Business Information for Entrepreneurs by an Entrepreneur

By the end of 2009, the media and government reports alike announced that key economic indicators looked good for a recession recovery. However, although some indicators were positive, not all demonstrated good news - especially in California where small business bankruptcies increased by about 81% as of the12 months ending September 30, 2009. Across America, the statistics were still disheartening, with Equifax reporting that national bankruptcies were up 44%.

The Gloomy Situation

Many small businesses in California were simply trying to wait out the economic crunch, hoping for a light at the end of the tunnel.

But the light never came.

Small business lending and lines of credit simply disappeared and dried up with banks fearing additional defaults, and consumers stopped spending except only for necessary items. Many of those small business owners tried to wade through the economic crunch by obtaining loans and lines of credit where they could find them. However, small business lending became tough with stricter personal guarantee or co-signer requirements.

Unfortunately, as of the end of Q3 2009, about 19,000 small businesses have filed for bankruptcy. This number is strictly based upon small business bankruptcies alone, and it does not account for the numerous individuals who filed for personal bankruptcy because their sole proprietorship business failed.

2,229 small businesses filed for bankruptcy protection in September, 2009, which was up from 1,503 in September, 2008. Many more small businesses are not included in these figures because bankruptcy attorneys consult their clients to file personal bankruptcies, which are easier than small businesses bankruptcies.

The Sunnier Future Ahead

Although 2009 was tough on small businesses, those who have managed to survive will find it easier to obtain low-interest loans with the 2009 economic stimulus plan in effect. More money will be guaranteed by the government for small business loans. In addition, the Obama administration has asked for the elimination of capital gains taxes on new investments in small business stock, as well as tax incentives for small businesses to hire new employees.

This news is encouraging, especially since California is experiencing the largest failure rate of small businesses. Hopefully, with the money coming from tax incentives and loan guarantees, California will soon see a reduction in small business failures and once again be on the road to economic recovery.

Nature or nurture? This eternal debate continues to shape behavioral sciences regarding how people develop their personalities. Interestingly, the question extends into the realm of entrepreneurship: are people simply pre-programmed to become business owners?

What the Entrepreneurship Statistics Reveal?

Let's first take a look at the facts. According to a study performed by the Ewing Marion Kauffman Foundation, a leading non-profit entrepreneurial devoted to promoting entrepreneurship, almost half of all small business owners came from a family where a parent also started a small business. About 15% of entrepreneurs had a sibling who started a business before them.

With this information, one can conclude that a person is more likely to become an entrepreneur and start a small business if they had a family member who did the same.

Business Ownership: Nature or Nurture?

However, is the data conclusive to whether a person is programmed in their DNA to become an entrepreneur? Not really. Most likely people have a tendency to follow in a parent's footsteps because they are trained to do so. A person who has a parent or sibling model of an entrepreneur has a much better chance to learn the ropes of starting and operating a small business, as well as the benefit of encouragement, coaching, and emotional and financial support.

However, though training and modeling support the 'nurture' theory, there are studies that show how a person can be predisposed to possessing entrepreneur traits. The Journal for Business Venturing is a scholarly publication that conducts studies that deepen the understanding of entrepreneurial phenomenon. An article published in 2008 concluded that inherited traits such as extroversion may, indeed, play a part in entrepreneurial endeavors. The authors concluded that there were high probabilities of inherited traits contributing to the propensity for entrepreneurial endeavors. In addition, these traits had little influence from the family upbringing or environment.

In answering the question regarding whether entrepreneurs are born, it is not entirely conclusive. However, it is obvious that a people with certain traits can become entrepreneurs more easily than people without those traits. In addition, families with supportive and modeling entrepreneurs can help develop other entrepreneurs within the family - which may be the catalyst behind the saying, "keeping it in the family."

Small businesses in the United States account for about 29 million companies, which translates to a large contribution to the national economy. In fact, about 64% of all new jobs were created in small businesses between 1993 and 2008. However, many economists believe that part of the global economic crisis that began in 2007 was a result of defaults on small business loans.

The Small Business Lending Situation

Two years later, how are major banking institutions treating small businesses, and are they extending loans to the largest employer sector in the country? The answer is yes.

In 2009, major banks did manage to make small business lending a priority, and it appears they will continue to do so in 2010, according to a study sponsored by Fox Business. Bank of America and Wells Fargo were the leaders in small business lending in 2009 with $12 and $13 billion respectively. B of A did disclose that they wrote off $2.5 billion in loan losses due to defaults, but were working to modify about 49,000 loans.

Wells Fargo said that small business lending is doing so well they hired 5% more additional banking staff for a total of 31.500, and the bank plans to hire 700 more staff members in 2010.

JP Morgan Chase said they extended $6 billion in loans to small business in 2009, and they plan to increase that amount by 67% in 2010 to $10 billion.

The Power of Small Businesses

A small business is defined as a firm with annual sales of less than $20 million. Although Fortune 500 corporations tend to dominate the news with Federal bailout funds, it is the small business sector that helps make the country run at its optimal financial level.

Small business in the U.S. cannot be discounted as a major economic contributor. As the largest employer in the country, small business is a key factor to the economic recovery. And major lending institutions have taken note. Look for new legislation to be passed in 2010 that will make it even easier for lenders to extend loans to small business.