Federal stimulus trickles down

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There’s a smorgasbord available for small businesses in the federal stimulus package. The trick is figuring out how to get a plate.

Plenty of local experts are serving up access to the buffet. And some entrepreneurs are digging in. But others consider the
stimulus warmed-over leftovers.

"For high-tech, high-growth businesses of the 21st century, there’s nothing in the stimulus bill that helps us," said Bob
Compton, a longtime investor in local businesses who now lives in Memphis, Tenn. "For low-growth and failed businesses of
the 20th century, that’s where the bulk of the money is going."

In February, President Obama signed the $787 billion American Recovery and Reinvestment Act into law. Although some of the
stimulus package has begun to trickle down, many small-business owners still don’t know what’s available.

U.S. Rep. Andre Carson, D-Indianapolis, wants to show them. On April 15, he and the Greater Indianapolis Chamber of Commerce
co-hosted a local forum. Carson said constituents have been regularly contacting his office about the stimulus. In addition
to the forum, the congressman said he’s been meeting with them in person, or answering questions via teleconference while
he’s in Washington, D.C.

"When the credit freeze hit toward the end of last year, businesses of all kinds, but especially small businesses, were hit
the worst," Carson said, adding that nearly half of Indiana workers are employed by a small business.

"Just today, our office received a letter from a small-business owner who runs a used-car lot that’s been impacted by the credit
freeze," Carson said. "Right now, they can’t get even a loan from a large bank that received TARP [Troubled Asset Relief Program]
money. He’s rightfully asking why a small business with good credit and past success can’t get a loan to grow."

A piece of the pie?

Even if it’s spread across the country, $787 billion in federal spending and tax credits is a big number. Much of the direct
expenditure in the stimulus isn’t designed to stimulate small businesses in particular as opposed to larger ones, said Kristine
Danz, a partner in the local law firm Ice Miller LLP. Instead, the main aim is to get the economy moving again by speeding
up activity in certain key areas, such as road construction and renewable energy. Indiana will get $4.3 billion in stimulus
money, according to the Indiana Chamber of Commerce.

"There is a misperception in the marketplace that if you’re a small business, funds are available for you under the stimulus.
It really doesn’t work that way. You have to be eligible for one of the areas focused on in the package: health care, life
sciences, the green initiative," she said. "Those areas have money available for companies to get for certain kinds of projects."

And therein lies Compton’s beef. For two decades, he has been one of Indiana’s most successful speculative investors,
first as a venture capitalist and later as an angel investor using his own money. His portfolio includes some of the state’s
fastest-growing high-tech companies, such as e-mail marketing software-maker ExactTarget.

Compton, who supported Obama in the presidential election, said he read the entire stimulus bill, which ran over 1,000 pages,
to find whether it had anything to help ground-breaking startups. He thinks too much of the money is going to support troubled
old-business giants, like automakers, with far too little available for innovation.

"It’s not putting money into the new technologies, the new research, the new developments that will create new products, new
companies, new industries and new jobs," Compton said. "We should be stimulating the industries of the future, not the industries
that have failed to maintain their competitive edge."

More credit for small biz

Much of what the stimulus has to offer small businesses directly is meant to free up credit, and it’s all being channeled
through the Small Business Administration. For many companies, lack of customers is their sorest need during the economic

The government is addressing slack demand by buying products and services. But federal contracts typically require performance
bonds. Thanks to the stimulus, the SBA can now guarantee up to $10 million in performance bonds, compared to its former $2
million ceiling, SBA Indiana District Director Gail Gesell said.

The stimulus also is allowing the SBA to waive many of the fees associated with its traditional business loans, and to increase
their guarantees against default. Gesell said the SBA now has $375 million it’s using to set aside the costs of its loan programs,
some of which allow small businesses to borrow for major purchases, such as buildings or capital equipment. The SBA also has
new resources to help small businesses with everything from marketing to paying employee salaries. The stimulus is allowing
the SBA to guarantee 90 percent of small-business loans up to $1.5 million.

"This is a good time for companies to get their business plans and marketing plans in shape so they can move forward in this
current economy and take advantage of new opportunities," Gesell said. "This is such marvelous risk-sharing by the SBA, and
we have over 120 participating financial institutions."

Expanding in recession

The stimulus is helping Julie Bowman expand her small business. She’s the owner of the Primrose School in Carmel’s Village
of West Clay, a day care center and preschool she franchised from the Georgia-based chain. Last month, Bowman borrowed $3.5
million from Salin Bank to open another Primrose School in Westfield. The SBA guaranteed the first $1.5 million.

Many small businesses are skittish about expanding during the recession. But Bowman said her first Primrose School is full,
with 185 kids and an 18-month waiting list for the infant room. She said that may be because some former stay-at-home moms
are returning to the work force to make ends meet.

"Child care is something parents won’t cut back on," she said. "They’re going to cut back on their Starbucks coffee in the
morning, but not on the care for their kids. That’s the most important thing for them."

The SBA hopes the stimulus will convince other entrepreneurs to follow suit. It is starting to buoy small businesses, Gesell
said, but there’s still a long way to go before activity reaches pre-recession levels. SBA loan originations and volume are
both down to about half their previous levels in the first half of this fiscal year, which began Oct. 1, she said.

The good news is the trend is moving in the right direction. In the first weeks of October, the SBA’s loan levels were as
much as 90-percent off. In more recent weeks, they’ve been only 45-percent off.

Business plans that make sense with or without the stimulus are receiving the most benefit from it, said Mike Newbold, regional
president of Huntington Bank in Indiana. The stimulus is not changing the type of borrower that Huntington lends to, but it
has made expansion loans more appealing to small companies with needs they didn’t have before the credit crunch.

For example, before the recession, most companies paid their bills within three weeks, Newbold said. But these days, many
are stretching their terms out to 45 or 60 days. That’s creating more demand for SBA-backed loans.

Think of the stimulus as simply a nudge toward making the economy work like it’s always supposed to. It’s good business for
Huntington to offer SBA loans, Newbold said, because the bank won’t just make money off those loans’ interest. As the small-business
borrowers grow, they’ll need depository services—growing Huntington’s assets, and allowing it to make more loans. The small-business
borrowers will also add employees, who will need personal checking and savings accounts. Eventually, they may want to buy
houses or cars.

"We’d love to provide that financing," Newbold said. "The SBA loan is kind of the tip of the iceberg in terms of offering
opportunity to serve a variety of customer segments."

Questionable value

When it works, the stimulus gives small businesses a push in the direction of growth. But it’s far less a factor than the
fundamentals. For example, Craig Sullivan owns a pair of small companies in Danville. Sullivan Equipment Inc. provides capital
equipment, like frame racks, paint booths and computerized welding tools, to car dealers and body shops. He also owns Sullivan
Tire, a retail tire store.

Sullivan has the lion’s share of the Danville market. But its small population of 5,500 is a limiting factor. He wants to
expand Sullivan Tire into Avon, whose population is 25,000 and growing. He recently borrowed an SBA—guaranteed $223,000 from
Center Bank to open a second location there.

But Sullivan didn’t even know about the SBA’s involvement until his banker sent him a $5,000 check refunding his fees. It
was a nice bonus, he said, but it wouldn’t cover half a week’s payroll. He’s confident he would have qualified for the loan
without the SBA. Meanwhile, demand for Sullivan Equipment’s products has slowed to a crawl as people delay purchasing new
autos and even fixing their old ones.

Federal incentives are nice, but consumer confidence is what Sullivan said his business needs most.

"The stimulus hasn’t been especially helpful," he said. "When it all comes down to it, it’s Mrs. Smith driving down the road
buying groceries for her kids and tires for her car. That’s to me where the rubber meets the road."

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