How to Grow the Economy: A Blueprint for NYS and the World

Recent numbers from ADP tell the story for the U.S. and the world. Big companies are shrinking their employees; growth comes from small businesses. In the U.S. since 2001, small firms have added just under 50 million employees. Large firms have shed 3.5 million.

The “large” firms that have hired tend to be tech firms like Google, Facebook, Grouper, Twitter, etc. and those firms hire people with unique skills who otherwise have no trouble finding a job.

Large banks and manufacturers can’t lay off workers fast enough — not because they WANT to, but because they HAVE to. Survival of large firms depends on being leaner and meaner.

So how can we help small businesses grow even faster. What’s holding them back? Business owners complain about three things — excessive government regulation that reduces the incentive to hire a fulltime person, inability to find qualified people and access to capital.

I want to concentrate on the last issue because that’s easily solvable. In fact it’s being done in third world countries via micro-financing — very small loans to very small companies. Thanks to Colin Mathews of readMedia who got me started, I’ve been loaning money to some of these companies through Kiva, a non-profit organization whose mission is “to connect people through lending to alleviate poverty. Leveraging the internet and a worldwide network of microfinance institutions, Kiva lets individuals lend as little as $25 to help create opportunity around the world.”

Some of the companies I’ve loaned money to are a furniture maker in Zimbabwe, a farmer in Peru, a construction firm in Cambodia, a farming collective in the Philippines, a grocery store in Ghana and a wholesaler in Kenya.

The minimum amount is $25 per loan. After your initial loan is paid back, you can loan your $25 out to another business. Kiva takes a small amount to cover its expenses which are extremely low. They use existing local organizations to help them identify and monitor their loans, but have an extremely low default rate.

Kiva is operating in 61 countries and has loaned out more than $250 million in microloans

The same concept needs to be adopted in the U.S. Currently for a small business to borrow money from a bank requires too many steps, too many forms and too much collateral. Borrowing that way only makes sense for loans in the tens of thousands of dollars if not hundreds of thousands of dollars. Banks don’t want to deal with small loans because of their cost structure and many loans don’t fit banks timelines.

A business may need a loan for a month or to cover payroll until a bill owed them is paid or may need a loan right now to cover an emergency, not in weeks which is what it normally takes to get a bank loan.

Microfinancing can help a gardening company that needs to replace a mower, a delivery firm that needs to repair a van, an event planner who needs to buy $2,000 worth of flowers, a coffee shop that needs additional tables and chairs, or a photographer who needs a $3,000 camera for a specific job.

I’m convinced there are also thousands of individuals who would like to start a business if they could borrow a small amount of money. That includes people who can do web design, write software, teach yoga, provide day care for children and seniors, clean offices, etc. A Kiva type system coupled with some basic information about starting and running a successful business would help some of these people get going. Some would grow into 5 and 10 and 50 people companies; one or two might become the next Facebook.

Many small companies finance these kinds of purchases with credit cards at 18-21% interest, building up debt over time which lessens their survival chances. Micro loans charge much less interest and, using local lending organizations, can be arranged in a short time — a day or two. They base their loans on the credibility of the individual owner and not how much collateral s/he has.

More than 600,000 people like me are “loaning” money through Kiva. So another positive of the system is that middle class people can participate as lenders as well. The capital necessary for a U.S. program could require as little as $100/lender or a Bill Gates or Warren Buffet could get it started with a few million dollars. Kiva is non-profit, but a for-profit model would work in the U.S.

Too many people, including U.S. Senator Kirsten Gillibrand, think the manufacturing model of 50 years ago can come back to NYS if government sets up the right programs and sends enough politicians on overseas trips. Big manufacturing is never coming back, folks. Small manufacturing — two to 20 person shops — can be work if government gets out of the way in terms of regulations and drops phony benefit programs like New York’s failed Empire Zones which help the wrong type of company. It’s that simple.

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