2009 Will Be the Year for Small Business to...

Over at Duct Tape Marketing (another of my 10 Most Practical Blogs for Entrepreneurs), John Jantsch asked several business authors and bloggers to complete the following sentence (in 140 characters or less, to accommodate posting on Twitter):

2009 will be the year for small business to...

The answers (part 1 - part 2) vary from boring to brilliant. While it may be true, the cheerleading of "Yay entrepreneurs! Beat those big bad companies!" doesn't do much for me. But there's some great practical advice in there -- even some I hadn't thought of.

For example, while many people were extolling the virtues of social media (and I agree with them), Tim Ferriss, author of The Four-Hour Workweek said

...get advertising at 70-90% off. Recessions mean budget cuts for larger corporations, which means advertising cancellations, just as in 2001 and 2002. There will be fire sales on remnant advertising, whether print, TV, radio, or online.

And my contribution ran a bit away from the norm:

...get funded. Cap gain tax cuts & revitalization of SBA = available equity & credit $$$. It's time to make a big move that needs big capital.

I wanted to expand on this, since it's difficult to explain well in 140 characters.

I'm normally a big advocate of bootstrapping, i.e., starting your company on a minimal investment and growing it from the profits. But for the first time in a long time, I expect that 2009 will be a great year for startups to get an infusion of capital. Here's why:

The cost of money is the lowest it has been in decades. The Fed Funds rate has dropped to near zero. Unfortunately (and unsurprisingly to me), it hasn't yet had the impact on the economy they hoped it would. Why? Because while credit may now be cheaper, lenders still aren't willing to loan it out on riskier loans. The people and businesses whose credit has been damaged by the economy are the ones who need access to credit, but it's only those with a strong financial position or track record who are currently able to get it. But that's a very small portion of the potential market, and banks don't make money by sitting on it -- they make money by lending it out. There's a pent-up supply of credit just waiting for people to lend it to, once banks figure out how to mitigate their risks.

President-elect Obama has committed to restoring the budget of the U.S. Small Business Administration, which has been cut in half over the past eight years of the Bush administration. The bulk of those cuts are in the backing of small business loans. As I pointed out in September when talking about big business bailouts vs. small business policy:

...the SBA loan program is just guaranteed by the government, not directly financed by it. In other words, $85 billion of guarantees to the participating lending institutions could support an order of magnitude more than that in federally-backed loans. Or perhaps more appropriately, a fraction of that amount could guarantee $85 billion in financing to small businesses (last year, charged off loans cost the SBA about $9 billion on disbursements of $150 billion).

Obama has also named venture capitalist Karen Gordon Mills as the next chief of the SBA. The selection of someone with extensive experience in business financing is an indication of the priority the new administration places on revitalizing the SBA loan programs.

Obama has committed to eliminating capital gains taxes on investments in startup stage businesses. That's effectively a 15% increase in the returns on investments made in startups. While investors may keep most of that increase for themselves, it should mean more and larger deals for early-stage companies. It could also mean greater availability of informal "friends & family" investments, as wealthy individuals look to diversify out of the stock market and factor in the tax benefits of private equity investment.

None of this is going to happen overnight, and none of it's a guarantee, so don't bank your future on it. For now, it's time to run lean and mean, focus on cash flow, learn and use low-cost marketing techniques, and all the other things you need to do in a down economy.

But if you have any dreams for your business that will require a large infusion of capital, 2009 may be the best time ever to make it happen. Once the changes discussed above take place, capital should be available cheaper and easier than it has been in decades.

Start planning now! What would you do with an infusion of $10,000 into your business? $100,000? A million? Ten million? Learn the pros and cons of equity financing vs. debt financing. Make a business plan. Get your financial statements in order. Prepare for the due diligence process. Grow your network.

So I think 2009 will be the year for small businesses to . . . think big!