Dear PBO #2 – Small and Mid Sized Firms

Below is my letter to the President regarding the economy; it is in summary form.  To see full details click the Dear PBO page and go to the June 23 letter.

Dear Mr. President

Last week I suggested tax credits as a way to stimulate the economy, with the focus on changing attitudes and behaviors using fiscal policy.  Let’s not forget the engine of the economy, the small and mid sized businesses.  Small and mid sized businesses need two sources of capital – bank credit and private capital. 

 Of course the behavior of the banking industry has dried up credit.  During recent times many a banker cut credit lines, called in loans, did not renew maturing term loans and mortgages and failed to increase credit when needed.  Small and mid sized businesses have balance sheets that are leveraged, cash flow is weak or negative, collateral is weak and getting weaker as accounts receivable customers continue to fail or fall behind on paying and commercial real estate values falter.  This fuels the bankers’ argument against lending. 

 Small and mid sized businesses also have difficulty raising equity capital.  While the 1933 securities laws were modified to allow for unlimited shareholders and unlimited amount of capital raised, the l934 laws were not modified.  If a company exceeds 500 shareholders they “move up” to full SEC oversight and compliance, including Sarbanes Oxley.  Small and mid sized businesses do not have his kind of extra cash. 

 The solution?  For the credit issues – get bankers to lend!  Use the monies from the 2010 Small Business Jobs Act to allow bankers access to these funds to be used as supplements to their “normal lending practices”.  These funds would be free of bank capital requirements, all income derived from these loans would be free of taxes for up to 10 years. 

 For the capital issue – relax small business stock offerings.  Suspend the 80% intrastate sales rules since this defeats a company’s desire to sell globally.

 Doing these simple steps will allow billions of new investment and loan dollars to flow into small and mid sized businesses.  Next time I will focus small business tax credits and interest rates.  I am only interested in business solutions.

Thanks for the listen – until next time.


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