For small business owners who have already cut expenses to bare bones, the continued flight of consumers and the failure of the trillion-dollar economic recovery package to reach them have made for a difficult environment. This year to date, small businesses have experienced revenue drops of 3.75 percent nationwide, according to a November study from Sageworks, Inc.
But Steve Bloom has seen tough markets before. A real estate developer and mortgage company founder who retired (the first time) at age 41, Bloom believes close attention to some simple rules can help the small business owner not just survive—but prevail.
“I have experienced a number of successes, and a number of failures,” Bloom said. “Fortunately, my successes outnumber my failures.”
First, the basics for any entrepreneur: “People absolutely must have phd: passion, heart, and determination,” Bloom said. “If you don't have those three character traits, you'll have a tough time dealing with the stresses, the failures, and the frustrations of doing it on your own.”
But in today's economy, the small business owner needs more.
Today, interest rates are near record lows. Bloom remembers when the prime lending rate hit 21% and he could not make a loan for 15 months.
“I had to keep myself lean and mean. This was a good thing because it put me in survival mode. Because of that, I was very alert to what was going on and I was always looking for information. I developed knowledge, expertise and insights into the market, and I made a point of sharing it with past or existing customers, potential clients, and ancillary businesses that were connected to my business.
“You need to stay connected, to stay in tune with what's going on in your market. Stay in touch with your trade association. Everybody has common problems and common potential solutions, and you've got to keep your ear to the ground and be able to recognize when conditions start to change.”
The world has changed over the last two years, but expectations may still lag behind, a variety of self-delusion that Bloom said can be extreme. An example is the real estate market, still depressed in many areas. The still-increasing inventory of unsold homes means buyers can command “rock bottom prices,” Bloom said. Sellers get stuck on what they paid for the home, or the value of improvements they made, and can't accept lower prices. Comparable sales are the key indicator and they often just don't support the higher price. In one area of Florida, where Bloom recently sold his home, prices had depreciated by almost 50%.
“Sellers' expectations are that homes are worth a lot more,” Bloom said. “It's a difficult adjustment.”
And the continuing cold shoulder from lenders means that the banking system has failed small business, according to Bloom. Federal money for recovery is not yet filtering down to entrepreneurs.
But don't wait for the government to wake up and force the federal aid where it belongs, Bloom advised. Right now, small businesses should identify local banks that will, in the future, be in a position to loan, and build strong business relationships right now. “Position yourself to take advantage when the money starts flowing again,” Bloom said, “even if that means just opening up an account.”
The evaporation of credit is “pure economics,” Bloom said. The average small business loan is $10,000 to $100,000. But the costs to originate, underwrite, close and service such a loan is constant, whether the loan is small or $400,000. Because banks make much more profit on the larger loan, “there is no economic incentive to make the smaller loan,” Bloom said.
“That's where small business needs help,” Bloom said. Small business operators should watch for the new SBA guaranteed Community Express loans. The limit of $35,000 for one government guarantee program may soon be doubled, and lenders may be authorized to use expedited and streamlined loan procedures. Of course, these are loans, not grants, and borrowers need collateral and decent credit scores, according to Bloom.
Smart entrepreneurs may also be able to tap new sources of funding. Microlenders, who specialize in $5,000 to $15,000 loans, some unsecured, could help. Bloom sees as “revolutionary” the newest source of funds: peer-to-peer lending. Groups of private investors make money available independently and directly, often through networking sites.
Bloom cited one example of how to operate effectively in survival mode. In a frozen construction market, a commercial real estate inspector had been laid off, and asked Bloom, a counselor at the Service Corps of Retired Executives, for advice. He decided to try consulting, an occupation without much infrastructure or overhead and therefore mild startup costs. He tapped into social networking, and offered people his expertise on special hazards, based on his experience, such as concerns over Chinese drywall, and expert advice on how to detect leaks and latent defects—in other words, he delivered real value, Bloom said.
“When people think you're an expert, if you're giving good information, the word gets out. And the Internet is there. Sending out business cards and distributing flyers doesn't work anymore.
That's one example of turning a crisis on its head. And it's the message Bloom, who has had more than his share of successes and failures, likes to tell entrepreneurs and small businessmen.
“Today I tell them I honestly believe there are tremendous opportunities. You just have to make it happen.”
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