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The President has called on Congress to create a new Small Business Lending Fund that will transfer $30 billion from the Troubled Asset Relief Program (TARP) to this new program to support small business lending. The proposal would be to use the Small Business Lending Fund to offer government capital investments to community and smaller banks with an incentive structure to support new small business lending.
The program would be available only to banks with assets under $10 billion. The theory behind this is that these banks conduct the highest percentage of their lending to small business, accounting for 50 percent of all small buiness loans nationwide while making up only 20 percent of all U.S. bank assets. According to the Independent Community Bankers of America (an advocacy group for the nation's nearly 8,000 community banks), over 98% of the nation's banks have assets of $10 billion or less. The new program would be separate from the TARP program to encourage greater participation, since the banks would not face the notorious TARP restrictions such as limits on executive compensation and dividend payments, as well as requirements that TARP banks give stock warrants to the Treasury.

With the core function of the new Fund being to offer capital to qualifying banks with incentives to increase small business lending, the proposal is structured to entice banks to increase lending immediately. The government capital would come with  an initial dividend rate of 5%. By increasing their small business lending over 2009 levels over the next two years (on the basis of new lending beginning January 1, 2010), banks could receive a 1 percentage point decrease in their dividend rate on the capital for every 2.5% increase in business lending, down to a minimum dividend rate of 1%. Banks would realize this reduction in dividend rate sooner if they make early, but consistent progress towards increased lending. After 5 years, the dividend rate would be increased to encourage timely repayment. 

Banks would be eligible to receive up to 3 - 5% of risk-weighted assets in capital investment from the new Fund. Banks with less than $1 billion in assets would be eligible for up to 5% of their risk-weighted assets and banks with $1 - 10 billion in assets would be eligible for up to 3%.

The Administration is counting on the Fund's $30 billion to be leveraged by the participating banks when increasing lending, resulting in new lending amounting to several times over the $30 billion in capital provided to the banks.

Will the new fund get through Congress? If so, will banks participate? Is the demand there for quality small business lending amidst a weak economy? Time will tell, but one thing is for sure--to have a chance for a real impact, the Fund needs to be put into place quickly.

The aforementioned Independent Community Bankers Association (ICBA) issued a news release on February 2, 2010 supporting the Small Business Lending Fund proposal stating that " this new $30 billion small business fund would help small businesses fuel local job creation and economic stability. In fact, every dollar of capital that goes into community banks has the potential to be leveraged eight to ten times--a substantial and positive impact for both small businesses and our communities". 
It should be well worth the time of Main Street America to follow the developments of this new plan.

Sen. Max Baucus, chairman of the Senate Finance Committee recently released a detailed summary of its much anticipated version of healthcare reform. Dubbed America’s Healthy Future Act of 2009, the proposal is a 10-year program estimated to cost $856 billion paid for with $507 billion in cuts to government health programs and $349 billion in new taxes and fees. The bill does not include a government-run insurance option but does include a system of nonprofit member-owned cooperatives.  Some of the items in the bill affecting small and mid-sized businesses include:

1.       Qualified small employers (i.e. an employer with no more than 25 fulltime equivalent employees employed during the employer’s taxable year, and whose employees have annual wages averaging no more than $40,000) would receive a tax credit for purchasing health insurance for its employees. The full credit would be available only to employers with 10 or fewer FTEs with average annual wages of less than $20,000.

Phase I of the credit would be for tax years 2011 and 2012 and employers would need to contribute at least 50% of the employee’s health premium (or 50% of a small business bench mark premium, if lower). The credit would be 35% of the employer’s contribution.

After 2012, Phase II of the credit would only be available for a small employer that purchases health insurance coverage for its employees through a newly created state exchange in which all private insurers in the individual and small group markets will be required to participate. Again, the employer must contribute at least 50% of the premium; however the credit will be 50% of the employer’s contribution. The credit would last for two years.

The employer’s expense deduction for health insurance premiums paid would be reduced by the amount of the credit. Self employed individuals, including partners and sole proprietors, 2% shareholders of an S-Corp and 5% owners of a C-Corp would not be treated as employees for the purposes of this credit.

2.       Employers with 200 or more employees would be required to automatically enroll employees into health insurance plans they offer. Employees may opt out, but they must demonstrate that they have coverage from another source. States (with the approval of the Secretary of HHS) would have the option of establishing an auto-enrollment requirement for individual and small group markets.

3.       An employer would not be required to offer health insurance coverage, however all employers with more than 50 employees that do not offer coverage would be required to pay a fee for each employee who receives a tax credit for health insurance through a state exchange. Credits would be available to employees with modified adjusted gross income up to 300% of the federal poverty level. For each full-time employee enrolled in a state exchange and receiving a tax credit, the employer would be required to pay a flat dollar amount set by the Secretary of HHS equal to the average tax credit in the state exchanges. The assessment would be capped at $400 per all employees at the company.

4.       Beginning in 2013, an excise tax would be imposed on insurers if the aggregate value of employer-sponsored health coverage for an employee exceeds $8,000 for individual coverage or $21,000 for family coverage annually (amounts indexed to CPI ).  The employer would be responsible for reporting to the insurer the amount taxable to the insurer under this provision and will be subject to penalties for under reporting the liability. There is a good chance that this excise tax would be passed back to the insured company in some form by the insurer.

5.       Employers would be required to disclose the value of the benefit provided by the employer for each employee’s health insurance coverage on the employee’s annual W-2.

6.       Effective in 2010, the cost of over-the-counter medicine (other than doctor prescribed) would no longer be eligible for reimbursement through a Health Flexible Spending Account (FSA) or a Health Reimbursement Account (HRA). Also, salary reductions by an employee for a taxable year for a Health FSA will be limited to $2,000.

7.       For Form 1099 reporting, the bill would eliminate the exception for payments to corporations. Also, the class of payments with respect to which reporting is required would be clarified to include gross proceeds for property as well as services. This appears to effectively require reporting on all expenditures except for those to exempt or governmental organizations, international organizations and retirement plans.

The Senate Finance Committee will vote on this bill possibly as early as next week.

A recent article in The Wall Street Journal called attention to the constant problem for business owners of employee theft. The article noted that employee fraud tends to rise during tough economic times when employees are feeling financial pressure in their personal lives. With a lack of sophisticated internal controls, small companies are especially vulnerable. Often, affected business owners are in a complete state of denial, attributing a decrease in funds to lower sales.

In our book, The Danger Zone, Lost in the Growth Transition, author and B2B® founder Jerry Mills devotes two chapters to this subject. B2B® partners often find that many business owners unintentionally place their employees in a position to steal from the company by giving them almost total control over the company's finances and having absolute trust in them.

The book describes an actual situation Jerry encountered with one of his clients involving a controller who, over the course of a decade, had stolen over $1,000,000 from the company. The theft was nothing elaborate, but the controller had major responsibilities and had the complete trust of the owner. The company also had an independent CPA firm issue quarterly unuadited reviewed financial statements which gave the owner a certain amount of comfort related to the company's cash and inventory.  The controller wrote checks to herself in amounts of $6,000 - $8,000 per month and coded them to cost of goods sold. With her responsibilites and the company's lack of internal controls,  the theft was easy to hide from the owner. Subsequent to the discovery of the theft, the owner sold the company's assets to an out-of-state buyer and most of the company's 150 employees lost their jobs.

A recent survey by the Association of Certified Fraud Examiners found that  the  top five methods of employee fraud schemes at companies with fewer than 100 employees involved: Billing (28.7%), Check tampering (25.4%), Corruption (23.1%), Theft of cash before it's recorded on the books (20.8%) and Expense reimbursement (15.5%).

Who is watching your controller (or bookeeper, finace manager, etc. - whatever you case may be)? Often business owners are not trained to catch fraud committed by employees or are simply too busy to focus on the issue. Sometimes it is just a state of denial. Do not rely on you CPA firm's audit or review procedures to detect employee fraud as these engagements are not designed for that purpose.

As a business owner, be alert to signs of a possible problems such as employees who appear to be living beyond their means or who never take a vacation or who guard access to the accounting system. Business owners should also review all cancelled checks and look at the endorsement on the back. It's also a good idea to review the bank statement each month paying particular attention to transfers.

Often, time will not allow a business owner to properly oversee the financial functions of their business. A better solution would be to engage a senior-level executive to watch over the shoulders of your controller, allowing him or her to come into your place of business at least once a month to look into the computer system and look at the details of the financial statements. By letting your staff know that this process is in place, any temption to steal should be reduced.

No process can guarantee complete elimination of employee fraud, however there are steps that you, the business owner, can take to minimize the chance of fraud in your company. The partners of B2BCFO® are available to assist you to develop those steps.

You may think as a small business owner that the resurrection of the "Employee Free Choice Act" (which passed the U.S House of Representatives in 2007, but was defeated in the Senate) would not affect you--think again. Unions spent record amounts during the 2007 election season to elect more allies in Congress and are now looking for a return on their investment, passage of the Employee Free Choice Act. At the heart of this Act is the so-called "card-check" legislation which would make it much easier to organize and unionize your workforce.

Under the card-check method, a union collects "authorization" cards from employees and independent contractors in any manner it sees fit for as long as it takes to get 50% plus one. Obviously, the possibility of harrassment, misinformation and intimidation to get these signatures is present. Under current law, employers may voluntarily recognize the card-check method, but they also have the option of choosing a secret-ballot election overseen by the National Labor Relations Board (NLRB). Under the proposed legislation, the choice would rest only with the unions. With unions winning about half of all private ballot elections while successful on 90% of all card-check campaigns, there is not much doubt which election method they would use.

How would the Employee Free Choice Act affect your business? According to a recent article in  National Federation of Independent Business (NFIB) publication My Business, small business owners should be aware of the following:

1. There are no size exemptions for small business - Small businesses are less likely to have labor counsel, making them possibly better targets for unions. The NLRB's statistics for the fiscal year ending September 30, 2005 reveals that 20% of the private-ballot elections they conducted that year involved organizations with fewer than 10 employees and 70% involved organizations with fewer than 50 employees.

2. There is no time limit on card collection - The union can hold cards until they get 50% plus one, regardless of how long it takes.

3. You may never know your business is being organized until it's over - The organization effort could be conducted completely underground without your knowledge. Even if you did find out, employers would be under major restrictions about what they could say during the union organization drive.

4. Right-to-work states offer no protection from card checks - The Employee Free Choice Act would preempt state law.

5. Independent contractors are fair game in card collection - Under the proposed legislation, independent contractors can count toward a majority of workers necessary to unionize a business.

Business owners should stay abreast of the developments in this legislation and contact their legislators regarding their opinions.

A long-standing struggle between the IRS and business taxpayers could get a bit dicier next year with the new increased Democratic majority in Congress and the Obama administration possibly set to change the law related to proper worker classification.

Last year, President-elect Obama introduced a bill in the Senate (S.2044: Independent Contractor Proper Classification Act of 2007) that would eliminate the safe harbor defense of "industry practice" as a justification for classifying workers as independent contractors. Under current law, a business may be able to treat a worker as an independent contractor if it can demonstate that it is a long standing industry practice to treat the worker's position as an independent contractor and the business did not treat any worker in the same position or a substantailly similar job position as an employee and the business filed all federal tax returns and information returns (including Forms 1099) for the year consistent with its treatment of the worker as an independent contractor.

The bill would also require the Secretary of the Treasury to establish a procedure for workers to petition for a determination of their status as employees or independent contractors and prohibit employers from retaliating against workers filing a petition. Additionally, the bill would require a workplace notice informing workers of their right to seek a status determination and would require employers to notify their independent contractors of their federal tax obligations.

House members Jim McDermott (D-WA) and Richard Neal (D-MA) introduced similar legislation this year stating they would try to push the measure early next year as one of the first orders of business after a stimulus package. This bill would go even further than Obama's Senate bill by levying an additional $10,000 fine per misclassified worker.

Since 1988, the IRS has engaged in an aggressive payroll tax collection program for determining a worker's classification. Estimates of federal revenue loss attributed to worker misclassification have been as high as $4.7 billion a year.

Businessowners should pay close attention to the developments in this issue as the tax bill for misclassified workers could be substantial. The total additional tax costs incurred (including penalties and interest) are commonly double the amounts potentially saved by claiming independent contractor status.

In light of the recent debate over fair value accounting and to what extent it contributed to the current financial crisis, below is a quick summary of the basics of the concept. 

Fair Value Basics Explained*

• What is fair value accounting? Fair value accounting, also called "mark-to-market," is a way to measure assets and liabilities that appear on a company's balance sheet and income statement. Measuring companies' assets and liabilities at fair value may affect their income statement. SFAS 157 was issued in 2006 by the Financial Accounting Standards Board (FASB) effective for fiscal year 2008. SFAS 157 defines in one place the meaning of "fair value."
  
  
• Why is it important today? Huge losses reported by financial firms on subprime assets have led to a debate over the implementation of SFAS 157 in circumstances where markets collapse and price inputs aren't readily available.  In the current crisis, banks and investment banks have had to reduce the value of the mortgages and mortgage-backed securities to reflect current prices.  Those prices declined severely with the collapse of credit markets as mortgage defaults escalated.
  
  
• What is FASB? FASB is the independent U.S. accounting standard-setting body based in Norwalk, Conn., that sets U.S. generally accepted accounting principles used by all U.S. publicly-traded companies.   
  
  
• How does mark-to-market work? SFAS 157 provides a hierarchy of three levels of input data for determining the fair value of an asset or liability.
  • Level 1 is quoted prices for identical items in active, liquid and visible markets such as stock exchanges.
  • Level 2 is observable information for similar items in active or inactive markets, such as two similarly situated buildings in a downtown real estate market.
  • Level 3 are unobservable inputs to be used in situations where markets don't exist or are illiquid such as the present credit crisis. At this point fair market valuation becomes highly subjective.
  
  
• What does SFAS 157 apply to? The fair value accounting standard SFAS 157 applies to financial assets of all publicly-traded companies in the U.S. as of Nov. 15, 2007. It also applies to non-financial assets and liabilities that are recognized, or disclosed, at fair value on a recurring basis. Beginning in 2009, the standard will apply to other non-financial assets. SFAS 157 applies to items for which other accounting pronouncements require or permit fair value measurements except share-based payment transactions, such as stock option compensation.

As reported in The New York Times this week, the Securities and Exchange Commission this week issued an interpretation of SFAS 157 that could make it easier for banks to report smaller losses. Basically, the interpretation gives banks more leeway in using the more favorable Level 3 approach to value securities instead of Level 2 in the case of an inactive market that consists of only "forced or disorderly" transactions.

The move by the SEC drew priase from the American Bankers Association, which had complained that auditors were forcing banks to value assets at unrealistically low "fire sale" prices, rather than at the higher values the banks believe the assets should be worth in an orderly market.

Some congressmen had pressed to order a suspension of the fair-value rule as part of the bailout bill that the House defeated earlier this week but may be revived later in the week. That bill stopped short of that, but did require a study of the rule and authorized the SEC to suspend it.

* Source: The American Institute of Certified Public Accountants

  For business owners, much of the future success they will achieve or the future pain they will feel or the results of the future exit strategy from the company will be predicated by how well they are able to manage the time of all those who work within their organization. Consequently, this graph will be very important to an entrepreneur as their company grows: 

 
Nationwide, B2B CFO® observes that too many business owners feel they are pulled down into administrative (minding) tasks, which take them away from their finding activities and the ability to grow the company and to stay ahead of the competition.
 
Our firm helps identify the roles of people within organizations like "Finders, Minders or Grinders". Our philosophy is documented in The Danger Zone, Lost in the Growth Transition, by Jerry L. Mills, the Founder & CEO of B2B CFO®. The brief excerpts below from the book will help explain some of our consulting philosophy.
 
  Finders (Business Owners) Live in the Future   
"Finders are the leaders of the company. They are not necessarily the people who lead all company employees on a daily basis. Finders demonstrate the type of leadership that 'pulls' people into the future - employees, current customers and future customers."
 
"A good Finder spends most of his or her time building relationships and 'pulling' others into the Finder's future. The success of any company is due to the relationships that the Finder is able to make with others. Building relationships takes time and is typically the best time the Finder can spend in helping a company succeed. Show me a Finder who will spend 30 to 40 hours a week in finding activities and I will show you a company that will have significant increases in sales in the future. Conversely, show me a Finder who stops spending time in finding activities and I will show you a company that is starting the inevitable cycle of getting into financial trouble."
 
Minders Live in the Past  
"Minders are the key administrative people of the company. A Minder may be the company's controller, bookkeeper, finance manager, CFO, IT Director, IT Manager, etc."
"Finders typically do not have the accounting, IT or other background to work extensively in minding activities. By nature, Finders detest this work. They resent the fact that they have to spend their time in countless meetings, working on cash flow, hiring and firing people, meeting with accountants, attorneys, bankers, etc."
 
Grinders - Today is all that Matters
"Grinders are people who do the physical work of the company. In a manufacturing company, the Grinder is the person who makes the widgets. The people making the phone calls are the Grinders in a telemarketing company. The Grinders put the cars together in an automobile manufacturing plant.
 
One of our goals is to help Finders escape the minding trap. We delight in helping Finders discover an extra 15 or 20 hours a week of finding time. There are a lot of minding titles that explain what B2B CFO® does, such as CFO, Chief Financial Officer, part-time CFO, virtual CFO, temporary CFO, interim CFO, Controller, etc. Regardless of what you call us, we are here to help owners of emerging and mid-market companies gain financial and goal clarity which leads to an increase in profits, cash and company value.