In this Economy, It Sucks to be Small

Recently, Bank of America (BofA) announced plans to lay off 3,500 workers and perhaps as many as 10,000 over the coming months. While I feel very bad for the newly unemployed BofA workers, it is hard to feel any sympathy for BofA as an institution. BofA received taxpayer-funded bailouts totaling $45B in TARP funds and $118B in loan guarantees. BofA was heavily exposed during the mortgage crisis due to its own bad loans and those that it acquired from Countrywide Financial & Merrill Lynch. According to those who make such decisions, BofA was too big to fail.


Politicians and the press focus on the woes of large companies, but it is much harder to be a small company in the current economic environment. Around a dozen small community banks are taken over by the FDIC every month without any fanfare (70 banks so far in 2011 & 157 banks in 2010). After a bank is taken over, typically some branches are closed and some staff are let go. Because the impact is localized, we often hear nothing about this phenomenon which occurs somewhere in America every week.

Talk to your local community banker. It is startling to hear the fear that they live under. They worry that one day without warning, the FDIC will show up and take over their bank. Bank examiners are pressuring banks to strengthen their balance sheets but the rules are unclear as to what small banks need to do to ensure solvency.

This uncertainty has spread to small businesses and is dampening economic growth and job creation. I have experienced this uncertainty firsthand. I lead a small company that is doing very well, better than it has in years. We are hiring talented professionals to aggressively pursue a new market opportunity. Recently, when renewing our line of credit that we use for working capital, our bank suddenly balked at the loan renewal. We are not alone. Small businesses everywhere are now finding it much more difficult to secure loans, more difficult than during the depths of the financial crisis. Don't believe the rhetoric about SBA-guaranteed loans. Banks will not touch SBA-backed loans due to the additional costs and red-tape required by the government. Today, small business loans are unsavory. The most undesirable loans are those to small entrepreneurial companies trying to create new products and services through innovation and with some amount of risk.

Don't get me wrong. I am not complaining. Is the playing field level? No, of course not. It is much more difficult to be a small business in the present tough economy. There is little margin for error, and no one cares if you falter. But these are the rules of the game that we choose to play. Yes, it is tougher for small businesses, but that hardship will make us leaner, smarter, and better than our larger counterparts.

Some of today's greatest, most innovative companies were small companies or did not exist 25 years ago: Google, Dell, and Southwest Airlines, to name a few of my favorites. Microsoft, Intel and Apple were on the forefront of a new PC technology that had yet to be adopted by the mainstream. I am firmly convinced that you have not yet heard of the companies that will lead the market 25 years from now. The small businesses that survive the hardships of today will become the great businesses of tomorrow!