Where Do You Stand? Some say the new administration isn't exactly oozing with support for new start-ups; some say help is on the way. So what's the truth?

For the past six months, the nation has been on a financialroller coaster that has sent destructive tremors rolling throughoutthe economy. Consequently, small businesses have found it almostimpossible to secure risky venture capital, and even bank loanshave plummeted. Business bankruptcies are inching up, andunemployment is seesawing. In manufacturing alone, the Bureau ofLabor Statistics reported a monthly loss of 124,000 jobs in May anda total of 675,000 positions gone since July 2000. And that'sjust one industry.

In the past, laid-off workers in a tight job market have turnedto BIZ Experiencesship, but according to the "Challenger JobMarket Index," a quarterly survey released by Challenger Gray& Christmas Inc. in April 2000, only 8 percent of dischargedmanagers and executives started their own businesses in the firstquarter of 2001. This is in sharp contrast to past downturns, whenstart-up activity thrived. In the first quarter of 1991, forexample, 18 percent of discharged managers and executives startedbusinesses.

Can the new administration pump up this lackluster start-upactivity? That remains to be seen. So far, the BushAdministration's small-business agenda has primarily clung totax cuts as the cure-all for BIZ Experiencesial firms. "The taxrelief plan will increase cash flow of small businesses, givingfolks more resources to buy more equipment and hire moreworkers," said George W. Bush during a speech at the WhiteHouse to small-business owners in March.

Under the Economic Growth and Tax Relief Reconciliation Act of2001, which took effect July 1, the top tax brackets (28, 31, 36and 39.6 percent) will be reduced 1 percentage point annually until2006; the top level will also decrease an additional 1.6 percent.At that point, the rates will be 25, 28, 33 and 35 percent.

But beyond cutting taxes, BIZ Experiencess are still waiting for adefinitive small-business agenda from the Bush administration."We don't necessarily see the same level of support formicro and very small businesses under Bush that we saw withClinton," says Bill Edwards, executive director of theAssociation for Enterprise Opportunity (AEO), a nationwideumbrella organization for microlending agencies. "However, Iwill say we're working very hard with the administration. Thereare a lot of signs that have been quite positive. I believe part ofit is an education process, and we're involved in that withmembers of the administration."

Edwards points to the implementation of the PRIME (Program forInvestment in Microentrepreneurs) Act as an example of how theAEO's educational efforts are making headway. Althoughinitially signed into law in November 1999, PRIME wasn't fundeduntil late 2000, says Edwards-and when the new administrationtook office, a freeze was placed on disbursement of the $15 millionallocation. But with the help of the AEO, that money is now seeingthe light of day: "We worked very hard to reach out to theDemocrats and Republicans in Congress who had supported thelegislation and [we] got the money released," saysEdwards.

And that funding means training and technical assistance fordisadvantaged microentrepreneurs as well as strengthening of theorganizations serving these budding business owners. The net resultof the additional funding is that the agencies that win the grantswill be able to increase the number of people served and the areasthey serve, says the SBA.

It's Just Business

Another focal point of late is SBA-sponsored Small BusinessDevelopment Centers, where new BIZ Experiencess can obtainindividualized counseling and training. The counseling services arecurrently free, but if the Bush fiscal year 2002 budget for theprogram is funded at the $88 million level requested-$12million short of the amount thought needed to fully fund theprogram's operations-entrepreneurs may have to beginpaying hourly counseling fees.

Ellen Thrasher, deputy associate administrator for the SBDCprogram, doesn't see the proposed fees as problematic: "Weestimate the typical BIZ Experiences will pay less than $40 ayear," she says, basing her estimate on the average 5.3 hoursof counseling an BIZ Experiences receives in one year.

But while financially needy BIZ Experiencess may be able to accessscholarships to help pay counseling fees, Donald Wilson, presidentand CEO of the Association of Small Business Development Centers,believes imposition of any fee, no matter how nominal, will bedetrimental: "We think a fee will deter a number ofpre-venture clients and even some existing clients from using theSBDCs. I think many will view it as a tax on smallbusiness."

There's also the matter of matching funds. According toThrasher, centers must secure one-to-one matching funding for thecenters; at least 50 percent of that has to be cash. She says mostcenters get their additional funding from state government coffersand universities.

Wilson points out that a fee may also impact centers'ability to raise the required matching funds: "What happens isthat when matching partners see that the federal governmentisn't willing to ante up, they say, 'Why shouldwe?'"-and that, in turn, could force 24 of the 58state programs to make drastic service reductions.

Where's the Money, Honey?

Undoubtedly, one of the biggest concerns for the majority of newentrepreneurs is where to get money to start up. Venture capital isnot the answer for most start-ups, and even those who can tap intothis source will find the spigot dripping instead of gushing thesedays.

To make matters worse, those who typically relied on bank loansare also finding the going just as tough. This fact was recentlyacknowledged in a hearing held on access to capital by Rep. DonManzullo (R-IL), chairman of the House Committee on Small Business."While stricter standards do not necessarily mean credit isunavailable, the data suggests that firms once barely qualifyingfor a bank loan will now seek other sources, such as SBA-guaranteedloans," said Manzullo in his opening statement.

Several new pieces of legislation coming down the pipeline couldalleviate some of the strain on the lending environment. The first,H.R. 1923, has already been introduced in the House and referred tothe Ways and Means Committee. Sponsored by Reps. Jim DeMint (R-SC)and Brian Baird (D-WA), the Start-Up Success Accounts Act (SUSA) of2001 would allow small businesses with gross receipts of up to $2million to deduct and place up to 20 percent of tax-deductibleincome in a SUSA account for each of the first five years ofoperation. Small businesses could then utilize those funds forgrowth over a five-year period.

Rep. DeMint has another proposal on the agenda as well: TheBRIDGE Act (Business Retained Income During Growth and Expansion),which will target emerging-growth companies, would allow firms thathave experienced sales growth of at least 10 percent above theaverage gross receipts for the prior two taxable years totemporarily defer a portion of federal income tax liability. Thedeferral would be limited to $250,000 of tax and would have to berepaid over a four-year period with interest. The deferred amountwould be deposited in a separate trust account at a bank or otherapproved intermediary, and the firm could borrow against thedeferred amount for business purposes. Businesses with up to $10million in gross receipts and using the accrual accounting systemwould be eligible for the deferral.

Predicting the success of any of these efforts to help newbusinesses is like trying to predict which of the thousands ofbusinesses that launch every year will be successful. But theissues must be dealt with decisively and soon if the Americaneconomy is to regain its vitality.