InsideSources

Linda McMahon, head of the U.S. Small Business Administration (SBA), detailed her plans Tuesday to help small businesses. McMahon, the former CEO of World Wrestling Entertainment, has her own experience in small business as she grew a small, regional entertainment company, into a billion-dollar global brand.

The SBA is a federal agency that provides support to entrepreneurs and small businesses in numerous ways like loans and counseling. McMahon was sworn in to serve as administrator in February 2017. She has since visited dozens of fields offices across the country in her effort to go to all 68.

McMahon detailed what the agency has been doing to better help small businesses succeed during a congressional hearing. She also discussed how visiting field offices has helped with that mission. The Senate Small Business and Entrepreneurship Committee hosted the hearing to explore the state of small businesses and the agency.

“These visits have reinforced in me the valuable role small businesses play in our economy, and the importance of the SBA and our resource partners in helping them to succeed,” McMahon said during the hearing. “My tour has also allowed me to hear directly from business owners about what is on their minds.  Among the frequent things I hear is the burden of federal and state regulations, the complexity of healthcare and taxes, and recently workforce and labor challenges.”

McMahon added that the visits allowed her to hear firsthand from the agency officials on the ground and small business owners themselves. She also had the opportunity to meet with some committee members in their districts during her travels. They held roundtable discussions and toured a manufacturing facility.

Republican Sen. Jim Risch, the chairman of the committee, asked about the small businesses that are having trouble accessing capital. Ranking Democrat Ben Cardin also expressed concern over loan and capital access, especially when it comes to minority business owners. Both applauded what the agency has been doing despite the concerns.

McMahon responded to the senators by noting that she is working directly with regional offices to figure out solutions that work best for them. She notes that the same solution doesn’t always work everywhere. She also highlighted what the agency has been doing elsewhere to help small business, such as their premier lending program having a record year.

“In addition, access to mentoring was high as our SBA network reached 1.4 million people,” McMahon said. “Elsewhere, in our microloan program, I’m pleased to see that 40 percent of those loans have been made to minorities. And in our veterans program more than 17,000 veterans were trained in fiscal year 2017. And our emerging leaders program, we’ve increased the number of locations and have a record number of participants.”

McMahon added that the agency was also able to open up new opportunities by expanding women business centers. The SBA has also worked to address management problems by resolving outstanding recommendations from the SBA Inspector General and Government Accountability Office.

McMahon applauded agency employees for the work they did during a string of devastating hurricanes last year. The SBA helps small businesses that were impacted by national disasters while providing support to other agencies. It  deployed 5,000 personnel for hurricane relief since last summer while approving 130,000 loans totalling $6.7 billion in lending. McMahon says there is still a lot of work to do in Puerto Rico and the Virgin Islands.

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Democratic Sen. Ben Cardin explained to InsideSources why a bill he recently introduced will help increase investment in small businesses.

The Small Business Administration (SBA) is a federal agency that supports entrepreneurs and small businesses. The agency offers loan guarantees to banks lending to small businesses, and it also provides financing to licensed investment funds of up to $150 million for debt and equity investments in companies. The Small Business Investment Opportunity Act would raise that debt limit to $175 million.

Senators Cardin, Jim Risch, and John Kennedy introduced the bill March 8 with the intent of boosting capital access for small businesses. The SBA doesn’t provide capital directly to businesses, but instead partners with professionally-managed investment funds known as Small Business Investment Companies (SBIC).

“The Small Business Investment Company program has a proven track record of steering vital capital to groundbreaking and promising ventures,” Sen. Cardin said in a statement to InsideSources. “In fact, some of the economy’s most iconic and successful brands – Apple, Tesla, Whole Foods, FedEx, and Costco – received early investment capital from SBICs.”

SBICs are privately-owned companies that invest in qualifying small businesses. The SBA licenses SBICs while providing them with guarantees on their leverage via a debt security called a debenture, capped at $150 million, of up to two times their committed capital. SBICs are also required to pay fees intended to offset estimated subsidy cost for the program.

“This model – privately-owned and managed investment funds that leverage their own capital and funds borrowed by an SBA guaranty – has deployed more than $67 billion and helped capitalize more than 166,000 small businesses,” Cardin said. “In the past five years, the program has channeled $21 billion to 6,400 American small businesses across a range of industries.”

Sen. Cardin currently serves as the ranking member of the Senate Small Business and Entrepreneurship Committee. He has sponsored and supported numerous piece of legislation intended to help small businesses – and believes that increasing the cap will help boost investment.

“Unlocking startup capital for innovative small businesses with high-growth potential is a top priority for me on the Small Business Committee, especially in Maryland where we have a thriving entrepreneur and innovation sector,” Cardin said. “Our bipartisan legislation will maximize the amount of funding an SBIC can direct to the transformative small businesses that hire our workers, drive innovation, and help America maintain its global competitive edge.”

The Small Business Investment Act established the program when it was passed in 1958. It is designed to facilitate the flow of long-term capital to small businesses across the country.

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Linda McMahon, Administrator of the U.S. Small Business Administration (SBA), stopped through Iowa on December 13 as part of her “Ignite Tour” to hear from small businesses across the state and tour several of their facilities. McMahon and Iowa Governor Kim Reynolds began the day with a roundtable with area businesses to discuss a wide range of issues, from business hurdles to accomplishments.

According to Iowa’s Small Business Profile of 2017, produced by the SBA, the state has 266,382 total small businesses (defined as having 500 employees or less), comprising 99.3 percent of Iowa’s business. The total employees employed by small businesses is 641,288, which makes up 48.7 percent of all Iowa employees. These small businesses comprise 82.9 percent of Iowa’s exporters. A total of 14,686 small businesses are owned by minority owners. To see a the full report, click here.

Reynolds told reporters that the most important issue facing small businesses in Iowa is tax reform. She said a priority for her administration in the 2018 legislative session would be a tax cut for small businesses. While she remains “cautiously optimistic” about Congress’ ability to pass tax reform this year, she hopes to be able to release a tax reform plan for Iowa next year at her State of the State address.

“Our tax code is complicated, uncompetitive and we need to do what we can to simplify and lower taxes,” Reynolds said. “We need to take an opportunity to modernize the tax code, to make sure it fits the modern economy, and have Main Street fairness. In addition, we need to make sure that’s it’s financially responsible and sustainable. We need to pass tax reform to help Iowa businesses grow and have the opportunity to add more jobs to our growing communities.”

McMahon is the former CEO of World Wrestling Entertainment, which she grew from a small travelling road show to a billion-dollar international corporation. She often makes the case that she understands the challenges small businesses face as someone who confronted those challenges herself. As head of the SBA, she now advocates for small businesses and oversees the SBA’s loan programs, which help to encourage banks to lend to small companies.

Following her visit, McMahon spoke exclusively with InsideSources to discuss her findings along her Ignite Tour, and her upcoming goals at the SBA. The interview has been edited for clarity.

Since you have taken the position of Administrator, what do you believe are your most significant accomplishments?

Well, I have been on a mission since I came on board last February to make sure that the SBA doesn’t remain the best kept secret in the country. So I’ve utilized, I believe, my marketing background and my promotion background, as well as my CEO, executive, and management background to bring to the SBA some of those opportunities to re-imagine SBA.

It’s a program we’re working on now that will be rolled out Spring of next year, to make sure that our district offices are totally aligned with headquarters, with input from both sides to make sure that we are providing our field offices with the tools that they need to help grow our lenders in the market place, to help grow our research partners like SCORE, women’s business centers, small business development centers, and veterans outreach, because we have so many opportunities to counsel and to mentor small businesses and start ups so that they can be more directly on the path to success.

As you’ve spoken with small business owners across the country, what have they been telling you are their greatest concerns with the current tax code?

Basically, they don’t pick apart the tax code, per se. What they talk about is the opposite–in having a reduction in taxes. They don’t talk so much about tax reform. They talk about tax cuts, and without fail, there hasn’t been one business that I’ve spoken to that has not told me that they would re-invest tax cuts into their business. Whether it was raising wages, hiring new employees, maybe producing more goods and services, looking at alternate sites. Whatever it was, to give them an opportunity to utilize the tax cuts, they would use it to grow their business.

One of the most important provisions of the new tax bill is the change in the pass through rate. Based on your conversations with business owners, and as someone who has grown a small business, how important will that pass through change be to helping small companies expand?

Well, anytime that you are reducing the amount of taxes that you’re going to have to pay, and you get to hold onto more of that money, it’s more money that you have to operate with. And capping the upper rate there at 25 percent would be very helpful to those businesses that might have gone above that in the past. So I think you’re going to see a continued growth with our small businesses.

Having completed a year at the SBA, what future reforms do you want to make going forward to help small businesses?

Well of course the SBA doesn’t make policy. We can only advocate on behalf of the small business around the country that I talk to, and I am following certainly the president’s lead to eliminate overburdensome regulation. I think what small business that I have spoken to, and I’ve visited now with about 500 different small businesses, and participated in business roundtables and touring their companies specifically, is basically they really talk about the volume of overburdensome regulation.

They don’t talk about a particular one so much as the collective number of regulations and how we need to simplify them and how they need to be able to know when they’re in compliance or not, instead of having to read through zillions of pages. You won’t have billions of pages if you eliminate the regulations.

Now, the president has already rolled back over 900 regulations and he clearly, even in government, all of our agencies, we can’t propose a new regulation unless we get rid of two. And he’s also looking in the private sector of a 10-1 rollback on regulation, and so, I think what you’re seeing around the country today, with that enthusiasm, with these statistics that are showing the enthusiasm for small businesses to start or to grow, is because we do have the promise of imminent tax reform. And also, the President has already shown that he will keep to his word and continue to roll back regulations and that’s what small businesses are looking for: the ability to run their business and not to have to spend all their time making sure they’re compliant.

President Donald Trump argued Tuesday that his policies have already helped improve the economy during a meeting with small business owners at the White House.

Trump has been particularly focused on economic concerns since first announcing his candidacy. He has promised to rollback regulations and laws that put an unnecessary strain on employers and their workers. The president listed recent employment and economic growth as indicators he has been successful in that regard.

“Our stock market has reached an all time high today,” Trump told the gathering of small business owners. “They don’t talk about the all time high stock market. And they don’t talk about another factor. Unemployment has just reached a 16 year low. They don’t want to talk about it.”

The U.S. Small Business Administration (SBA) hosted the event alongside the president. SBA Administrator Linda McMahon and White House Adviser Ivanka Trump joined the president prior to holding their own discussion on small businesses.

The Gross Domestic Product (GDP) is another indicator that has looked promising. It tracks the total dollar value of all goods and services produced over a specific time period. The Bureau of Economic Analysis (BEA) found in its advance estimates for quarter two Friday that the growth rate improved to 2.6 percent.

“And I think to me, maybe, the biggest, is that GDP for the quarter just released at 2.6 percent,” Trump said. “That’s so much higher than anticipated. Remember when I said we’ll hit three percent sometime over the period of the next two years.”

Trump added that the country is on the verge of a golden age for small businesses. He highlighted his rollback of burdensome regulations, reduction of environmental protections, and tax reform as critical areas that will help the private-sector thrive. He also promised to help small business owners every step along the way.

“I am very inspired to be in the company of such motivated entrepreneurs,” Trump said. “People that I really respect because I know what it takes, I’ve been there. Believe me, I know what it takes. You are the dreamers and innovators who are powering us into the future. That’s exactly who you are.”

Trump is still early in his presidency making it unclear how his actions contributed to these gains. Former President Barack Obama also saw steady employment gains in his final two years and periodic spikes in GDP growth.

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Imagine a mom and dad at the age of 67 who own a small, but profitable bed and breakfast in New Hampshire. They want to retire soon, but their two kids aren’t interested in taking over the family business. What do they do?

As the baby boomer generation reaches retirement age, this is a question many small businesses owners are starting to ask. Either their children don’t want to lead the family business or the owners don’t have kids. Regardless, many experts see an impending crisis affecting locally-owned businesses. With only a small percent of family-owned businesses being passed on to the next generation, most of these businesses will either quietly go out of business, or get sold to out-of-state buyers.

According to the U.S. Small Business Administration, 90 percent of small businesses are family-owned. Among family-owned businesses that foresee an ownership change within the next five years, only about half plan to pass the business on to the next generation, the smallest share since 2010 and down from 74 percent of companies that said this two years ago, according to the 2017 U.S. Family Business Survey by PwC conducted in late 2016. Among the 160 family firms surveyed, relatively few said they plan for the family to continue to own the business while someone else runs it.

“In this latest survey, far more businesses told us that, instead, they’ll be seeking buyers outside the family within the next several years — nearly one-third of respondents, compared with 19 percent two years ago,” the survey found.

But Ted Clark, director of Northeastern University’s Center for Family Business, said owners without another generation to pass the company over to is not necessarily a new trend. He said it’s part of the “cycle of family businesses.”

“You do see a dynamic between the generations where mom and dad don’t want to go, but the kids want to be independent, and they struggle on how to make that happen,” he told InsideSources. “For businesses that don’t have someone to take over, part of the problem for some of the smaller ones is that their entire life’s work is in the business and the business doesn’t generate enough money to cover their retirement and have another generation take over.”

Another issue facing small business owners is the ever-political estate tax. That was one of the first challenges that came to mind for Chad Moutray, chief economist for the National Association of Manufacturers (NAM).

“If you are trying to pass your company on to your son or daughter or some other family member, there is some tax transaction that that has to take place there,” he told InsideSources. “It’s a big issue for manufacturers and sometimes that makes it so much of a tax burden that it’s not possible to transfer.”

Though there is little evidence many businesses have gone under from estate taxes, it’s a hot-button issue for owners who see the tax jeopardizing family assets built over a lifetime — or several generations. Groups opposed to estate taxes say that many small businesses, even if they survive, must give up a chunk of change selling assets to pay the tax.

For NAM, more than 90 percent of their 14,000 members are small to medium-sized businesses. In 2014, there were more than 250,000 firms in the manufacturing sector and all but about 3,700 firms were considered to be small (having fewer than 500 employees). Approximately three-quarters of those firms have fewer than 20 employees, according to the U.S. Census Bureau.

Whether due to concerns about the estate tax or a lack of a successor to take over the family business, the shutting down of those companies could significantly impact state’s economies.

Take New Hampshire, for example, where manufacturers account for 11 percent of the total output in the state, employing 9.9 percent of the workforce, according to NAM. Manufacturers help to drive New Hampshire’s economy, with $3.95 billion in manufactured goods exports in 2016. In general, small businesses comprise about 87 percent of all exporters in New Hampshire.

The PwC survey said it’s possible the number of businesses that plan to keep things in the family could increase. The last survey was conducted during a time of uncertainty for many business owners due to the 2016 presidential election and renewed economic anxiety.

Yet, the business landscape has also grown more complex in recent decades, which might leave family business owners confused and lost in the process of transferring power to a family member. It could also stem from a lack of strategic planning or communication between the owners and the next generation.

Nearly one-third of family firms have no succession plan at all, and only 23 percent have a plan that’s been put in writing and communicated to key firm stakeholders, the survey found.

This is something the Family Business Consulting Group advertises on their website as an important discussion that needs to happen with family members.

“This is a classic family business scenario bounded by assumptions and timing. Family businesses are typically ruled by assumptions. You and your children, as well as other family members and non-family employees, all have assumptions regarding the future of the business,” the website states. “You should remember that succession is a process that can take up to a decade to complete and the first step on this journey is ensuring the family has a frank discussion about their hopes and dreams for the future of this business.”

But if those discussions don’t go anywhere, experts suggest selling to employees or a third-party, or assemble a team of advisers or a non-family CEO to bridge the gap between parents retiring and children taking over. The other option is to shut down entirely. Whichever option owners decide, family business consultants suggest starting to plan as early as possible.

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