The StartUp Blog at PartnerUp

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.

The microlending site Kiva.org is known for helping entrepreneurs in developing countries get financing to start and run their small enterprises.

How it works is entrepreneurs-in-need create profiles of themselves and their struggling businesses. Then Internet users can choose to provide small loans of $25 or more to these entrepreneurs who are located in nearly 50 impoverished nations across the globe.

With the recent lending issues facing small businesses in the United States, San Francisco-based Kiva has decided to open its services to struggling entrepreneurs in its own backyard.

Premal Shah, president of Kiva, believes that small businesses are a real growth-driver for the U.S. economy and wants to help them.

“Even before the credit crunch, small business loans were hard,” Shah said in an interview with National Public Radio. “Post credit crunch it’s really, really hard. So, Kiva started thinking, ‘Wow, we’re allowing people in the developing world to request loans, why not un-crunch America and allow people here in the U.S. to request loans and see if the Internet community wants to fund them.’”

The thing to remember should you be interested in looking for financing through Kiva.org is that this is a microlending site, meaning if you need hundreds of thousands of dollars to turn your dream into reality, you’re not likely to receive that kind of funding. Kiva users typically ask for/receive between a few hundred dollars and several thousand.

When you’re presenting to a potential lender, presentation is key. A complete, aesthetically-appealing, well-organized package will stand out. This package should include a business plan, tax returns, financial statements, payables and receivables, cash flow statements and any other relevant documentation. Having everything the lender is looking for put together in an organized fashion lends you and your business credibility and will help you to appear sophisticated and trustworthy.

A few months back Small Business Trends posted on the death (or at least decline) of small community banks. It stated that between 1992 and 2008 the number of U.S. commercial banks with less than $100 million in assets drastically dropped from more than 8,000 to less than 3,000 banks of that size.

For small business owners this generally means a tougher time getting loans, as the development of personal relationships with local lending officers in small community banks allows them a better shot at not only receiving funding, but receiving it under favorable terms.

The post went on to say that this decline will undoubtedly continue and small and midsize banks may disappear sooner than we think. Kind of gloomy, wouldn’t you say?

Well, here’s a little glimmer of hope that I came across the other day. A new bank recently opened up in western Michigan called Grand River Bank. What’s so great about this bank? It was founded completely on the idea of serving the needs of emerging and existing small businesses.

It’s a little hard to imagine a bank opening up in this economy, let alone in Michigan, but I find it incredibly encouraging to see a small local bank that is not only opening its doors rather than closing them, but is also opening its doors specifically to help struggling and successful small business owners.

Only time will tell whether this model will gain momentum and spread, but if it at least helps boost the small business economy in western Michigan, then I give it two thumbs up.

If you have debt on credit cards with extremely high interest rates, try transferring it to cards with lower rates. This will drastically slow the growth of your debt.

You can also attempt to negotiate with your credit card company for a lower interest rate. They are typically resistant to negotiations, but if you explain that you are a good and loyal customer and that they are in jeopardy of losing your business, they may be more open to the idea.

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.

Struggling small businesses may soon find relief from the Small Business Administration’s America’s Recovery Capital (ARC) loan program. The guidelines of the ARC loan program, which were released yesterday, state that eligible small businesses could receive up to $35,000 in debt relief beginning as early as June 15.

ARC loans, authorized as part of February’s stimulus bill, have a very specific set of rules governing who can receive them, what they can be used for and so on. Here is a basic outline.

Who’s eligible?

• Businesses that have been in operation at least two years.
• Businesses that have been profitable in at least one of the past two years.
• Must be able to prove financial hardship, as evidenced by declining sales, frozen credit lines, rising business costs, or difficulty making rent, payroll or loan payments.
• Must show you are running a “viable” business by providing cash-flow projections for at least the next two years.
• Must have “acceptable” business credit scores.
• Can’t be more than 60 days past due on any loan you’d like ARC loans to help cover.

How can the loan be used?

• Can’t be used to make payments on loans backed by the SBA before Feb. 17, 2009.
• Other types of business debt are fair game. This includes a commercial mortgage or lease, home equity loans used for business finance, bank loans made outside of the SBA, notes payable to suppliers, and credit card debt.
• ARC loans also cover personal credit cards if used for business expenses.
• ARC loans can be used on multiple types of debt.

How must the loan be repaid?

• Money from ARC loans can be used for up to six months, with no repayment due on the loan for another year.
• After that, you have five years to pay back the loan principal.
• The government covers interest payments.

How do you apply?

• SBA will make guarantees on loans rather than lending directly, so loans will need to come from participating banks.

The SBA projects approximately 10,000 small businesses will receive ARC loans between now and Sep. 30, 2009, when the program is scheduled to end. We hope that this initiative by the SBA will go far in aiding those small businesses whose troubles stem directly from our nation’s economic turbulence.

Advanta Corp., credit card lender to nearly 1 million small businesses, announced earlier this month that it will be closing all cardholders’ accounts. The card closures were originally supposed to occur on June 10, but Advanta late last week decided to move this date up to May 30—this Saturday!

This move is unprecedented and a sign of the financial times. The company has already eliminated 300 jobs, cut its dividend 88 percent and raised customers’ interest rates substantially. With a $75 million first-quarter loss, however, Advanta is sinking fast.

For many cardholding small business owners the account closures mean scrambling to get new cards and switching automatic payments tied to the Advanta cards. Alerting cardholders of these closures has not exactly been a high priority to Advanta though, at least not in the eyes of customers. Not only are cardholders being given mere days to make other arrangements, but they are also being notified through one channel, one time. While Advanta’s recent interest rate hikes and the account closures have caused small business owners many headaches, it’s the horrendous notification process that’s plain old bad business. According to a BusinessPundit article, one Advanta customer suggested that a notification be posted on the Web site, but was told “no” because the action is not required by law. As early as late last week, many customers still had no clue of the card closure. Who knows, there may still be customers who don’t know.

I think all small business owners can learn an important lesson in “what not to do” from Advanta. When financial troubles or any kind of troubles come your way, you’ll be surprised by how understanding your customers can be, as long as you’re up front with them. What they are not  so understanding about, however, is being kept in the dark and then slammed with the shocking news at the last minute. If you run into tough times, the manner in which you handle your customers can make all the difference.