales don’t pick up, if work doesn’t pick up, they won’t seek credit. If they can boost sales and profits, then they can justify hiring and expanding.”

One outside observer sees a triumvirate of doubt that the legislation will not mitigate. Dennis Hoffman, professor of economics at Arizona State University’s W. P. Carey School of Business, says this recession has caused consumers, businesses and banks to lose their confidence. Lacking the good credit risk they saw five years ago, banks have “pulled in their oars,” Hoffman says. Creditworthy businesses fret so much over the economy, they don’t even apply for loans. Recession-scarred consumers remain stingy.

“We need to climb this wall of worry to get out of this morass,” Hoffman says. “This is a market-based, private-sector issue that will have to work itself out.”

Gail Grace, president and CEO of Sunrise Bank of Arizona headquartered in Phoenix, doesn’t sense much support for the legislation among Arizona’s banks, and wonders how many community banks would be able to participate.

“Community banks in Arizona are stressed and many may not even qualify for this program,” Grace says. “You will still have to have a fairly healthy bank to qualify for this.”

Not everyone has a dim view of the law. Robert Blaney, Arizona’s Small Business Administration district director, notes that the law will increase the SBA’s loan guarantee from 75 percent to 90 percent, easing banks’ risk on those loans. The law also will lower fees and raise the SBA’s maximum loan amount from $2 million to $5 million. There are thousands of small business owners nationwide that were waiting for the lending bill to become law, Blaney says.

One of those is Benefits By Design, a Tempe company that sets up health benefit plans for small businesses. The company’s president, Kristine Kassel, says there is a need for loans and it would be helpful if just two community banks expanded their small business lending. She adds that any amount of new credit that can be extended to small businesses is a good thing.

Banks interested in acquiring low-cost capital might be attracted to the Treasury fund and they might be enticed by the built-in incentives to direct new-found capital into small business lending, says Dan Stewart, Arizona market president for Mutual of Omaha.

But then he echoes what others say: “The (law) doesn’t encourage banks to take on more credit risk, so qualified borrowers are the key.”

    By the Numbers
    The Small Business Jobs and Credit Act of 2010



  • Establishes a $30 billion Small Business Lending Fund within the U.S. Treasury
  • Treasury will use money to purchase preferred shares in small- to medium-size banks that voluntarily participate in the program
  • SBA’s loan guarantee would increase from 75 percent to 90 percent
  • The SBA’s maximum loan amount would increase from $2 million to $5 million

Arizona Business Magazine Nov/Dec 2010

Arizona Business Magazine's Editor-in-Chief Janet Perez

The Buzz on AZNow.Biz – October 12, 2010

This week on AZNow.Biz, the University of Arizona’s McGuire Center for Entrepreneurship is making it easy for entrepreneurs and small business owners to expand their knowledge with three unique online certificate courses. Our personal finance columnist, Jacob Gold, writes about Americans putting more money into savings and how that benefits the economy. Plus, see some majestic views of the Grand Canyon in our Snap Shot feature.

AA035979

The University of Arizona Brings Online Education To Entrepreneurs

As the state pulls itself out of the recessionary hole, small business owners and entrepreneurs have to re-think how they get things done. Getting advice from experts is critical, but who has the time?

The University of Arizona’s McGuire Center for Entrepreneurship at the Eller College of Management is making it easy for entrepreneurs and small business owners to expand their knowledge.

On Aug. 15, the McGuire Center launched three unique online certificate courses that offer entrepreneurs a “practical university education,” said Randy Accetta, mentor-in-residence and communications mentor at the center, a top-tier university-based center for entrepreneurship.

The three areas of study are commercializing an innovation, starting a small business and growing an existing venture. The courses go along with the UA’s land grant mission, and are funded in part by a United States Department of Labor Workforce Innovation in Regional Economic Development (WIRED) grant. The courses are offered through the non-credit arm of the UA’s Outreach College.

The UA is still marketing the courses, and online classes haven’t started yet, Accetta said.  Credit-bearing versions of the courses will most likely be offered during the spring 2011 semester at the UA.

What makes these online courses different is the amount of hands-on, one-on-one work students will do with Eller College of Management mentors and faculty members, Accetta said. Currently, the classes are structured as mentor-based and comprised of small cohorts.

Since the courses haven’t started yet, their structure can be modified and could range from small cohorts, as originally planned, to an independent study, according to what the market needs.

However the structure of the courses turns out, Accetta, the UA and the McGuire Center are committed to a high-quality educational experience that is focused on interaction between student and professor.

The UA and the McGuire Center wanted to provide entrepreneurs in the Southwest region with a university-type education in which students can end the course with a comprehensive understanding of the theories and concepts behind growing a business, Accetta said.

He added that the UA has been slow to offer distance learning and online courses, and these programs are part of the university’s effort to enter the world of online-based education. Distance learning is important, because the UA is pushing to “extend the intellectual quality of the university throughout the region,” Accetta said.

“Our long-range vision is to grow a more educated, more motivated entrepreneur community,” he said.

In these difficult times, courses like these can have an impact beyond the classroom, or computer screen in this case, Accetta said, adding that building a business community that can identify and act on opportunities to stimulate entrepreneurial growth will result in a stronger economy for Southern Arizona.

Lending Thaw

Small Businesses Are Still Waiting For Bank Lending To Thaw

We are still feeling the effects of the recession that started in fall 2007. When small business owners read financial literature, listen to pundits on television or radio, or visit with their local bankers, they still encounter conflicting information regarding the near- and long-term prospects of both the Arizona and United States economies.

Small business lending
The most common form of bank loan for small businesses is a so-called working capital loan, collateralized by accounts receivables. One issue that’s uppermost in the minds of small business owners is whether banks are still making these working capital loans. The answer is yes, but specifically to new customers. Remember, banks do not make money unless they lend money. However, in times of economic uncertainty, banks want to be prudent and avoid any potential future losses, specifically after 2007 and 2008. Banks cannot afford to lose the principal of a loan.

For example, if a banker is asked to write a $200,000 loan at a 7 percent interest rate with a three-year term, then the banker will receive approximately $22,000 in interest payments (profit) and the return of principal. If the loan goes bad, the banker not only loses the $22,000 of potential profit, but more significantly, also the $200,000 in principal. Bankers will tell you they have to be right 999 times out of 1,000 in their underwriting efforts to stay in business.

Insurance companies, mortgage companies and banks all have underwriters to evaluate risk. In most cases, the banks also employ economists to evaluate the local and national economies and set standards for the acceptance of loan proposals. In other words, it may not be your branch manager telling the borrower “no.” The loan officer’s hands may be tied by the corporate economist who does not think the recession is over, believes things will remain difficult and sees that the probability for future bankruptcies still exists — therefore, no lending activity.

The major fly in the ointment is, pure and simple, jobs. Jobs, employment and unemployment numbers tell the story. In October 2008, one year into the recession, unemployment in Arizona was at 6.2 percent. By October 2009, unemployment in Arizona was up to 9.1 percent. Two years ago, October 2007, unemployment in Arizona was just 3.9 percent.

So, if the underwriter here at your local bank, acting on guidance or instructions from the bank headquarters, says “no” to a loan application, that decision may be based on the feeling that the local economy is not improving, that there may be future layoffs, etc. Therefore, the probability that your loan may not be repaid is high, so no loan.

Local and regional banks
So, do small businesses have a better chance of obtaining a loan or a line of credit from local or regional banks than they do from the national behemoths? Small, local banks do have more freedom in underwriting and risk analysis than the larger national banks. This is true. Smaller banks also will syndicate loans with larger banks, with the local bank being the lead lender. However, while the federal government guarantees Small Business Administration loans, the loan itself still must go through the risk analysis process in order to be approved. The risk analysis still is based on changing national and local economic indicators. These indicators have been improving for six months, but very slowly and at small increments.

That said, what are the arguments for the borrowers? The federal funds rate set by the Federal Reserve was recently at .25 percent, practically an all-time low. The source of capital to banks, the Federal Reserve and corresponding Federal Reserve banks, is essentially free to the banks. Currently, the banks are sitting on $823 billion of reserve capital available for lending. This is compared to $2.4 billion a year ago. As a point of reference, the March federal stimulus bill was $790 billion. The banks have more capital than the total dollar amount of the stimulus bill.

Banks are sitting on that $823 billion because they say charge-offs — bad loans and debts — are at a point not seen since the Great Depression. The banks cite $116 billion in charge-offs year-to-date, or a 2.9 percent charge-off rate that increased to 3.4 percent in the third quarter of 2009. Banks cannot endure charge-offs. Charge-offs have put more than 100 banks out of business this year. Therefore, banks are sitting on their reserve capital in anticipation of more costly charge-offs. However, bottom line, the banks do have the capital to lend.

Banks do not make any money sitting on $800 billion. To make money, they must lend money. Eventually, and sooner rather than later, the banks have to start lending again. But the $64 or $64 billion questions are: Is this turnaround self-sustaining? Will it continue in 2010? Will the turnaround in the economy create a sufficient number of jobs to sustain the economic growth in 2010?

Alternatives
Until banks loosen their grip, small businesses do have options in obtaining money to keep their businesses not just going, but also growing.

Small business can look to leasing alternatives and trade credit from suppliers to replace the financing they would normally receive from banks. Flooring (inventory) financing, commercial credit from companies such CIT, factoring of invoices, trade, or vendor credit from suppliers all can be sources of alternative financing for small businesses.

Businesses also have reduced the levels of required financing by laying off employees, reducing salaries, cutting fixed costs, reducing profit margins — anything and everything possible to stay in business until the economic cycle turns positive.

Let’s hope the federal government’s stimulus bill and the excess in bank capital will prove sufficient to generate economic growth going forward, and open up the traditional institutional financing necessary for small business development and growth. It is time that small business owners catch a break.

George Olander, Ph.D., is a finance lecturer at the W. P. Carey School of Business at Arizona State University
wpcarey.asu.edu

piggy bank

Cash Strapped Companies Seek Solutions

The economic downturn and volatility of the financial markets has left a large number of established businesses with difficulty managing cash flow. Cash-strapped businesses, big and small, are paying their bills more slowly than ever. It’s a cash flow river — or trickle in this case — that flows downhill, impacting the businesses below that require healthy cash flow to operate effectively.

As larger companies and small business owners have trouble paying their bills, they are quickly discovering fewer and fewer options. Banks are not lending and credit lines are stressed. What many businesses owners and managers don’t know or have not previously considered is the possibility of factoring.

For small to mid-size companies doing business-to-business or business-to-government transactions, factoring may offer a financial solution that will keep the doors open and even help them grow.

Factoring is a form of financing based on a company’s accounts receivables or billing invoices. A company with slow-paying customers who pay between 30 and 90 days will approach a factoring company to provide cash. The factoring firm will make an advance of 80 percent to 85 percent against the company’s billing invoices for a percentage less than they are worth. The factoring firm charges a fee for the advance, which is based on how long the advance is outstanding, then provides the company with cash as if the bill had already been paid, and the factoring firm collects on the invoice itself.

The result is the factoring firm can help close the cash gap by advancing funds on earned, unpaid invoices so the company can use the funds to pay daily operating expenses such as payroll and vendors. Factoring will usually give business owners more availability of funds than a bank. In addition, factoring funding can be available within a day or two after the application process is complete. The best factoring firms make factoring fast, easy and flexible.

Factoring differs from a bank because factors make funding decisions based on the credit worthiness of a business’ customers. Banks, on the other hand, make credit decisions based on a company’s financial history, cash flow and collateral. Most importantly, a factor makes funding decisions in days or hours, while banks generally take weeks or even months.

This was precisely the case for Phoenix-based American Printhouse, which provides design and screen-printed apparel and accessories to local and national accounts. Its clients include Chaps Ralph Lauren, Calvin Klein, Disney, Liz Claiborne, the U.S. National Parks Service, Sony Signatures, the Arizona Diamondbacks, the Phoenix Zoo and Discount Tire, to name a few. Garments created and screened at American Printhouse are then sold to 1,500 independent specialty retailers and larger clothing retailers such as Hot Topic, Urban Outfitters, Buckle, Dillard’s, Kohl’s and Target. The company offers 12 different types of printing options for its garments.

Despite employing a staff of 15 and securing an impressive book of accounts on a local and national scale, the company still found itself experiencing the effects of the tightened financial markets.

“We really started feeling the slowdown and clients began asking for net 60 (day) terms beginning in September,” explained Sam Akkad, president and CEO of American Printhouse. “Then we hit the slow season and I was looking at the possibility of layoffs and difficulties paying the rent.”

After multiple banks refused to give the company a loan, and they received notice that their credit card lines were significantly reduced, the building owner suggested factoring. After learning more about factoring in late 2008, the company received $75,000 against their receivables in January 2009, within days of submitting an application for funding. This got them through a rough spot and allowed Akkad to turn things around.

“We didn’t have to do layoffs and today our business is booming,” Akkad said. “We have experienced 125 percent increase in revenue, we are adding new lines of business and looking at hiring.”

Johnny Benson, president of USMX, likes the flexibility factoring allows. Benson joined the company in the 1990s and served as the general manager for a number of years. In early 2008, he purchased the company despite its large debt load due to slow-paying customers. Benson was familiar with factoring and knew the banks would not be favorable to providing a loan or line of credit given the nature of the business.

The company is an environmentally friendly tire recycling facility in Phoenix that fabricates raw product and sells it to be used in playgrounds, artificial turf, molded rubber piping and landscaping. The company picks up tires at retail outlets and other locations throughout Arizona. USMX also cleans up areas where tires have been dumped, both for the state and for private land owners.

The business is growing due to more stringent regulations in recent years pertaining to the disposal of tires. But in order to continue growing, better cash flow is required.

“Working with a factor that allows you to select which customers and which invoices you want to factor is the ideal situation,” Benson explained. “We use factoring as a tool to bring cash flow in order to run our day-to-day operations.”

Regardless of size, factoring can work for companies seeking to fill the gap between invoice payment and payroll, purchasing and other business expenses. If businesses work with a flexible factoring firm, they also have the option of making factoring a big or a small part of their working business plan. Also, while long-term factoring relationships do contribute to a healthy, prosperous business, it would be best to seek out firms that consider factoring a shorter-term relationship. They will be the firms to help get your cash flowing again.

Factoring 101

Questions to ask when considering factoring:

  • Do I have to factor all my invoices?
  • Do I have to factor a minimum amount each month?
  • How much can I factor?
  • Where do my customers send their payments?
  • What fees will I pay?
Super-Powered Small Businesses

In This Recession, Small Business Survival Skills are Proving Invaluable

Tattoo Manufacturing Inc., in Tucson is a well-kept secret of success. This company with 95 employees bills itself as the world’s largest manufacturer of temporary tattoos. Indeed, it produces 6 million tattoos a day and has captured more than 90 percent of the temporary-tattoo market in the U.S.

Joyce Sinclair founded the company in 1985, serving fewer than 10 customers out of her garage. She eventually moved into the 40,000-square-foot building the company occupies today. Business exploded four years ago after Sinclair’s father, Jerry Nathanson, signed on and the daughter-father team ramped up production to include both retail-sold tattoos and custom tattoos purchased for promotional purposes by such customers as corporations, nonprofit organizations, sports teams and toy companies.

Steve Tooker and Grayhawk Capital in Scottsdale purchased Tattoo Manufacturing last year, and Tooker was named president and CEO. Although Tattoo Manufacturing produces a variety of specialty items, Tooker says 90 percent of the firm’s business is temporary tattoos. Half are sold at the retail level to Wal-Mart, Walgreens, Toys R Us and other chains. The other half is the custom tattoo side of the business, with more than 60,000 corporate customers. Twenty-five percent of the tattoo business is overseas for customers in 30 countries.

Tattoo Manufacturing had between $2 million and $3 million in sales in 2004. Tooker says sales will exceed $20 million this year, and he expects 25 percent annual sales growth for the next several years. Daily tattoo production likely will reach 7 million this year, and Tooker says that will translate into more hiring and the purchase of additional production equipment.

In this recession, companies like Tattoo Manufacturing are turning on its head the notion in business that bigger is better. Unlike the 800-pound gorillas of Corporate America, smaller companies avoided over-leveraging themselves before the economy tanked, mainly because they stuck to using the resources they had on hand.

“A big business is a legal entity and all its resources are whatever is in its pocket. A small business has the ability to rely on resources that a big business may not have. For example, managing the debt structure in a big business is mind-boggling,” says Bruce Hodgman, deputy director of the U.S. Small Business Administration in Phoenix. “On the other hand, a small business owner can draw on savings or dispose of a personal asset in order to lend to his company. These personal resources can be substantial and they can be quickly moved into the business. I think there is a lot of that happening.”

Small business success stories in the midst of this recession come as no surprise to Donna Davis, chief executive officer of the Arizona Small Business Association. She says many of her organization’s 3,400 members are keeping their businesses profitable.

“A good portion of them are hanging in there,” she says. “They are putting much more emphasis on watching unnecessary expenses. They are getting out and networking and outreaching. I’m really hopeful of what I have been witnessing.”

Nextrio is another Tucson success story. An information technology and computer network consulting company, Nextrio started in 2002 during the last recession and provides IT services for small and medium-sized businesses throughout Southern Arizona.

“We maintain computers, servers, networks, netbooks, cell phones and telephones — just about anything that has a plug,” says managing partner Cristie Street. The company also recommends, purchases, installs and configures hardware and software.

Nextrio started with three employees. By 2004, the staff had grown to six and Nextrio purchased the 9,000-square-foot building it shares with its investors. Today, the company has 20 employees. It started with one customer and now has more than 700. The customer base doubled and tripled the last four years after Nextrio invested in business-management software that allowed employees to “work on the business instead of in the business,” Street says.

Revenue has consistently grown between 25 percent and 50 percent annually since Nextrio opened. For the last two years, Nextrio has slowly restructured to create a diverse mix of income, according to Street. For example, 25 percent of the company’s business now comes from managed services in which customers lock in a fixed fee for ongoing IT support. Customers know what their IT expenses will be, and Nextrio knows it will have steady monthly income, Street says.

Income for 2009 is more uncertain because of the recession.

“If our revenue was an hour glass and you flipped it upside down, that would show the change in where our revenue comes from,” Street says.

Hardware sales, previously 40 percent of Nextrio’s business, have plunged as customers opt to squeeze more years out of their existing equipment. Now, service revenues are climbing as Nextrio devotes more time to maintenance, which Street says is more profitable than hardware sales. The company also has seen an uptick in business from bankruptcy litigation, which involves separating data, copying data and itemizing equipment at firms going out of business.

Street attributes Nextrio’s success to its ability to adapt quickly to changing market conditions and keeping employees apprised of the company’s financial condition. She also points to Nextrio’s entrepreneurial culture.

“We have a sense of all being in it together and accountable for each other,” Street says. “You don’t get that in large companies. We know we are all lucky to be working together, and we hold everybody accountable for pulling their fair share.”

Nextrio’s experience is a good example of how small businesses can alter direction and strategies quickly, allowing them to respond rapidly to changes in the marketplace.

“The secret to small businesses successfully riding out a recession is flexibility,” Hodgman says. “Small business owners have the ability to quickly adapt to a situation. A small business owner can gather key employees or family members in a matter of weeks and make a decision.”

Mary Schnack Media Services in Sedona is truly a small business. Owner Mary Schnack has only two employees. Yet, unlike some larger firms, the company’s revenues are growing. Schnack Media Services is a full-service public relations consulting company. A separate division, Communication Bridges, sends Schnack around the world to give presentations on communication topics for small businesses, corporations and nonprofits. Schnack started her public relations business in 1992 in Los Angeles, then moved it to Sedona in 1996, where it occupies the ground floor of her home.

Schnack says public relations revenue dipped a few years ago, then rebounded, with 2008 income doubling over 2007. She attributes the resurgence to a lowering of her fees and hiring full-time help.

“Having full-time employees really made a difference,” Schnack says. “It allowed me to really go out after new business more effectively.”

But the main reason is her customers’ appreciation of the expertise she offers.

“Through this downturn, I don’t see people cutting PR like they have before,” Schnack says. “There is a lot of publicity out there about why now is the time to crank up your PR. There isn’t a lot I have to say. Now people are approaching me.”

Schnack expects 2009 revenue to increase at least 50 percent.

“I think we can keep going on the uphill route,” Schnack says.

She expects small businesses will drive the economy’s recovery.

“Small business is what will bring us out of this recession,” Schnack says. “It will not be the corporations. It’s the small businesses that have fueled my growth.”

BestBill, a Phoenix company that uses technology to relieve its customers of the time-consuming task of generating and delivering invoices, has caught the attention of the SBA, and is its Best Business of the Year for Arizona for 2009.

Dan and Susan Haugland started the company out of their garage in 1999 to help medium- to large-sized businesses improve their cash flow.

“We don’t collect the money,” says CEO Dan Haugland. “We help our customers get their cash faster by taking data they provide to us, generating invoices from that data and delivering them either online or through the mail. We also can generate online payments from the consumer back to our customer.”

Growth has been the touchstone at BestBill since it opened. After occupying space at other locations, BestBill built its own 26,000-square-foot facility and occupied it in 2006. The company grew from 10 employees in 2003 to 33 in 2008. When the Hauglands first started, they generated 5,000 paper invoices a month. In 2008, they produced more than 34 million paper and online invoices, and they expect a 30 percent increase in billing transactions in 2009. BestBill opened for business with three customers. That number has grown to 130 nationwide in such industries as health care, utilities, manufacturing, transportation and property management.

Revenue increased 120 percent from 2005 to 2008. In 2008, gross income jumped 25 percent over the prior year, and the Hauglands expect a 30 percent increase in revenue this year. Net income doubled from 2005 to 2008.

BestBill has not been immune to the recession, however. The Hauglands note that their 2008 net income was flat and they have reduced staffing to 24 as they streamline to better confront the economic downturn. Still, they say they are on the path to continued growth and plan to open a second office in the Midwest in the fourth quarter of this year.

BestBill is a high-performing company because it does not waiver from its core business, Dan Haugland says. Susan Haugland, who is president of the company, attributes BestBill’s success to an emphasis on value.

“Not only do we feel that value, integrity and commitment matter, but we really value the client relationship,” she says. “I think that really matters — having solid client relationships. Those clients are happy to refer us to other clients.”

www.bestbill.com
www.communicationbridges.com
www.nextrio.com
www.prworks.ms
www.tattoosales.com

Small Businesses getting help in down economy

Despite Weak Economy, Credit Unions Are Providing Financial Assistance To Small Businesses

When talking about credit unions and business loans, the key word is small. The percentage of business loans to credit union assets nationally is about 2 percent; business loans in Arizona average about $240,000, compared to $180,000 nationally. And because the loans are relatively small, the focus is on small businesses. Federal law caps credit union business loans at 12.25 percent of total assets.

“With business loans hovering at around 2 percent, it tells you that a lot of credit unions are not doing business loans. But they have plenty of room to assist businesses,” says Scott Earl, CEO of the Arizona Credit Union League and Affiliates.

One of the reasons that a majority of credit unions, especially smaller ones, don’t dabble in business lending is because of the level of expertise required.

“You need to be fairly sophisticated,” Earl says. “Traditionally, larger credit unions have the ability and staff support to make business loans.”

Of course, not all business loans require a lot of sophistication. Perhaps a teacher has a summer job doing yard work and needs a trailer to haul things around. In fact, many of the loans go to sole proprietors, and some involve small-business owners who were turned down by a bank.

“We hear stories like that all the time,” Earl says, “and not because of economic conditions.”
Traditionally, a credit union gets involved in business loans because some loans are too small for the average bank — not worthy of their time and effort. That’s probably a bigger issue during an economic boom, Earl says.

“We’re making business loans. You hear about banks pulling out of business lending. But we have not done that,” says Mark Olague, assistant vice president of business lending for Desert Schools Credit Union.

He tells of a business prospect who had a construction loan with a bank and was having difficulty getting timely advances. Not only did the credit union make the construction loan, refinancing was approved for commercial loans on several of the client’s other Phoenix area properties, as well.

“We were able to step up and do the construction loan for that small business, making our member happy,” Olague says. “The key regarding the credit union world is that not only are we here to service business loans, we’re looking for relationships. We are relationship-oriented.”

In addition to providing an attractive interest rate on a business loan, credit unions offer such services as a checking account, credit card options for sales and purchases, and a 401(k).
“We’re like a one-stop shop,”

Olague says. “We can make loans for an overdraft line of credit for as small as $2,000 or for the purchase of a business vehicle for $30,000 to $40,000. Generally our footprint is from $25,000 to $2 million.”
Desert Schools’ business members generally seek loans for purchasing a fixed asset to start a new business.

“We’re not entertaining startups,” Olague says. “Normally, we’re looking at businesses that have been in existence for at least two years.”

All, however, is not rosy among credit union business members. A few have had bankruptcy issues and cash flow difficulties.

“We’re here for them in good times and bad times,” Olague says. “We may modify their loan to make payments easier for the interim.”

At First Credit Union, which has been making business loans for four years, Joe Guyton, senior vice president of credit, says he’s not seeing startups like he did a year earlier.

“The economy is clearly having a big impact on the capital needs of beginning a business,” Guyton says.

“There are not many people out there with the confidence to start a business. Our business members are coming in to maintain their borrowing relationship. They are concerned about losing that relationship. The amount of inquiries regarding new projects has almost dried up — anything with construction dollars on it.”

Although some business members have filed for bankruptcy, because First Credit Union is relatively new to business lending, the impact on it is considerably less than it would be on a major bank, Guyton says. Fewer than 1 percent of the credit union’s 60,000 members are businesses.

“We’re in a good position to continue to help them,” he says.
Michael Hollar, vice president of business financial services for Arizona Central Credit Union, says most of his business members are struggling. Last year, when gas prices skyrocketed, business members making deliveries took a huge hit. They were looking for alternate sources of fuel and were not seeking loans to buy new vehicles. They repaired what they had.

“A few of the savvy ones, when interest rates started dropping on the real estate side, came in to refi a loan with lower rates,” Hollar says. “We accommodated most of them. We charged a fee, but they were OK with that, rather than staying with the same payments.”

The volume of loan requests dropped considerably during the last three-to-four months of 2008. There were a few startups, mainly from people who had been laid off and were trying to go into business for themselves.

“In this environment, there is very little interest in businesses buying a new piece of equipment or looking for a building,” Hollar says. “They’re hunkering down to ride out the storm, hoping that 2009 brings a brighter day.”