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N Magazine - February 2014

posted Mar 3, 2014, 7:47 AM by Ann Sullivan   [ updated May 2, 2014, 7:46 AM ]
Five Things Small Businesses Should Watch For in 2014
By Ann Sullivan

As we settle into the new year, it is worth taking a look at the state of small business and the policies affecting small business owners.  Here is a list of five trends – opportunities and challenges – worth watching in 2014.

President More Eager to Exert Power of the Pen

During his State of the Union address, President Obama articulated a key theme that likely resonated with many women in business, when he said, “When women succeed, America succeeds.”  Vowing to act outside the bounds of an oft-stalled Congress, President Obama said he would increasingly act through Executive Orders to get things done. 

For example, the President has since signed an Executive Order directing a review of the nation’s job training programs to identify opportunities to enhance the training available to Americans looking for work.  One change that women’s business groups would like to see addressed is a shortcoming that discourages job-training centers from offering entrepreneurship training. A simple fix – to allow these centers to count self-employment as a successful employment outcome – is all that is needed to allow entrepreneurial training to be offered at no extra cost.

The President also signed an Executive Order modernizing application process to export American-made goods and streamlines reporting requirements that until now had to be submitted in different formats to different agencies. 

Similarly, the President wants to increase the federal minimum wage to $10.10 per hour.  Although this change requires legislation from Congress, the President went ahead and signed an Executive Order raising the minimum wage for federal contractors. 

More Congressional Cooperation on Funding the Government

In December, both parties in Congress came together to pass – for the first time in a couple of years – a budget plan not only for FY2014, but also for FY2015.  In effect, leaders in Congress hammered out a two-year compromise on what the government’s spending numbers should be, ruling out the threat of automatic across-the-board spending cuts by targeting spending reductions elsewhere. 

Building off of that compromise, and after the disastrous government shutdown in October 2013, Congress decided it is a bad idea to mess with the nation’s borrowing authority.  With little drama or fanfare, the Congress extended the nation’s borrowing authority through March 2015, ending the incessant back-and-forth over risking the “full faith and credit” of the United States.

These are good things.  Economic uncertainty – about government spending over the last few years and constantly teetering on the brink of the debt ceiling – forced businesses to put off making investment and hiring decisions.  This is especially true for federal contractors, whose customer is the federal government.  Now businesses can plan accordingly.

Access to Capital on the Upswing

According to Women Impacting Public Policy’s (WIPP) 2013 Annual Membership Survey, women continue to struggle when it comes to obtaining a loan.  Women make, on average, at least two attempts to secure outside capital and succeed only 60% of the time.  Women of color face an even harder time, successfully securing capital only 32% of the time.

But recent data indicate that capital is becoming more readily available to women-owned businesses.  For example, the Small Business Administration’s (SBA) Weekly Lending Report showed an increase in lending of six percent in December over November and five percent gain over the same time the year before.  One of the key factors when making long-term business decisions, such as hiring, is the owner’s ability to access capital.  Good news on that front as well: according to Wells Fargo’s most recent Small Business Index, one in five employers plans to increase hiring in 2014.  The number of small business owners expecting higher revenues and better cash flow in the coming months also picked up, pushing Wells Fargo’s small business optimism index to its highest level in five years.

There are more ways than ever to help finance your business.  Depending on the size of your business, your business credit, and the assets you have available to leverage, there are a number of ways to access capital.  The SBA continues to play an important role when it comes to helping small businesses get the money they need to start and grow. The 7(a) loan program, which is the SBA’s most popular loan program, guarantees loans of up to $5 million.  But with the average SBA-backed loan in FY2012 at nearly $340,000, companies seeking smaller amounts need different lending programs.  The SBA took note and created the Community Advantage Program, a community-based platform, that uses a simplified application for loans of up to $250,000. 

There is also the SBA’s Microloan Program, which is designed to assist entrepreneurs, specifically women and underserved communities, whose best asset may be their passion.  Microloans are loans of $50,000 or less.  What makes the Microloan program unique is the business assistance that is provided both prior to and after receiving a loan.  According to research by the Association for Enterprise Opportunity, businesses that receive business assistance have higher survival rates than those that do not (80% vs. 50% over five years) and experience median average revenues 38 percent higher than those that do not. 

Another exciting development is “crowdfunding.”  The driving force behind the inclusion of crowdfunding in the JOBS Act was the belief that the “crowd” would be willing to fill the capital gap that traditional lending institutions have been unable or unwilling to bridge.  Although crowd-source platforms like Kiva and Lending Club already exist, this new model of crowdfunding will allow businesses to raise up to $1 million annually through the sale of securities.  People are already thinking about new ways to leverage crowdfunding models for real-estate investing and scientific research, for example.

The Securities and Exchange Commission (SEC) is charged with writing the final guidelines.  Some industry stakeholders warn that too many rules and regulations could cripple crowdfunding before it comes online.  Nonetheless, this trend is particularly exciting because it means more talented individuals and companies will have access to the capital not previously available.

Tax Reform Prospects Dim

Although 2014 was previously touted as the year for tax reform, comprehensive reform plans came to a halt when Senator Max Baucus (head of the tax-writing Senate Finance Committee) resigned from the Senate to serve as the U.S. Ambassador to China this month. 

The tax code was last overhauled in 1986 – although countless thousands of changes have been made since.  Since 2001, Congress has made more than 5,000 changes to the tax code, which works out to a rate of more than one change per day.  The tax code is now almost four million words long – or four times as many words in all of the Harry Potter books combined, according to Forbes Magazine.

The more pressing issue now is the figure out what to do with 55 tax provisions that expired at the end of 2013.  Unless Congress acts, small businesses will see a reduction in the amount of equipment purchases they can expense (so-called 179 expensing), businesses lost the 50% bonus expensing for capital investments, and a tax credit for companies who are in the research and development business goes by the wayside.  Another popular tax deduction that has expired is tuition and related expenses. 

The new Chair of the Senate Finance Committee, Senator Ron Wyden (D-OR), has said that reinstating many of these provisions, known as “extenders” because they must be extended each year, is a top priority. 

Encore Entrepreneurship on the Rise

Out with the old and in with the new.  Not so fast.  In fact, individuals between the ages of 55 and 64 make up the largest percentage of new businesses in the U.S. according to Senator Susan Collins, who is the top Republican on the Senate’s Special Committee on Aging.  Senator Collins and her colleague, Senator Bill Nelson (D-FL), recently convened a joint hearing with the Senate Committee on Small Business and Entrepreneurship to explore senior entrepreneurship, or what the SBA calls “encore” entrepreneurs.  According to figures cited by Senator Nelson, a whopping 34 million American seniors are interested in starting their own business.  The SBA’s head of Entrepreneurial Development, Tameka Montgomery, added that seniors are the fastest growing group of entrepreneurs and start businesses at a higher rate than any other group. 

To meet growing demand, the SBA launched a new training platform in 2012 with AARP.  To date, the SBA has provided training to more than 120,000 entrepreneurs aged 50 and above.  Support for senior entrepreneurs does not come at the expense of younger workers, but rather, studies show that senior entrepreneurs tend to hire younger workers in areas like marketing and technology.

There is a lot to be excited about in 2014.  With capital markets flowing more freely and Congress less willing to create man-made disasters, women business owners are in a better position today that they have been in a while to think about growing.  New technologies are transforming the way people think about their businesses: from online crowdfunding platforms to virtual training for entrepreneurs eager to learn how to turn an idea into a business – no matter how young or old they are. 

Although tax reform may be off the table at the moment, no one said it would be easy or quick.  It took then-President Reagan five years and two different Congresses to get it comprehensive tax reform over the finish line.  You have to start somewhere.  There is no better time than now.

Note: This article originally appeared in the February edition of N Magazine, the official publication of the National Association of Women in Real Estate Businesses (NAWRB), where Ann is a monthly contributor. The February edition is available online here