Let’s see, if a “similar lot” was $70k “not more than 9 months ago,” but now worth $24,900 (assuming enough similarity to be considered a comparable in a real estate appraisal), then the loss was $45,100 ($5011 per month).

Thank goodness, in these days of economic turmoil (with credit card companies doing all that they can to bully consumers and strangle small businesses), there are “RECESSION PROOF!” safe havens where those who have the financial wherewithal can invest!

Oh well, not to worry, with the “real estate professionals” working the market here in Murfreesboro, TN, it will probably be a while before our present home sells and we can move on to NC, anyway.  Yep, yesterday, one of those “professionals” called from our driveway to show a (local) “looker,” who wanted to see our home.  Forget the one hour notice request on the MLS, “we’re here to see your house!”

It’s days like those that make me want to give up.  But I don’t.  I make the drive.  305 miles, each way, every week, to work (plus the “in-town” mileage, when I am in NC).

I have a deadline to meet this weekend.  I’m working on a conference paper (on credit cards and small businesses).  You see, if I did “give up” on selling our home (by walking out like so many others have done), then I would not have much of an argument any more, when I try to speak out on behalf of struggling entrepreneurs (who are being squeezed — mercilessly — by credit card companies).

I have paid my bills and met my obligations, no matter what.  (As I drive during the treacherous trips through the mountains on I-40 eastbound in eastern Tennessee and western North Carolina, I at least know that if something happens to me, I’ll go with a clean conscience; I’m guessing that an apt description of “hell” is being a credit card account holder for eternity, so I definitely want to avoid going there.)

The FED (which is — unbeknown by most citizens — “owned” by the national banks and not “Federal”) and all of the bailouts have done nothing but enrich executives, who have enjoyed the parties, trips, perks, bonuses, and salaries of corporate big-wigs while they have had the same time, engaged in a reckless campaign against ordinary citizens (worldwide).  Meanwhile, homeowners, small businesses, and middle class consumers at large are slowly having the life sucked out of their wallets.

Just imagine: What if we invested $750 billion in bail out funds on the 21.7* million very small businesses in the United States?

The numbers are so staggering, they’ll make you dizzy (especially if you wear eyeglasses):

$1,000,000,000 (one billion dollars) x 750 = $750,000,000,000

$750,000,000,000 / 21,700,000 (very small businesses) = $34,562.21 (each)

I’d certainly bet that if the first round of bail out funds had been invested in small rather than big businesses, we would have stimulated the economy.  But no, we bailed out big banks and car companies, where a handful of executives (each typically earning in excess of a million dollars in salary, so you do the math) became even richer in bad times, on the backs of all of us.  I know that these executives are about the only ones who can afford scooping up deals on lakefront property right now.  Further, as I have previously written, we could have averted the worst of the mortgage and foreclosure crisis as well.

By the way, regarding one of biggest problems, unemployment (which as you recall, came next in our downward spiral — while we bailed out “big” businesses and executives), and much of the pain that has come from that, could have been avoided if we had invested in small businesses.  Also according to the SBA Office of Advocacy, small businesses: “Employ just over half of all private sector employees”; “pay 44 percent of total U.S. private payroll”; and, “have generated 64 percent of net new jobs over the past 15 years.”

Want to know why we’re suffocating, despite ever-so-slight signs of recovery?  A relatively small number of big businesses and their executives have prospered, and the rest of us, along with our children, and grandchildren, will pay, and pay, and pay.

* Those so small that they have no employees; number taken from SBA Office of Advocacy 2009 FAQs — out of 29.6 million total U.S. businesses.  Yes, the vast majority of all businesses are small businesses.  The vast majority of start-ups “bootstrap,” and many of these use personal and business credit cards as a source of capital.

© Dr Robert Lahm for ChangeinTerms.com, 2009. | Permalink | 5 comments | Add to del.icio.us
Post tags: "Bail Out", advocacy, banks, business credit, consumers, credit, credit cards, economy, small business

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First of all, I’d like to thank Jane for her dedication in researching this story.  If you are a casual “passerby,” you have no idea how some of these data pertaining to credit card usage on the part of small businesses can make just about anyone’s head spin.  There are related caveats, such as data collection problems and a paucity of existing research regarding entrepreneurial “bootstrappers.” 

Bootstrapping can be described as starting a business with little or no capital, and instead use creative workarounds such as bartering, trade credit, sharing space, bootstrap marketing, and non-traditional sources of capital; as Jane quoted me to say, “Credit cards have become probably the most common small-business loan product.”  As the economy depends on entrepreneurs, and it has been estimated that “75 to 85 percent” (for citation see Lahm, 2005, p. 4, quoting McCune) of all businesses are bootstrapped, the importance of “credit woes” and what is happening to small business owners merits a lot more discussion.

Why is there so little research on entrepreneurial bootstrapping on the part of academic researchers? 

Okay, my take on the “food chain,” as someone who is not a life-long academic: Top tier research institutions can be described as those that are well supported and structured to engage in pursuing all kinds of research studies.  Previously, these institutions were known as “Research I,” as designated by the Carnegie Foundation classification system, which was then renamed the category “Doctoral/research universities-extensive,” and has now been changed again to  a more complex system; for instance, “RU/VH: Research Universities” (VH signifies “very high” research activity).  I ran a search on one institution that I knew qualified as a “RU/VH”  institution on the Carnegie site just now, and I then ran a search for “find similar” (you can see the results for yourself, here).  

Perhaps that is way more than you want to know, so let me describe the culture and conditions: Faculty typically have more modest teaching loads, research sabbaticals, grant writing and review support, teaching assistants, research assistants, office support, and a mandate to publish or perish in “top journals.”  What are “top journals,” you ask?  The ones that tend to publish research that can only be realistically produced by faculty who have the time (in some cases years), and the wherewithal otherwise to engage in large scale, possibly grant-funded, intensive research projects. 

My own dissertation took over a year of full-time work.  I’ll probably never have the time to be involved in a study that “intensive” again in my lifetime (certainly as long as I am employed at what can be colloquially described as a “teaching and engagement” oriented institution — which I happen to like).

A newcomer who is quite possibly an established researcher’s prodigy may also ”get a break” and publish in a top scholarly journal.  I am not part of that “RU/VH academic researcher all-stars celebrity” world (kind of like Hollywood, for academics).  I like research, but I’ve spent too much time in the real world, as a practicing entrepreneur, to be attractive to the sort of institution that is more interested in the pedigree of life-long academics who have enormously long publication lists.  I can never compete with that kind of publishing track record  (the other route in is to be famous, or buy a building, I suspect).  I entered academia too late; I can’t catch up (and I am not apologetic for deciding to teach later in life). 

So, do you think that researchers at these (name brand research) institutions are particularly interested in a landscaper with five employees, two pick-up trucks towing trailers, and a modest assortment of lawn care tools and equipment?  Or would they be more inclined to study some VC funded, highly visible, Silicon Valley or Research Triangle “media darling”?  By the way, the latter can afford consulting services and may even sponsor research. 

Indeed, as I responded to a follow-up question after my opening statement providing Congressional testimony on the use of credit cards by small businesses (why was research on bootstrapping lacking?): these very small businesses aren’t “sexy” enough to garner the attention of researchers. 

It is only when one pulls back the lens and views the scene in the aggregate that the face of entrepreneurship becomes clear.  Peggy Durant (the bed and breakfast owner in Jane’s article) is an entrepreneur.  It’s the contractors, hair salons, landscapers, local coffee houses, wedding photographers, strip mall retailers, and home-based business owners (“roughly half of of all U.S. businesses“; see Executive Summary of the linked SBA report) across America who comprise the real face of entrepreneurship.

I have started similar small businesses relative to the pecking order in the entrepreneurial arena.  I had a marketing firm (which in turn serviced other small businesses), and my wife operated a career service.  We were part of the “greater whole” at that time, which could be characterized as a colorful and vibrant tapestry of individuals with hopes and dreams for a good life, carving out an honest living, and paying our bills (and for my wife and me, raising a family, which we had not as yet started at this point in our marriage). 

According to SBA data (FAQs, 2008), as of 2007 there were 27.2 million businesses in the U.S.  However, of these, 20.4 million had no employees.  I’d say it’s fair to describe these non-employer businesses as “very small.”  So what’s the connection between bootstrapping, small firms (or “very small” firms), and credit card usage?  It’s hard to know, precisely.  A longitudinal Federal Reserve study (2007) indicates that as of 2003, 46.7 percent of small firms used personal credit cards (77.3 percent used either a personal or a business credit card).  

Did you notice that the years from some of these various reports do not match up?  You don’t have to be a trained researcher to understand that this is problematic relative to the data collection (and subsequent analysis) issues I mentioned at the top of this post.  Nevertheless, I think it is safe to say that roughly half of small firms use personal credit cards. 

Another issue is related to intent.  Was the purchase that a small business owner made for web hosting ($60/year) using a credit card for shopping convenience (i.e., an easy way to pay online), or was it a means to leverage a credit card as a form of start-up capital?  We can’t know for sure if she was “bootstrapping,” or not.  What was she thinking, and what were her financial circumstances at the time?

Putting it all together, despite some gaps and weaknesses in terms of data and the lack of an extensive body of existing research, we can still draw some conclusions in broad brush strokes:

• Bootstrapping is the most often used method for starting a business.  By contrast, “a would-be entrepreneur has a greater chance of winning a million dollars or more in a lottery than getting venture capital” (see GEM report, p. 14). 
• The vast majority of all businesses are very small businesses (about half of them home-based).
• We already know that entrepreneurship is the lifeblood of our economy; yet, big government has tended to focus on bailing out big companies (instead of implementing some smart things early on, like addressing the housing crisis that started this mess, first).
• Personal credit cards (along with so-called business credit cards, which typically involve accepting personal liability and appear on personal credit reports), are likely to have been used by approximately 9.7 million very small businesses (see page 3 of the report I prepared, here, for the calculation method and discussion of assumptions).
• Credit card companies are inflicting “woes” and knee-capping both individual consumers and entrepreneurs, making it such that small business owners cannot sustain their operations, forcing them into laying off more individuals, and placing every American at risk as the economy at large has been hurled into a downward spiral.
• According to credit card companies, their actions of late have been taken to reduce risk. 

So the question becomes, doesn’t disabling entrepreneurs radically increase the risk that we as a nation will not soon recover from an economic crisis (as compared to reducing a bank’s risk)?

As an educator, I am extremely hesitant to characterize anyone as an idiot.  Rather, I like to think that every individual can learn and improve in some way (intellectually, spiritually, emotionally, physically), given the right motivation and environment.  But, the persons running the banking industry who brought this current crisis to a “neighborhood and small business owner’s street-corner shop near you,” leave me little choice.  This situation entails more than short-sightedness on the part of the credit card industry.  Not only do credit card companies lack ethical leadership, they act like they are being run by complete morons. 

Hey, bankers.  Want to really “reduce risk”?  Think of ways to work with entrepreneurs, and not against entrepreneurs.  The “alternate option” to consider relative to trying to understand this imbecilic behavior is that banks are gearing up to ask for another bail out (hand out).  This next time will be based on a credit card crisis (which banks themselves, seem to be in the process of creating).

© Dr Robert Lahm for ChangeinTerms.com, 2009. | Permalink | 4 comments | Add to del.icio.us
Post tags: "Bail Out", banks, business credit, consumers, credit, credit cards, economy, interest, small business, Testimony

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Perhaps the banks have grown so accustomed to seeing customers as prey (looking for those who are weak, so they can whack them with fees and sky-high interest rates), that they are unable to understand that we, as a nation, are on the brink of a financial disaster.  Why?  Because no one in government, no regulator, and certainly no one in the financial services industry seems to “get it.” 

When customers incur lowered credit scores, fewer choices, and then, increased interest rates and higher minimum payments, guess what else they can’t do?  Well, I’ll give you one example of “cause and effect” that doesn’t require a title like “CEO” of JP Morgan Chase, Bank of America, Citi, or American Express to figure out: that customer can’t buy a house.  This started with houses, remember?   

If the customer is an entrepreneur, this may hurt the small business owner directly, and then his or her employees (and their families, and so on).  Layoffs may follow.  Indeed, one of the key individuals in the Bloomberg article, Wayne Brown, who owns a construction company was quoted as follows:

“Interest rates on all of my cards are going up now and my minimum payments are almost doubling because it looks like I’ve maxed out my cards,” said Brown, who uses credit cards to fund his home-building company. “It’s a Catch-22.”

A healthy consumer is a prerequisite to a healthy economy; a healthy economy is not just the best way to guard against delinquencies and charge-offs, it is the only way for the financial services industry, or any other industry, to survive and prosper.   A healthy entrepreneurial environment is our only hope, and credit card companies, after pushing and promoting and signing up millions of individual account holders with business credit card accounts, professional accounts, and personal accounts, are calling in all of these loans — and now we are supposed to believe that somehow this course of action on the part of the banking industry will prevent defaults? 

In addition, for those who do survive this present period of being beaten up by credit card companies, I would point out that most entrepreneurs have a very long memory.  Entrepreneurs have noticed all along that banks in general tend to treat them shabbily until their businesses are strong enough such that they no longer really need start-up capital; that’s when the small business specialists and loan officers come out of the woodwork, lovey-dovey, kissy wissy, to “help” (and at that point, the entrepreneur typically thinks to him- or herself, “Where in the hell were you bankers, when I really needed you?”).

The FICO scoring system may eventually be changed to reflect the fact that these consumers and small businesses really have not done anything to deserve being reclassified so unfairly (Mr. Brown’s score dropped from 760 to 650 over the last 13 months), but by the time this happens, there will be so many foreclosed homes, closed businesses, unemployed people, and other sufferers at the hands of these short-sighted individuals who are running “our” banking system (we are part owners, now, as bail out money shareholders), I fear the prospect of calamity in the streets.

© Dr Robert Lahm for ChangeinTerms.com, 2009. | Permalink | 2 comments | Add to del.icio.us
Post tags: "Bail Out", banks, business credit, consumers, credit, credit cards, economy, fees, interest, interest rate, small business

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Users of the product can customize messages and then print their own T-Shirt artwork, if they wish to join in the protest against credit card company abuses “at any time, or for any reason, or for no reason,” quipped Lahm, who has been a stanch advocate against credit card companies’ use of similar wording in some card holder’s terms of service agreements.  The kit can also be used to create and send customizable messages to anyone a user likes (just print on regular paper): “credit card companies, Congressional representatives, journalists, you name it!,” said Lahm.

Several of this product’s preloaded messages are associated with observations about the impact that Chase’s new change in terms notice may have not just on account holders (as noted in the Wall Street Journal, and elsewhere), but on the economy at large, as Americans continue to struggle despite the bail out. The aforementioned notices were distributed by Chase over the last several weeks, and took effect as of January 1, 2009. Their primary characteristics were raising monthly minimum payments from 2% to 5% of the account balance, adding a $10 monthly “finance charge” (even if the account has no balance), and providing no “opt out,” which is contrary to a previous statement delivered by a Chase marketing executive in testimony before Congress. In the absence of an “opt out,” says Lahm, the consumer has no “escape hatch,” and is trapped.

While these changes could prove to be devastating to consumers, Lahm is just as concerned about the impact on individuals who are operating small businesses. Citing SBA (Small Business Administration) figures, he has indicated that over 99% of all businesses, are small businesses. According to his academic research, about which he has previously provided testimony before before Congress himself, entrepreneurial “bootstrappers” (people who start a business with little or no capital) comprise the majority of all start-ups, and they often rely on both personal and business credit cards.

In the case of his own loan with Chase, which was originally promoted as one that had a “fixed rate” of 3.99% for the life of the balance, Lahm estimates that his payments will skyrocket from $239 per month to almost $600 per month on a balance that is just under $12,000. Most of his debts (discussed on his site and in an eBook he also published entitled, “How Chase Card Services Stole Christmas“), are associated with attending graduate school, which included some challenges along the way. His intent was to become academically qualified to teach at the college level, and he is now an Associate Professor of Entrepreneurship. Lahm outlines his payment history, which he states has been flawless over many years and types of obligations, both commercial and consumer oriented in nature.

ChangeInTerms.com is a consumer protest site, created by Dr. Robert Lahm (Western Carolina University entrepreneurship professor), in response to credit card companies and their mistreatment of many account holders (including himself). The site provides vibrant discussion and analysis, links to government, regulatory, and advocacy organizations, and sometimes more than a little sarcasm — along with serious critique — about the activities of credit card companies both individually, and as an industry. While the site laments that it can’t actually change terms from a legal perspective, it submits that they can be changed with credit card companies from a consumer perspective. The site’s description declares to credit card companies: NOW WE’RE COMING AFTER YOU.

© Dr Robert Lahm for ChangeinTerms.com, 2009. | Permalink | 2 comments | Add to del.icio.us
Post tags: "Bail Out", advocacy, business credit, change in terms, Chase, chase credit card complaints, chase credit card fee, Congress, consumers, credit, credit cards, debt, fees, minimum payment, notices, small business, Testimony

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Part of this eBook’s message is associated with observations about the impact that Chase’s new change in terms notice may have not just on account holders, but on the economy at large, as Americans continue to struggle.  The aforementioned notices were distributed by Chase over the last several weeks, and took effect as of January 1, 2009.  Their primary characteristics were raising monthly minimum payments from 2% to 5% of the account balance, adding a $10 monthly “finance charge” (even if the account has no balance), and providing no “opt out,” which is contrary to a previous statement delivered by a Chase marketing executive in testimony before Congress.  In the absence of an “opt out,” says Lahm, the consumer has no “escape hatch,” and is trapped.

While these changes could prove to be devastating to consumers, Lahm is just as concerned about the impact on individuals who are operating small businesses.  Citing SBA (Small Business Administration) figures, he has indicated that over 99% of all businesses, are small businesses.  According to his academic research, about which he has previously provided testimony before before Congress himself, entrepreneurial “bootstrappers” (people who start a business with little or no capital) comprise the majority of all start-ups, and they often rely on both personal and business credit cards. 

In the case of his own loan with Chase, which was originally promoted as one that had a “fixed rate” of 3.99% for the life of the balance, Lahm estimates that his payments will skyrocket from $239 per month to almost $600 per month on a balance that is just under $12,000.  Most of his debts (discussed in the eBook), are associated with attending graduate school, which included some challenges along the way.  His intent was to become academically qualified to teach at the college level, and he is now an Associate Professor of Entrepreneurship.  Lahm outlines his payment history, which he states has been flawless over many years and types of obligations, both commercial and consumer oriented in nature.

ChangeInTerms.com is a consumer protest site, created by Dr. Robert Lahm (a university entrepreneurship professor), in response to credit card companies and their mistreatment of many account holders (including himself).  The site provides vibrant discussion and analysis, links to government, regulatory, and advocacy organizations, and sometimes more than a little sarcasm — along with serious critique — about the activities of credit card companies both individually, and as an industry.  While the site laments that it can’t actually change terms from a legal perspective, it submits that they can be changed with credit card companies from a consumer perspective.  The site’s description declares to credit card companies: NOW WE’RE COMING AFTER YOU.

© Dr Robert Lahm for ChangeinTerms.com, 2009. | Permalink | 7 comments | Add to del.icio.us
Post tags: advocacy, business credit, change in terms, Chase, chase credit card complaints, chase credit card fee, Congress, consumers, credit, credit cards, debt, minimum payment, notices, small business, Testimony

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