A sobering look at 2010 and 2011 with someone who has been through previous downturns.
With 2010 finally over, everyone seems to feel the need to look back over the year that was. Here at Kamatoy Media Group we are no different, and because of our strong connection with small businesses we decided to go to our own small business and SBA loan expert, Craig G. Francis, for his thoughts on this very busy year. We wanted to know what he thought about the year in business, politics, and the economy, and Craig was more than happy to oblige. So today we begin a series of Q&A sessions with Craig G. Francis on the year that was and the year that is to be.
David Kamatoy: First, Craig, thank you for taking time at the beginning of the new year to talk to us.
Craig G. Francis: My pleasure, David.
David Kamatoy: To start off, Craig, what would you consider the top three small business stories from 2010, and why would you choose each of them?
Craig G. Francis: Well first, David, there was not a lot to cheer about in 2010. The economy, regulations and financial matters are still keeping small business down. The lack of consumer confidence is holding down business growth and profits. The state and federal governments are still running multi-trillion dollar deficits and we see more to come.
The business community is struggling to gain some traction in the minefield of uncertainty stemming from the lack of genuine concern for, and even active opposition to, the small business sector by the political elites. This is largely reflected in the jobs market. Unemployment is stalled at a high of 10% with another 7% who have given up. Small business creates jobs and retains them. So this measure of the businesses tells me that they are not healthy at this time.
Unemployment is stalled at a high of 10% with another 7% who have given up.
Given these conditions, businesses can give a small cheer to the extension of lower taxes for individuals and small corporations. Even though the extension is only for 2 years, it allows the entrepreneurs to cope with one less problem and hope that the extensions will be made permanent by the new members of the Congress. This then may allow the business owners to make long-term plans and hire additional employees, while investing capital that has been sidelined during the first two uncertain years of the Obama Administration.
Businesses can give a small cheer to the extension of lower taxes for individuals and small corporations...
The second story is the slow opening of the lending spigots to the small business
community. Coming from a complete lock down of capital of this lending sector in the latter part of 2008, banks are starting to provide the needed capital for growth to the entrepreneurs of this country. The SBA fee reductions and higher guaranties for small businesses, that segment that represents the greatest portion of job creation, has proven to be a great help to the banks’ comfort level in lending to the small business sector.
Banks are starting to provide the needed capital for growth to the entrepreneurs of this country. The SBA fee reductions and higher guaranties for small businesses, that segment that represents the
greatest portion of job creation...
The third story is the great potential for repudiation of some of the worst sections of Obamacare and the executive decisions that are diametrically opposed to business health. This job-killing machine is being shown in all its destructive glory and even some of the most ardent fans of government health care are recoiling from this economic Hydra. These sorts of regulations could easily add 20% to the cost of employees, making our businesses unprofitable and even unable to compete on the international level.
Obamacare... could easily add 20% to the cost of employees, making our businesses unprofitable and even unable to compete on the
David Kamatoy: The economy, of course, was a major source of stories during 2010. I realize that many of those stories cross over into both small business and politics, but what three stories do you see as having the greatest impact this past year?
Craig G. Francis: If these responses provide small cheer there is reason for this. I have a 35-year perspective to draw from. If a budding entrepreneur thinks the waters are getting warmer because the stock market is up and SBA loans are increasing, they may be in for a shock. The statistics that point to rapid recovery are not here.
First of all, political will and economic quick fixes emanating from D.C. notwithstanding, the economy will take AT LEAST 5 years to absorb the excess population of unemployeds as well as provide jobs for the population growth in this country. This time line is realistic if we do not bankrupt the country with deficit spending. And if China does not stop buying our debt unless rates double or triple. The economy is driven by the consumers and they are not healthy despite the small orgy of Christmas 2010 spending. Aside from state and federal hiring, nothing will increase employment rates in short order.
Some of the stats that tell me we are at least 3 and possibly 5 years from recovery are as follows:
- The Savings and loan failure of the mid 1980's cost the government about $150,000,000,000 in bailout funds
- The economic recession of the early 1990's coupled with the failure of nearly 1,000 banks cost the government about $500,000,000,000 in bailout funds
- This Great Recession is responsible for the collapse of Wall Street, the failure of over 300 banks to date and $4,000,000,000,000 in bailout funds spent to date.
Seems like the cost of bailing us out has increased
by several orders of magnitude.
Second of all, the inventory of foreclosed homes, those with underwater loan-to-values and those whose owners will default this year, is at an unprecedented level. The clearing of inventory will require another 20-30% drop in prices as banks and consumers rid themselves of this residential dead weight. The consumer-driven economic boom from 1998 to 2006 stemmed from the 15% annual price rise in homes. This boom in prices made consumers feel wealthy and they spent that wealth. The subsequent contraction in home prices made consumers who still had jobs feel poorer, and that has crushed the economy. Approximately $15 trillion in personal and corporate net worth evaporated in the last 4 years. This is about 20% of the entire net worth of this country. Adios Dinero.
US Government is $14,000,000,000,000 (yes, trillion) in debt and climbing...
When the US Government is $14,000,000,000,000 (yes, trillion) in debt and climbing, while facing $200,000,000,000,000 in unfunded mandates of citizen expectations for Social security and medical care, we will not soon see a recovery to match our expectations of wealth created in the last 25 years. The governments, both state and federal, are vast sucking black holes of fiscal ineptitude and bureaucratic sloth inexorably bankrupting the country and its citizens. Sorry about the bad news Mrs Lincoln, but how was that play?
In the last four rough patches from 1975 until 2006, it took about 2-3 years to recover. In this Depression it will take at least 6-8 years to recover. And that is only if we do not have some sort of economic retracementdue to an unforeseen event.
Finally, if you plan to start or build your business know this - in the last four rough patches from 1975 until 2006, it took about 2-3 years to recover. In this Depression it will take at least 6-8 years to recover. And that is only if we do not have some sort of economic retracement due to an unforeseen event. Proceed cautiously if starting your firm. Take care in growth plans. Be absolutely certain you do not start or outgrow your capital in uncertain times. Make sure your expansion capital is in place BEFORE you begin your business or expand operations. Do not expect ANY sort of bailout or helping hand from anyone, most particularly any government. They are broke and spend most of our tax dollars feeding Sponge Bob and the Mooch class.
Even if your personal optimism, the hallmark of all entrepreneurs, is at high level, it is easy to overlook the economic, regulatory and financial land mines that litter the field. Form alliances or confederations of like-minded people to make sure you have as much of the intelligence that will help you guide your business as possible. Get involved in local and regional politics and use the business owner resources and alliances you have forged to force changes at all levels of government.
David Kamatoy: Last year was a banner year for political speculation, with the rise of the Tea Party, the seemingly unending contentions in Congress, and the results of the midterm elections. Out of everything that happened in Washington and across the political landscape, what three events would you rate the most important?
Craig G. Francis: The midterm elections were certainly a major story. The House is in the hands of some allegedly mature people who've committed themselves to repudiation of the worst of the last two years. It is going to take years and a full change-out of the present political culture to realize these able politicians’ best hopes. And that is if they can keep their heads in the middle of the Beltway mentality. Few politicians can resist drinking the Kool Aid of power.
We do not have much wiggle room or time given the fact that our national debt is approaching $15 trillion dollars and growing by $1.2 trillion a year. If our national debt exceeds our GDP we will face a Greece-like debt burden that will change everything we know today. Interest rates will skyrocket. Loans will be prohibitively expensive. Tax revenues will plunge. Business sales and profit margins will evaporate and unemployment will rocket upwards. We will yearn for the days of financial malaise that characterized the Carter presidency. At least we had Reagan to help us out of that mess.
Inflation could easily hit 10-15%...
Inflation could easily hit 10-15% as we print increasingly devalued FIAT CURRENCY with Quantitative Easing II, IV and V, while inflating ourselves into insolvency. EVERY country in the history of mankind that debased their currency created the double barreled blast of inflation and economic ruin. Google that and see what comes up.
Even with the changes in the House of Representatives we are not in safe waters. Congress and the president have not done anything in the last 2 years to help with the job situation or programs to allow business owners some certainty in the years ahead. The best we can expect from a divided government is gridlock. In these fiscally uncertain times, this is not a healthy situation.
The Tea Party is a growing force in the political landscape but the changes needed to make inroads to fiscal responsibility will require draconian measures. This will require a complete change of power in the House, Senate and Presidency plus a fiscally responsible cadre of citizen politicians at the state and local level.
If this scares you, so be it. I'm also scared by what I see and am not confident that the Tea Party candidates can reverse our present course in short order. My business and financial well being is as much on the line as anyone else’s. It will take enormous courage and will to make progress in this present time of troubles.
David Kamatoy: Now that we have survived 2010, most of us are looking ahead to 2011 with at least a modicum of hope. Where do you see things going in the new year? How much of an impact will the Republican majority in the House have on the direction of the government and the economy? And do you think the economy will make as much of a recovery as the President seems to believe?
Craig G. Francis: You posed the question with the wording “survived 2010.” Yes, we survived. And we will survive the economic problems that will certainly occur without stringent and harsh measures needed to get our fiscal ship back on course. We will survive into the future. We are not going to die and eat worms, but it will be bleak. But survival is not the optimum strategy, since entrepreneurs are by their nature optimistic, nearly at a myopic level. And we need optimism from the small business owners community.
So here is what I have to say to business owners anywhere who are reading this.
I think we are in for a long period of economic stagnation with little hope for business owners, either budding or established. I am NOT optimistic, and this is due directly to the government policies of the last 4 years and longer. We hired these jackwagons and they have given us what we have now. Unless we are willing to remove them from office, we will get exactly what they are providing us today and that is outlined in previous discussions.
David Kamatoy: So to sum it up, what do you say to small business owners and entrepreneurs on the climate in general in the new year?
Craig G. Francis: Well, David, here is what I expect.
Some business owners will accept what I say and not start or grow their business. And that is probably wise since they should not bet their farm on a "land of Oz” optimism of improving business environments. They will not have the financial OR emotional resources to deal with the rough parts that they will inevitably face in the next 5 years. Stay the course and wait for the right time to start your business or expand the company with debt and new employees.
Some business owners, card-carrying members of the starry-eyed school of entrepreneurial optimism, will tell me I am full of beans. And I hope I am wrong in my prognostications. I take no pleasure in saying what I have outlined already. I have an overabundance of optimism because I have run my business successful and profitably through the best and worst of economic times from 1981 to the present day. And I have NOT given up hope. But I will not delude myself into thinking it is going to be easy. It is going to be a hell of a slog
I spend most of my days studying and reading the economic tea leaves and I am not left with an abundance of confidence that we can work our way out of this fine mess without measures so severe they will make the Great Depression look like a cake walk.
I am also a Reaganite sort of business owner and think and hope our best days are ahead of us...
But I am also a Reaganite sort of business owner and think and hope our best days are ahead of us. We have always worked our way out of our self-made messes and moved onwards and upwards. So I say to the optimistic entrepreneurs among us, “Slog on and take those challenges.” No one said it would be easy. It won't be. It is never easy for the business owner. But it is worth it!
“Slog on and take those challenges.” No one said it would be easy. It won't be. It is never easy for the business owner. But it is worth it!
David Kamatoy: Craig, thank you for your time and your insights. Best wishes to you in 2011.
Craig G. Francis: Thank you, David, and the same to you.
Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981 and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722.
This article was published as a three parter as it was done over a series of emails. This is the complete interview. Regardless of your political affiliations this is solid business advice from a guy who's been there before. Recovery will take longer but that doesn't mean you should not be building a business. Many a successful entrepreneur start building their fortunes in downturns...Are you?
David Kamatoy is a juggler figuratively and literally. Co-founder of Jugglemail.com and the Kamatoy Media Group he has worked with start-up and emerging companies for 15 years. Jugglemail is an email marketing, CRM, brand monitoring online program that helps entrepreneurs juggle their business. Kamatoy Media Group creates content for social media and beyond. For more information Call 619-573-9456 or via email by clicking here or joining the email list at DavidKamatoy.com.