AEO Job Creation Recommendations to the White House
Why isn't HUD working with outfits like this?
AEO Job Creation Recommendations to the White House
On December 11th AEO held a Microenterprise Jobs forum to identify recommendations for President Obama’s job creation strategy. The following recommendations were made by AEO members during the Forum.
Increase the loan eligibility for Small Business Administration (SBA) Microloans to $75,000. The Obama Administration has made recommendations to increase the loan limit to $50,000 from $35,000.
Increase the loan limit for SBA Microloan Intermediaries from $3.5 million to $5 million to ensure the microenterprise development industry can meet the rising demand for microloans.
Make Technical Assistance funds available to intermediaries in advance to provide the support necessary to produce viable loan applications.
Provide $200 million in unspent TARP funds ($50 million in capital and $150 million for TA and loan loss reserves) immediately to qualified CDFIs and nonprofits with demonstrated track records in small business lending. These funds could be granted through the CDFI Fund which has proved its ability to move capital grants swiftly and efficiently to nonprofit community based lenders.
Expand SBA Programs to extend both credit and technical assistance to micro and very small businesses (under 20 employees)
7a Program must include certifying non-bank nonprofits as Small Business Lending Corporations. These groups can take the risks and provide the technical assistance that banks cannot do.
Use 7m (Microloan Program) intermediaries as primary conduits for the SBA ARC loan program which banks are unwilling to offer.
Provide loan guarantee option for 7m intermediaries to leverage more lending
Extend loan guarantees to 97% of loan amount
Expand PRIME grants to $ 5million to fund TA and training.
Make Community Express Program permanent which will streamline a high volume of micro loans and TA to borrowers in underserved communities.
Re-capitalize the Dept. Of Commerce’s Economic Development Administration’s (EDA) revolving loan funds that target borrowers in underserved communities. $50 million in new capital would leverage $150 million in private investment by micro and small businesses.
Enable the entrepreneurial unemployed to start sustainable businesses by removing barriers within the Dept. of Labor’s Workforce Investment Act (WIA) Program.
Self Employment should be treated as a “special initiative” within DOL in order to demonstrate effectiveness as a job creation strategy
New performance measures should be created for Self Employment Training and Technical Assistance programs, e.g.:
filing of business license
Evidence of business revenues
Enact meaningful health care reform that offers small business owners an affordable option to insure themselves and their employees.
Create incentives within the Unemployed Insurance system for more states to adopt a Self Employment Assistance option. To date only 10 states have such programs in place.
Adequately fund business assistance entities such as AEO member organizations to provide the needed training and technical assistance to Self Employment Assistance participants.
Change Small Business Administration Community Express Loan Program and the Patriot Express Loan Program from pilot status to permanent programs. The pilot status limits the number of loans that can be written monthly.
The SBA Community Express loans under $50,000 should be 100% guaranteed.
The SBA Patriot Express program should be made available to widows of honorably discharged veterans.
The SBA can have a direct impact on small businesses and job creation if they provide increased direct capital to Microloan intermediaries, even on a one-time basis. There is too much emphasis on the SBA as a guarantor. Banks are not making SBA loans regardless of fees, amount of guarantee or any other risk defrayment. SBA Microloan intermediary lenders are perfectly positioned to get capital out to small businesses and create an immediate impact, but need capital to do so.
Self-employment needs to be counted as a job created.
The Workforce Investment Act needs to be amended to cover people who are trying to start a business, instead of only individuals who are actively looking for jobs.
Welfare-to-works programs should subsidize participants who enroll in entrepreneurship programs.
The SBA should not limit loan larger than $50,000 to lone low-to-moderate-income areas or HUB zones.
Congress should authorize the creation of a “Main Street Small Business” program with $725,000,000 of unexpended TARP funding. The purpose of the program will be to create at least 50,000 new jobs in small businesses in the next 5 years and an infrastructure that will continue to provide capital, training and technical assistance for small and micro businesses into the foreseeable future.
The “Main Street Small Business” program will be administered through the Small Business Administration working with their existing network of Intermediary Microlenders.
Through a competitive application process, the SBA will select 100 Intermediary Microlenders to implement the program. The program will provide two types of funding:
a. One-time Capital Grants of up to $3.5 Million per Intermediary Microlender to be a permanent addition to their existing microloan funds, and
b. Up to $750,000 annually for five years for fund operations and training and technical assistance for small/micro businesses per Intermediary Microlender
Assuming that each of the 100 Intermediary Microlenders selected receives the maximum amount of funding for both the Capital Grants and the Operating Funds, the total program cost will be $725,000,000 over five years. This amount includes:
a. $375,000,000 for program operations, entrepreneurial training, technical assistance and counseling over five years, and
b. $350,000,000 in capital grants to Intermediary Microlender loan funds.
With an average loan size of $19,000, a total of 18,421 loans will be made to small/micro businesses over the next five years. With a conservative average number of 3 jobs created per business, this will result in a total of 55,236 jobs created or retained. The US Department of Health and Human Services, Office of Community Services has as a benchmark, a maximum cost per job of $20,000. Based on operating expenses the Main Street Small Business program has an average cost per job of $6,786.
The Small Business Administration’s Certified Development Loan Company program has established as a benchmark a cost per job of $35,000 of “debenture proceeds” provided by the SBA. Using the SBA CDLC formula, the cost per job of the Main Street Small Business program is $6,333.
An additional benefit of the Main Street Small Business program is that the loan funds “seeded” with capital will continue to be loaned out as loans are repaid, creating an on-going pipeline of loan capital and job creation for small/micro businesses into the future.
Here's an outfit already doing this. It amazes me that HUD doesn't share, with some kind of warning about not endorsing, information like this. HUD has all those public affairs people, one of whom in under 4 minutes per day could be sharing information like this, as a forwarded message, with a HUD listserver devoted to microlending and microenterprise. No, they'd rather pay consultants big bucks to do almost nothing except create hard to understand documentation that vanishes after a year or two. Will the people who keep saying it's impossible please get out of the way of the people already doing it?
From: firstname.lastname@example.org [mailto:email@example.com] On Behalf Of Jason Friedman
Sent: Saturday, February 06, 2010 5:20 PM
Subject: AEOWorks Listserv Free Webinar Tuesday for Microlenders!
Free Webinar: Prepare Your Microloan Program for Competitive Funding and Greater Impact in 2010!
Date: Tuesday, February 9, 2010 and February 16th
Time: 1:00 PM - 2:30 PM CST
Space is limited.
Reserve your Webinar seat now at:
Microlenders and CDFIs are front page news today as banks continue to say “no” to small business borrowers. Demand for capital from the SBA Microloan Program and CDFI Fund is at an all-time high, and USDA is poised to announce a new program for rural microlenders. However, one consequence of the recession has been to tighten underwriting standards and focus on portfolio management. Now, we see new demands at both ends of the spectrum – increasing numbers of unbanked and underbanked individuals, as well as small businesses that could previously access conventional financing and which may not fit our traditional client profile.
What’s your next move?
Join us for a two-part webinar that will share strategies and recommendations to help you assess and strengthen your microloan program. We’ll answer the following questions:
• What are the simple steps you can take to assess the health of your loan program to enhance performance, reduce costs and get to “Yes!” faster?
• What are some recommendations to streamline and improve underwriting decision-making and portfolio management?
• What are leading microlenders doing to increase volume through product diversification and expanded targets markets?
• How do changing demands in your market affect your mission?
Presenter: Amelia Lobo, Friedman Associates
Amelia is the former Senior Underwriter for ACCION USA (formerly ACCION NY), the largest microlender in the United States. She will be joined by special guests Galen Gondolfi, Senior Loan Officer of Justine Petersen in St. Louis and Jill Stephens, Vice President, Lending and Marketing at ACCION Chicago.
Part II is on February 16th and a separate announcement for Part II will follow. Our panel will include Sandy Headley, Vice President of Lending for Appalacian Community Enterprises and Georgia Green Loans and Galen Gondolfi of Justine Petersen. For questions, contact Amelia Lobo at Amelia@friedmanassociates.net or call 319-341-3556
If the Department is serious about Sustainable Communities, this element is extremely important.
Six Sigma commented
I look at the book Three Cups of Tea, where one man, with inadequate funds, has built more schools than several governments. I ask myself, how can HUD staff be like Mortensen? Getting maximum bang for the buck? Incorporating local resources to the max, as he does? That book should be required reading, from the library, for ALL HUD STAFF. We hear all kinds of management terms from the 10th floor. Business Process Reeingineering, for example. Except that those people don't understand the process, as a rule. It is fascinating to see them asking the field, and clients, for input, they never used to. In systems, ALL disease, all problems, are the direct result of blockage. Clear the blockage, and the flow heals. With human systems, flow is communication- and acting on feedback. That is the basis of all Six Sigma, Lean, TQM, and all the others. This agency mostly does not act on feedback, unless the IG or GAO is providing it. That is breakdown maintenance, it is not preventive maintenance. The Strategic Plan should have at least 30 Business Processes related to HUD's long term goals, with a full description- based on what really happens- and then areas for suggestions of improvement. This forum is great, as a first step. If HUD is really serious about the 5 goals cited here, it is more than simply collecting ideas. Some sequence of how to implement is important. Many inner city churches, for example, are excited about getting government funds. However, many do not have the capacity to handle them, or account for them. Capacity is more important than the funds. Give a man a fish, and you feed him for a day; teach him how to fish, and you feed his family for a lifetime. We pass out far too many fish, and do almost no teaching. This is stupid at best, no wonder people are angry. The very first step would be collecting Best Practices- as a story of the entire operation of the outfit, and also as segments that can be copied. Even this first step is not occurring, not much.
TOP TEN REASONS WHY MICROENTERPRISE
MATTERS MORE THAN EVER TO AMERICA
The Association for Enterprise Opportunity (AEO) defines a microenterprise as a business with five or fewer employees, requiring $35,000 or less in initial capital. These businesses may be relatively small, but they are making a very large difference when it comes to job creation and help for our nation’s struggling economy. Here are ten facts about microenterprises that you may not be aware of:
There are an estimated 24 million microenterprises in the US today, representing 18% of all private employment in the country;
More than 87% of all businesses in the US today are microenterprises;
One out of every six US private sector employees works for a microenterprise;
More than 4.5 million new jobs were created in the United States by microenterprises between 2000 and 2005;
On average, microenterprises are responsible for 900,000 new jobs created per year;
In 2002 when the nation saw the unemployment rate hit a record high of 5.8% - microenterprises created close to 1 million new jobs;
AEO members (mostly microenterprise practitioners) report a dramatic increase in microloan applications over the past year and have indicated this is a direct result of the banking industry tightening business lending restrictions;
Prior to the credit crisis and economic slowdown, AEO estimated that more than 10 million business owners faced difficulty obtaining business capital – AEO members estimate that number has grown dramatically over the past year;
AEO estimates the microloan approval rate among its members is nearly 60% and reports that the average microloan is $7000; and
About $300 million in loans have been made by AEO members to entrepreneurs.
Microenterprise development is a proven pathway to business ownership for underserved entrepreneurs that generates income, builds assets and supports local economies.
AEO Microenterprise Statistics
In the United States, a microenterprise is usually defined as a business with five or fewer employees, small enough to require initial capital of $35,000 or less; the average microloan is about $7000.
AEO estimates there are more than 24 million microenterprises in the U.S., representing 18% of all private employment and 87% of all businesses. One out of six U.S. private sector employees works for a microenterprise. Historically, microenterprises have been considered the backbone of the U.S. economy.
Most microenterprises are sole proprietorships, which create employment for the owner and, often, other family members; they are commonly called "mom and pop" businesses. Some grow into large enterprises employing other members of the community. Microenterprises include a variety of businesses in the products and service sectors such as repair and cleaning services, specialty foods, jewelry, arts and crafts, gifts, clothing and textiles, computer technology, child care, and environmental products.
1. A number of immigrant entrepreneurs got their start by living in rather primitive conditions, even sleeping in the back of their stores or businesses, to cut costs, until their business was producing enough income. There are business incubators out there. Wouldn’t it be interesting to have something like a mutually supportive community, more than just the microlending group, where people would live for say 2-3 years until their businesses are throwing enough cash to support market rate housing? With perhaps a cadre of experts- people like you- for the more difficult questions? I could envision this in say the Newhallville area of New Haven, CT, as one example, based on another post on this site. I could envision an unused older industrial complex being set up to do this, with living areas right next to business incubator support. The idea would be something like transitional housing and support, as an incubator to help the entrepreneurial effort get off the ground. I could envision one of these in every large city in the country. I could envision one of these in larger Public Housing complexes. There’d be more synergy and networking. For some kinds of businesses, critical mass would be easier to reach in a situation like this.
2. There is quite a bit of Internet material to help people staring out businesses. With no endorsement implied, sitebuildit.com is an example one such support. I wish we had a website where people in this industry could share their good resources, and have them displayed sorted by keywords so even people who didn’t know exactly what they were looking for could stumble their way into useful information. Sort of a one-stop shopping information website, with ratings like what you see on Amazon.com