Just as owning a home was assumed to be a positive financial strategy for individuals, small companies owning commercial real estate was typically seen as a routine and constructive piece of their commercial financing during the period leading up to the most recent financial crisis. Both of these assumptions start to fall apart very quickly when it is difficult or impossible to obtain the underlying real estate loans from banks. Real estate continues to be a major component of the overall economy, and ongoing difficulties involving either obtaining or refinancing commercial mortgage loans presents severe problems for both societal economics in general and small business economics in particular.
Did the Bank Bailout Help Small Businesses?
One of the primary arguments made in favor of bailing out banks in 2008 was that it would permit the restoration of “normal financing” to businesses of all sizes everywhere. Seven years later most small businesses are still waiting for bailout funding to “trickle down” to them. Working capital loans and commercial mortgages are missing in action for many commercial borrowers.
Real estate has regularly been in economic news for both good reasons and bad reasons during the past several decades. Starting around 2005, concerns began appearing about the financial health of both real estate and the overall economy. What we did not know at the time was that banks began making speculative investments in financial derivatives tied to real property at about the same time. Some of these investment practices produced massive losses that precipitated the public banking crisis emerging in 2007 and resulting in a widespread bank bailout program in 2008. Even the few instances in which these derivatives produced profits for the banks proved to be controversial because the profitable investing was frequently at the expense of banking customers.
Zombie Banks and Troubled Banks
Here are two of the real estate and banking problems that are still very actively impairing the small business economy:
Zombie Banks are still operating – a Zombie Bank is one with a negative net worth (liabilities exceeding assets).
The FDIC (Federal Deposit Insurance Corporation) Troubled Banks List still has more than 200 banking institutions on the list.
It is worth noting that the FDIC does not publicize the problem bank list or name specific banks on the list – probably fearing a “run on the banks” if they did so. The recent “bank holiday” in Greece illustrates how quickly bank depositors can lose confidence in banking institutions. But the FDIC does release the number of banks on their troubled bank list on a quarterly basis. For example, the March 2015 total of problem banks as defined by the FDIC was 253. In comparison, the total was more than 850 banks at the peak of the recent financial crisis – but there were less than 50 troubled banks before the 2008 bank bailouts.
What to Do When Banks Say No
Small business owners must draw their own conclusions about the current financial health of banks, but it seems unlikely that a “Troubled Bank” will be able to make a “normal” level of small business loans. If banks are still saying “No” to routine commercial financing for creditworthy small businesses, what is the recommended response? Small business owners should actively review alternatives that include non-bank financing, reducing business debt and increasing sales with cost-effective solutions such as business proposal writing. At some point the practical need to fire their bank and banker will by necessity become one of the realistic actions by a commercial borrower in need of business financing but unable to obtain it from their current banking institution. In such a scenario, “You’re fired” can quickly become another example of life imitating art.
While many people choose to pursue a degree in a general business category, others choose to focus their interest into a specific degree. One of these options is a Business in Economics degree. This degree can be applied to many different positions within the economic, financial, insurance, or consulting areas.
Many schools may have an economics department, school, or at least faculty that specializes in this field. Individuals may earn an associate’s, bachelor’s, or masters degree in this subject or a related area, or may choose to earn their PhD. On average, earning a PhD will take approximately six years.
People in this field can work at the federal, state, or local government, or look for work in the private sector. The private industry involves careers such as scientific research and technical consulting. Those who have a PhD in economics can also look for a job as a professor, instructor, or teacher.
A large majority of people who choose to earn this degree are interested in careers as economists. These professionals are knowledgeable in the social science discipline of economics. They may write about economic policy, work with specific markets, or study philosophical theories. They utilize tools such as statistics, mathematical economics, econometrics, financial economics, mathematical finance, and economics computational models. In order to work as an economist, individuals should have at least a bachelor’s degree for the majority of entry-level positions.
Those who are economists often have a more specialized area of talent. These areas may include international economics, labor economics, econometricians, organizational economics, industrial economics, monetary economics, international economics, or financial economics. In order to participate in any of these areas, individuals must first have full understanding of general economics and how it applies in different areas.
Another common job for those who have this degree is working as an analyst. Individuals who work in this particular position can find jobs as a financial analyst, market analyst, or public policy analyst. A financial analyst will work mostly with those who are making investment decisions. They specialize in reviewing and assessing the impact bonds, stocks, and other related investments will have on businesses and individuals. A market analyst is an expert in specific market trends in local, regional, or national areas. A successful market analyst will be able to predict how a certain product or service will sell in certain areas. A public policy analyst will work towards finding solutions dealing with policy actions.
No, we don’t have $700 Billion earmarked for small businesses. We can’t go hand out to our legislatures for financial assistance. We don’t make the 6:00 pm news as a “business in trouble”. We are small businesses who have to provide our own bailout.
How do we do this? We look at ways to support one another and our customers and our employees. We check our budgets, roll up our sleeves and get down to work.
1. Check Budgets
Are there areas where we can cut expenses? Can we bring our lunch to work and not eat out as often? Can we initiate “green” assistance by turning off lights, recycling paper, and keeping better inventory control on supplies?
We are all wasteful – we waste paper, water, time, energy, food, and everything else. If we just took a look at what we could reuse or save, think about the money we can save.
2. Roll Up our Sleeves
Can a project be completed at home or by someone else? If you have staff that you are responsible for, have you thought outside of the box to see if some of your business associates would be interested in “sharing” a worker or “renting” an employee. Maybe if you have 4 employees you can work with an associate company with no employees who may be looking for a temporary person.
If this is the end of your fiscal year, prepare a budget that is as complete as you can possibly make it and be prepared to follow it. As you prepare the budget, talk to your staff, especially your supervisors and managers to get their input. This will not only help them understand the situation but provide them with the opportunity to possibly share a good idea.
4. Dust off the Business Plan
Many businesses write the required business plan and then file it away. This may be a good time to get it out and look at the research you did in preparing the plan to determine if you are still on track. If not, why not? If you are, did you plan for any emergency? This is the time you can update your plan to accommodate the current financial crises. This, along with your budget, may offer the road map you need to navigate through the next few months.
5. Think Out Side the Box
Is this a good time to look at a new product or service? Are you in a position that might help other businesses make it through the economic downturn? Only you know your business and what you might do to make a difference.
Will it be easy? No. Will there be a need to make hard decisions? Probably. But, if you are honest with yourself and your staff and your clients, hopefully you will find a way to make it all work. Good luck to all of us.
Cathy Baniewicz has over 30 years experience in human resources. Her career began at Beatrice Foods Co., where she progressed to Assistant Director of Affirmative Action and Corporate Personnel Manager. Prior to joining EffortlessHR, Cathy was Assistant Director of Human Resources at Golden Eagle Distributors, Inc. (Budweiser). Cathy has her B.A. degree from DePaul University, Chicago, Illinois, and MBA from George Williams College, Aurora, Illinois. Cathy obtained her Professional in Human Resources (PHR) certification in December of 2004.
EffortlessHR is an online Human Resources Program for small businesses. This program will guide you through the maze of human resource laws and issues. You will have access to your employee information anytime, anyplace. Federal and State laws, personnel forms, How To guides, posters and reports are at your fingertips.
Economics is one aspect of business that entrepreneurs should be familiar with. After all, business is run by economic trends. The law of supply and demand, for example, defines the prices of commodities. It also determines what particular goods are more saleable and what aren’t. The condition of the gross domestic product also gives investors insight as to what how healthy a country’s financial environment is. And it dictates how governments, banks and companies should and will act within the succeeding accounting year. Needless to say, a significant focus should be diverted by an entrepreneur to business economics. It is only this way that he will be able to weather any entrepreneurial problems.
Remember, business isn’t merely a numbers game. It is also influenced by certain economic conditions within the macro (country) and micro (individual and family) level. It can be that there is some diversity between the needs of a country and of its people. Therefore, a business cannot be assured that while it patronized one sector, it will also be supported by another.
Take bootleg products for instance. It’s actually a profitable industry because a lot of small consumers appreciate its affordability. Yes, it’s a given that quality of the product is compromised. But the difference in the costs is very much valued in the micro system. However, it’s a different story at the macro level. Since distributing pirated products is illegal and costs the country huge losses in tax collection and business permit payments, it is greatly frowned upon.
An entrepreneur applies business economic principles in order to weigh whether or not certain business decisions are smart or risky. It looks at possible changes and movements in the economic setting of a country in order to gather a more viable conclusion. Bottom line, knowledge in how certain circumstances affect the overall performance of the country’s economy gives entrepreneurs more control over their investments.
To understand the advantage derived by an entrepreneur from business economics, let’s play out a scenario here. Suppose an earthquake struck a commercial capital in a progressive country. It cost millions of dollars in damages and displaced thousands of people from their homes and work. Let’s say that this commercial capital produces some of the most essential goods supplied to other parts of the country. What would be its impact to the overall business dynamics? And how would you be able to make business given this situation?
Seeing through the lens of economics, the entrepreneur can predict that the collapse of factories and business centers as well as the displacement of workers will cause a cease in productivity. Now, since there is less supply of goods, their prices will sky rocket. This actually favorable and companies can benefit from this. But considering that there are less people in the vicinity, it is expected that there will be a decline in estimated profits as there are fewer consumers. Regardless, scarcity will create a need. Entrepreneurs just have to maneuver their marketing strategies with some consideration to customer’s conditions.
Rehabilitation focus will also diminish people’s purchasing power, thereby weakening economic activities. Since there are less work, less consumerism, and fewer businesses, the economic status of that capital will spiral down dramatically. This will affect how investors see it. In the long run, there will be fewer incoming finances. This is unhealthy.
So businessmen should not relish in scarcity for long. In order to recuperate and improve, entrepreneurs can apply for loans and start rebuilding infrastructures. But this will be a risk on their part as they have to work double time and guarantee that upon completion of rehabilitation, they will gain greater revenue. But they have to forecast, will their products and services still be embraced post disaster? Again, economics will answer this.