The StartUp Blog at PartnerUp

Despite previous attempts by the federal government to spur small business lending, little has helped. In another attempt to get back on track, the Obama administration is working on two new initiatives.

Aid community banks in lending to small business

• Plan: Banks with less than $1 billion in assets can borrow from the government at a 3 percent dividend rate—a reduction from the 5 percent rate the Treasury Department currently offers borrowers.
• Intention: Back in February $730 million was given to the Small Business Administration to help them offer incentives to large banks that make qualifying small business loans. Despite these efforts, lending through the SBA has dropped 36 percent in the 2009 fiscal year. So the government wants to look at lending from a new perspective—community banks. They want to make cheap capital available to small banks in hopes that they’ll use it to lend to local small businesses.
• Problem: Some community banks believe that additional capital is unnecessary, saying that they’ll already lend to borrows so long as they’re qualified. They believe the incentive won’t make much difference.

Increase the maximum loan amount on SBA loans

• Plan: Raise the maximum loan amount on SBA loans from $2 million to $5 million. Also raise the maximum loan amount on SBA-backed micro loans from $35,000 to $50,000.
• Intention: Larger loans will provide more money to small businesses and franchisees looking to start and grow their businesses.
• Problem: The majority of small businesses looking for loans from the SBA are not looking for anywhere near the current ceiling of $2 million. Of the 44,000 loans the SBA backed last year, fewer than 15,000 were for more than $150,000.

When the American Recovery and Reinvestment Act was signed into law last February, the small business community saw an opportunity to capitalize on the many government contracts that were about to be doled out.

While the Recovery Act does not specify a goal for contracting with small businesses, guidelines request that federal agencies follow the overall goal that 23 percent of government contracting money goes to small businesses.

According to Joe Jordan, Associate Administrator for Government Contracting Business Development at the Small Business Administration, the federal government has exceeded this goal. As of Oct. 2, nearly 26 percent of stimulus contracting money—more than $4 billion—has been awarded to small businesses.

The Defense Department, which typically falls short in awarding contracts to small businesses, has awarded them a whopping 58 percent of its Recovery Act contracting budget.

Not all agencies are putting up promising numbers however. Only 6.7 percent of the contracting money being dispersed by the Energy Department’s Office of Environmental Management has gone to small business.

Nonetheless, this is great news for small business. And for those businesses out there wishing they had gotten in on the action, there are still opportunities available. Just go to Recovery.gov to learn more.

As kids a lot of us dreamed of working for NASA. We wanted to be astronauts like Buzz Aldrin, Sally Ride or Neil Armstrong and lift off on exhilarating space missions. I’m guessing that for most of us, however, this never happened. In fact, not to crush anyone’s dreams or anything, but most likely it will never happen.

Just because you can’t work for NASA, however, doesn’t mean you can’t work with NASA. The U.S. space agency frequently works with small businesses that can provide resources and new technologies to aid their missions, programs and research.

While getting your foot in the door can be a massive hindrance when working with many government agencies, NASA is making it easier. On Nov. 16-17, NASA will hold its second annual Small Business Symposium and Awards Ceremony in Bethesda, Md.  During the two-day event, small business owners will be able to learn about some of NASA’s future missions in space and Earth Science, including associated programs, initiatives, and business and/or teaming opportunities.

“Business-to-business networking with NASA, JPL (Jet Propulsion Laboratory) and prime contractors will be the objective throughout the event,” NASA said in a statement.

The registration deadline for the symposium is Nov. 9. So if you’ve ever been interested in potentially partnering your small business with NASA, visit http://acquisition.jpl.nasa.gov/boo/2009sbs/ and check it out.

For the first time ever, the Federal Trade Commission will attempt to regulate the social media industry, blogging in particular.

On Monday the FTC released updates to its guidelines for acceptable use of endorsements in ads. Like mainstream media outlets, bloggers (and Twitterers, Facebookers, etc.) will now be required to disclose any “material connections” to a brand or product they write about. To put it plainly, if anyone gives you any money or freebies to endorse or review their products or services, you MUST disclose that to your readers.

Violating these new rules, which will take effect Dec. 1, could cost up to $11,000 in fines per violation. Bloggers and advertisers could also face injunctions and be ordered to reimburse consumers for financial losses that may have stemmed from misguiding reviews.

Because of these new guidelines, many social media writers are nervous about posting even the most harmless of comments. To soothe this anxiety, the FTC states that most often (violations will be dealt with on a case-by-case basis) it will pursue the advertiser regarding the violation rather than the blogger.

While I will of course plead the fifth on giving my opinion regarding regulation of the industry, I do believe that the more transparent a company, blogger, or anyone for that matter is about the work they do, the more likely they’ll be to gain the trust of consumers.

After backlash from the lending industry, the Small Business Administration is changing its restrictions on the guarantee it extends on goodwill financing.

Prior to March of this year, goodwill financing, which is the amount of a loan used to purchase a small business’s intangible assets (brand, customer base, etc.), did not have any cap at all, at least not within loans guaranteed by the SBA. But in March the SBA capped that amount at $250,000 or 50 percent of the loan, whichever was lower. The hope was that the new restriction would prevent sellers from jacking up the price of their business’s intangible assets.

In the past several months, however, the SBA saw a backlash it hadn’t anticipated. The new restriction caused lenders to tighten up even further on business acquisitions. The SBA also collected its own data, which found that the average goodwill amount was close to $400,000, $150,000 more than its capped amount.

Now starting next month the cap on the SBA’s guarantee on goodwill financing will be raised to $500,000. This new guideline is meant to be a compromise between the pre-March free reign and the post-March tight leash. For companies looking to acquire small businesses, this restriction could provide a sense of security that they aren’t paying too much for that business’s intangible assets.

The U.S. federal government purchases more goods and services than any other entity, making it the world’s largest customer. While many people associate government contracting with defense-related items like ammunition or fighter jets, the truth is the U.S. government buys all kinds of products and services for all sorts of purposes.

Doing business with the federal government is much like doing business with any other customer, except for the fact that government contracting is far more complicated, involves understanding intricate application procedures and following a series of rules and regulations should you win the contract. Basically it’s not at all like doing business with any other customer. It’s much more complex.

Nonetheless, the federal government works hard to set aside large portions of their contracting budget specifically for small businesses. In addition, with the government’s current attempts at economic recovery, contracting opportunities for small business owners are likely to grow exponentially. Securing the U.S. government as a client will add a great deal of credibility to your business, likely helping you secure future clients as well.

The road to winning a government contract is a rocky one. In order to ease some of the pain you really need to educate yourself on the process. Win Government Contracts (the “Getting Started” section in particular) is a great place to start. It clearly lays out each step to winning a contract. I’d lay out the steps myself, but there’s so much information that you’d have to scroll for quite some time to reach the end of this post. So check out the site and remember that the federal government holds tremendous opportunities for small businesses willing to put the time and effort into navigating the system.

Federal business licenses are rare, but they are required for a few industries, usually those that are highly regulated by the federal government. For example, meat-processing companies, companies that sell firearms, and public transportation or broadcasting companies all require federal licenses. Federal licenses are a little more complicated, so consider working with an attorney to get the application filled out and filed correctly.

The House Committee on Small Business passed a bill recently to reauthorize the Small Business Innovation Research (SBIR) program to include friendlier terms, or at least friendlier than a version of this same bill currently moving through the Senate, according to many in the VC industry.

The SBIR program provides government funding for small businesses to explore their technological potential. The House bill is beneficial to venture-backed firms because the House will not be placing a cap on the amount of funding that can be allocated to them.

The Senate, however, is proposing a cap of 8 percent (18 percent for funding provided by the Department of Health and Human Services). The Senate argues that their version, which lengthens the reauthorization nine years longer than the House bill, would aid more small businesses in bootstrap mode.

The House bill will also increase the amount of funding that is available from $100,000 to $250,000 at the Phase One level and $750,000 to $2 million at the Phase Two level. They are also proposing to add $27.5 million to a Phase Three program focused on the commercialization of technology.

Venture capital firms remain weary of both bills for the way this program has traditionally excluded them. The Small Business Administration had interpreted the previous law to mean that startups that are majority-owned by venture firms must count the employees of the VC firm’s other companies as part of their employee count, resulting in many of these startups being judged as having more than the 500-employee maximum set by the program. Nonetheless, VCs are hopeful about the progress occurring through this bill.

The SBIR program is scheduled to expire at the end of this month, so movement through the rest of Congress should be quick.