It’s the Economy, Stupid?
Everyday, depending on what consumers or employers are doing, the economy is either growing or contracting. There are a few Economic Indicators or news announcements that you might be interested in following to come to your own conclusions:
- The decision by the Federal Reserve (“Fed”) to either increase or decrease the Quantitative Easing (“QE”).
- Whether or not Congress or the President plans on not enforcing certain aspects of Dodd Frank,
- How your local Business Climate is reacting to the changing economic conditions in your region or area of operations.
The decision by the Fed to ease further or decrease their QE program is important because the program has had unintended consequences. The original strategy behind QE was to increase the money supply to stimulate the economy. Put simply, if banks had more money they would lend it to you, the small business owner. In turn these business funding solutions you to hire new employees and increase sales through which the economy would grow. grow. The reason why small business funding may have worked in the past (i.e. the early 1990’s) is because banks did not receive interest on funds deposited at the Fed. Under the QE banks will receive interest on their deposits. This has translated to no lending to the Small Business Community because lending to the Federal Governmentcomes without the chance of a default. Small Businesses who take risks often default and are not as good credit risks as the Federal Government.
The “To Big to Fail Banks” are now lending to their guarantor and not to you. These banks have been able to recover from the financial crisis without taking any risks. During the same period of time in the early 1990’s the Prime Rate was 8% (per annum) and the Fed Funds Rate was approximately 3%. Parking money at the Fed yielded negative 3% and lending to a good credit yielded 5%. The banks made loans and the economy recovered all they way until 2001. As a result of the stimulus the private sectorrecovery led to robust economic growth with limited (if any) budget deficits by the time President Bill Clinton left office.
Because the banks are lending to the Federal Government there is no inflation risk since all the excess liquidityis in the bank being borrowed by the Fed. That’s good for a business owner and homeowner but not good for people planning to retire because more likely than not, they’ll have to go back to work to increase their nest egg or just cover living expenses. This is why temp agencies have so many qualified candidates to hire to support the growth of your business.
When reviewing Dodd Frank headlines what you should focus on is the reserve requirements of the banks. If it appears that the law will be amended to reduce the reserve requirements for small business loans then you could consider going back to the bank for financing. However, you will still need audited financial statements and three years of profitable operations, personal guarantees and the rest. You have to weigh the cost to you personally versus going to a finance company or Factor where the cost of capital may seem more expensive but the cost to you personally as the business owner is far less and there is less risk to your personal assets than at the bank.
Finally, how is the local economy doing? Connecticut is considering developing a Port Authority, Florida is creating a for-profit railway system, New York is building at least three new bridges, the City of New York is in fear of being washed into New York Harbor and has initiated a $20 billion flood control plan. I am sure if you read your local paper everyday you will find that there are significant opportunities available to you or your business. Take a minute to cut out the article and call the reporter to ask them questions. Who doesn’t like to talk about their work? Contact whoever is in charge of the project; find out how you can help.
The worst case scenario is that you prepare a presentation and you don’t get to participate in the original project it was intended for however the presentation can be utilized for a variety of other opportunities so another opportunity can be gained from poking around. This could actually lead to multiple jobs. Although the opportunities identified above all seem like construction projects, they need Supplies, Office Supplies, office space, etc. and they last several years. You might not be able to change the direction of the economy, but you are able to change the direction of your company. Set yourself up for success by working towards completing your business goals and use spot factoring to make progress by any means necessary.