I had a breakfast meeting with a group of Dayton area business owners and executives this past Friday. We met at Logos@Work, a business I own, which focuses on custom apparel for business, schools and events. Since my business partner and I just moved this business into a new facility, this group that I meet with on a regular basis decided to have our March meeting at our new location. As we discussed some of the hoops we had to jump through to get this deal real estate done, the discussion turned to small business in general and how many small companies are still struggling. One business owner even opined that the fundamentals of entrepreneurship had been shifted significantly during this recession, and would likely not shift back for another ten years.

Everyone agreed that the seeming lack of support for small business in the current economy must change if we are to move forward. Considering that 50% of the private sector work force works in small business, and this is typically where the most significant new job growth comes from, it is logical to assume that the economy will not turn around completely until the environment improves for our nation’s entrepreneurs. I thought about it this weekend, and I have come up with three ideas that could help small business now:

1) Create incentives for banks to lend – The federal government says they want banks to lend, but the regulatory actions they have taken encourage banks to only make zero risk, or very low risk loans. The current fed funds rate is .25%, six month CD rates are over 1%, a bank could borrow at .25% put it in a CD and make more with less risk than writing loans with those same dollars. As long as this is the case, banks will cherry pick the lowest risk lending opportunities and say no to everything else. Incentives need to be created that will make it more lucrative for banks to free up credit rather hoard cash.

2) Reduce the cost of health insurance premiums – I have no idea which option floating around DC about health care makes the most sense, I do know that in my business, other than material and labor, health insurance is one of our most expensive line items. The problem is we don’t have a lot of choices or opportunities to find more competitive pricing. Generally we get stuck with large increases and reduced coverage every year. Small business owners can’t continue to try to keep up with the spiraling cost of providing health insurance for employees, at some point this will no longer be a benefit we can provide.

3) Reduce tax rates for small business owners and the self employed – One of the biggest cash drains for small businesses that make money is taxes. A significant short-term reduction in rates for small business owners and the self-employed would give these organizations additional capital. This capital could be used to help business owners provide funding for operations during a time when it is difficult to borrow money from banks. It could also be used to reinvest in businesses for growth. A two year reduction in rates may be the medicine small businesses need to get through the current environment.

Over the past two years our government has been focused on bailing out large financial institutions and our nation’s automakers. Perhaps it is time they turned their attention to those organizations that really drive economic growth and ingenuity in this country, small business. Politicians can turn a blind eye when their community loses a small business, because the business can no longer survive. The number of job losses is usually not large enough to make the news, and many act as though the impact is small. But, if a community loses enough small companies due to the economy, they will feel the impact. Perhaps that is when folks will determine that something needs done, when it is too late!

I was meeting with another area business owner this past week, and we were discussing the things he has had to do over the past couple of years to keep his business going. It was reminder to me of what entrepreneurs have been facing in the current economic climate, and the deafening silence coming from all of our leaders about how we might be able to fix the problem. In today’s environment business owners are going to extraordinary measures to keep the doors open. They are cashing in life insurance policies, they are getting money out of their 401Ks, and working for zero pay, all in an effort to keep the business going until that turnaround comes.

I am not sure most people are truly aware of what a small business owners faces today. Small companies don’t have the luxury of being “too big to fail!” If a small company goes under in today’s climate, we all shrug it off, and say well the owner assumed the risk, if they weren’t willing to take the risk, they should have never tried to go into business for themselves. So for the small business owner there is no billion dollar bailout, or initiative to save small companies around the country. We have reached the reverse bubble, the period of irrational apathy. Those that control the capital have become so fearful of what may happen next, that they have chosen to only pursue initiatives with zero risk!

In this environment lenders only want to lend when they can have loans collateralized 100%. The high collateralization needed for new loans forces business owners to tie up capital for the bank. This creates the ultimate catch 22, you tie up your capital to get a loan, then you lose access to that cash when you need it to save your business. Although this will make the loan look great on paper for the regulators, I would argue that it places many businesses in a riskier position. It locks up their cash, at the time they need it most.

Unfortunately this problem is not going to go away quickly. Until bankers and regulators realize that the way to make money in the financial industry is to lend it, not sit on it, entrepreneurs will have to continue to operate in an environment of capital starvation. Until capital begins to flow more freely, we business owners will be forced to find new and unique ways of raising money for our businesses if we want to keep things going until the next big upswing!