Jumpstart the Economy by Stimulating Small Business

Small businesses play a vital role in the American economy.  In recent years, small businesses have been responsible for the greatest amount of job creation in the United States.  In addition, small businesses push trillions of dollars through the economy.  Unfortunately, this recession has come back to hit small businesses particularly hard, as evidence by the commercial real estate explosion and last month’s excessive job losses (Financial Times):

Mid-sized and small businesses suffered the most job cuts last month, shedding 314,000 and 262,000 workers respectively. Large companies – those with more than 500 employees – cut 121,000 jobs.

Despite bleeding jobs more than large companies, small businesses have received much less attention regarding economic stimulation.  For this reason, many are working to increase small business and startup stimulus.

Though startups and small businesses are typically considered risky investments, with the decreased costs in labor, office spaces and supplies that result from a downturn, good business ideas (particularly those pertinent to emerging markets) may make for worthwhile investments.  In a recent article, Reid Hoffman, founder and CEO of the internet firm LinkedIn, calls for a new stimulus plan aimed at jumpstarting the startup and small business community.  As a big supporter of the small business and startup community, Hoffman proposes three ideas to get this economic sector engine up and running.

Small Business Week in Review: 03/02/09

Economic News Roundup

Nationalization of Citigroup and Bank of America took center stage this week.  Shares of Citigroup (NYSE:C) fell below $2.00 a share on Friday and were trading below $1.50 in the pre-market this morning.  Economists Nouriel Rubini and Paul Krugman advocated temporary nationalization of the banks.  Former Federal Reserve Chairman Al Greenspan also suggested that a temporary nationalization of the banking sector might be appropriate.

Speaking to the FT ahead of a speech to the Economic Club of New York on Tuesday, Mr Greenspan said that “in some cases, the least bad solution is for the government to take temporary control” of troubled banks either through the Federal Deposit Insurance Corporation or some other mechanism.

Current Federal Reserve Chair, Ben Bernanke however rejected nationalization as an option, favoring taking substantial ownership in the companies through common stock purchases and other debt instruments instead.  Executing upon this strategy, the United States Government took a 38% stake in Citigroup by converting its preferred shares into commons shares.  The deterioriate in Citigroups shares since the converstion to common stock led to a mult-billion dollar loss on the investment overnight.

Update: How the 2009 economic stimulus package affects small businesses

We wrote earlier about how Obama’s 2009 economic stimulus proposal, the American Recovery and Reinvestment Act of 2009, would affect small businesses.  Since then, it has been revised by the House and Senate and was signed into law by President Obama on Feb 18, 2009.  Given that the debate over whether or not to pass the bill has ended, let’s review how this stimulus package affects the small business community.

You can follow along by obtaining a full copy of the stimulus bill from either Recovery.gov or Wikisource.org.  Be warned - the pdf is over 100Mb and the bill is composed of 1419 pages (which is why we recommend the lightweight interface offered by Wikisource.org).  Small business provisions can be found in Title V, Section 4 of the American Recovery and Reinvestment Act of 2009. 

Small Business Week In Review: 02/16/09

Economic News Roundup

I absolutely hate being the harbinger of doom and gloom, but events in the corporate sector warrant concern.  Several large firms have started paring business relationships with companies deemed to be unstable. Yves at Naked Capitalism writes

One sign that conditions are worsening is that major companies are cutting their exposures to business partners they deem to be in peril. This is a corporate version of the paradox of thrift. While this activity may seem laudable as far as each actor is concerned, it will have the effect of pushing some enterprises over the edge. And those failures feed the downspiral of activity and psychology.

Small Business Week In Review: 02/09/09

Economic News Roundup & Stimulus Plan

House speaker Nancy Pelosi’s team published a graph comparing the recent job losses to previous recessions.

This chart compares the job loss so far in this recession to job losses in the 1990-1991 recession and the 2001 recession – showing how dramatic and unprecedented the job loss over the last 13 months has been. Over the last 13 months, our economy has lost a total of 3.6 million jobs – and continuing job losses in the next few months are predicted.

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