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why Credit Access is Critical to recovery
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M
ost Americans under-
stand that small business- i nternationaL f ranCHiSe
es — not massive corpo-
rations — generate most new U.S. Steve Caldeira & Chad Moutray
jobs. And when these enterprises
hurt, they likewise lose jobs in billion in sales in 2009.
From 2001 to 2005, before the
similar proportions.
As influential financial analyst Great Recession began, franchised
Meredith Whitney observed last small businesses populated one of
May, “Small businesses created 64 America’s most rapidly growing
percent of new jobs over the past sectors. Their direct economic out-
15 years, but they have cut five put expanded by more than 40 per-
million jobs since the onset of this cent versus only 26 percent for
credit crisis. Large businesses, by other businesses. In those years,
comparison, have shed three mil- the franchising industry created
jobs at more than three times the
lion jobs in the past two years.”
Like Whitney, the National rate of other non-franchised busi-
Small Business Association
believes the situation is dire.
NSBA’s 2010 Year-End Economic
Report found that “fully one-third
(36 percent) — which translates
into more than 10 million — of the
nation’s small businesses are not
able to get adequate financing.”
Consequently, the NSBA added,
“small-business owners continue
to be financially stymied and ness segments. All told, more than
unable to grow their business, 825,000 franchise small business-
thereby restricting their ability to es in 300 different industrial sec-
tors yielded $2.1 trillion (with a T)
create jobs.”
The
Milken
Institute’s in direct and indirect economic
Managing Economist, Kevin output. Franchisees also created
Klowden, on March 21 lamented one of every eight non-farm, pri-
“the bleakest hiring outlook since vate-sector jobs in America.
This solid record shows that,
early 2008.”
with
sufficient access to capital
While the entire small-business
sector gasps for credit — the oxy- and a stable public-policy and reg-
gen of free enterprise — the situa- ulatory environment, franchised
tion is both troubling and promis- small business can be a job-creat-
ing locomotive that pulls the rest
ing for franchisees.
Consider 7-Eleven. Franchisees of the economy forward.
But, once again, the recurring
run some 5,000 of the company’s
6,100 U.S. outlets. They, in turn, problem is a lack of coal to shovel
are part of a worldwide, 36,000- into that mighty engine’s boiler. In
store network that produced $58.9 a recent survey, fully 55 percent of
the
International
Franchise
Association’s members called
themselves “moderately” or “sig-
nificantly” affected by tight credit.
This stunts their growth. While
2011’s stronger overall economic
outlook encourages franchisors
and franchisees, a lingering lack of
credit sinks their spirits and
smothers a broader recovery.
For their part, lenders have their
own cows on the tracks. Banks
face sharp declines in the value of
their borrowers’ collateral. A much
more rigid regulatory environment
has bankers looking over their
shoulders like never before.
... the recurring problem is a lack of
coal to shovel into that mighty
engine’s boiler
Meanwhile, the unemployment
rate has hovered near 10 percent,
limiting the income that the job-
less otherwise would deposit in
banks and lowering their demand
for lucrative banking services.
Many banks’ business customers
have watched sales volumes slide,
forcing them to live with lower
profits, if any.
The Obama Administration, to
its credit, recognizes the impor-
tance of credit for small firms.
Thus,
Small
Business
Administration chief Karen Mills
has worked to raise federal guar-
antees on SBA loans to 90 percent.
She has reduced or eliminated fees
on such loans and lifted the maxi-
mum amount that a business may
borrow from $2 million to $5 mil-
lion. Meanwhile, the U.S.
Treasury has shown a flash of cre-
ativity with a new plan to spur
state-level lending to small busi-
nesses.
To find even more solutions to
these problems, the International
Franchise Association, in coopera-
tion with the National Association
of
Government
Guaranteed
Lenders, the Consumer Bankers
Association,
the
National
Restaurant Association, and other
leaders from the financial and
small business communities
recently convened at a Small
Business Lending Summit in
Washington, D.C.
Participants — including entre-
preneurs, financiers, and regula-
tors — discussed the establish-
ment of a franchise registry that
would streamline loan approvals
and provide a pipeline of qualified
borrowers, eager to be financed.
All of us - including franchisees,
franchisors, lenders, policymak-
ers, and taxpayers - have a stake in
igniting the economy by giving
entrepreneurs the tools to create
jobs and grow. Small business
franchising can contribute the
missing spark.
Steve Caldeira is the president
and Ceo of the international
Franchise association (iFa).
Chad Moutray, a former chief
economist of the u.S. Small
Business administration’s office
of advocacy, serves as a senior
advisor to the iFa.
Human Deficit looms in wake of Budget-Cuts
A
financial debt can be paid
back. But the debt we’ll
owe our children if invest-
ments in health, nutrition and edu-
cation are slashed is irreparable.
Investment in human infrastruc-
ture – providing the human capac-
ity development for optimal eco-
nomic productivity and innovation
through both government and
business investments – is essential
for success in the post-industrial
economy, and this should be our
policymakers’ guiding economic
principle.
It’s up to us to ask the hard ques-
tions: Why are we being told we
can’t raise taxes on the rich, but
must cut wages for teachers, nurs-
es, child-care workers and others
on whom our future depends?
There is no evidence that lower
taxes on corporations and million-
aires “raise all boats,” or that mas-
sive cuts in social services have
ever helped people in developing
nations rise from poverty. The
opposite is true. It is countries like
Canada, Sweden, New Zealand
and Finland that have made com-
mitments to caring for future gen-
erations that have risen from
poverty to prosperity. And today
nations such as Brazil, South
Korea, and other “emerging
advanced economies” are heavily
investing in their people.
Why are we told that cutting
social programs is the road to
prosperity, when our past prosper-
ity was the result of the very oppo-
site?
Page 4 The Seattle Skanner april 20, 2011
e nterPriSe
Riane Eisler & Rene Redwood
At the beginning of the 20th cen-
tury, the United States was what
we today call a “developing coun-
try.” Except for the super-rich, our
general living standard was
abysmal: child and general mortal-
ity rates were extremely high, as
was poverty. Then we invested in
UNICEF study, the U.S. ranked
24th of 25 developed countries
with children living below the
national poverty level. By compar-
ison, the Netherlands, Sweden,
Denmark, Finland and Spain
topped the list. The U.S. Census
Bureau estimates that poverty
afflicts roughly one in six
American children—some 13 mil-
lion youths, a figure that’s expect-
ed to rise as poverty trends contin-
ue to soar.
‘Our priorities should be exactly what
the ‘deficit hawks’ are putting on the
chopping block’
prenatal and child health care such
as vaccines; abolished child labor;
mandated not only primary, but
also secondary public education;
and promoted college education
through the GI Bill for returning
soldiers. These kinds of govern-
ment expenditures, along with
Social Security, Medicare, Head
Start and other government pro-
grams to care for and educate our
people had a huge return on
investment for our people and
nation.
Today, largely as a result of
retrenching in such public expen-
ditures, the U.S. has higher child
mortality, maternal mortality and
poverty rates than any other devel-
oped nation. According to a 2007
In 2009, more than 4.4 million
single mothers earned wages
below the national poverty level
and were barely able to supply
their children with basic needs.
That number of women had
increased 6.7 percent compared to
the previous year, according to
census figures. The kinds of cuts
now proposed — especially cuts
to programs to help impoverished
families with children — will push
us down even further.
By contrast, investing in educa-
tion, health care, child-care and
eldercare drastically reduces
unemployment, poverty, public
assistance, spending on prisons —
and at the same time provides a
trained work force and higher tax
base. According to a recent
NBC/Wall Street Journal poll, 37
percent of Americans believe job
creation/economic growth is our
nation’s No. 1 issue, and only 22
percent named the deficit/govern-
ment spending as the top. What’s
more, while Americans find some
budget cuts acceptable; they
adamantly oppose cuts in
Medicaid, Medicare, Social
Security and K-12 education.
That’s because most of us know
that our most important assets are
our people. If we don’t invest in
human infrastructure, we cannot
be economically successful.
We urgently need a realistic
long-term perspective on how
national and state deficits are cal-
culated. The human capital deficit
created by cutting social programs
will be irreparable.
There’s an old saying that an
ounce of prevention is worth a
pound of cure. Our priorities
should be exactly what the “deficit
hawks” are putting on the chop-
ping block. Cutting those pro-
grams is criminal behavior, not
sound policy.
riane eisler is president of the
Center for Partnership Studies
(www.partnershipway.org) and
author of the real wealth of
nations and the Chalice & the
Blade. rene redwood is Ceo of
redwood
enterprise
in
washington, D.C. (www.redwood-
enterprise.com).