Free Enterprise: March 2009 Archives
Free Enterprise - The FindLaw Small Business Law Blog

March 2009 Archives

After weeks of rumors, Google announced late Monday evening its launch of a venture capital arm. It plans to invest $100 million over the next year in start-ups across a variety of industries. With new small businesses needing to tap every potential source of funding available, some quick tips about venture capital plans can be useful.

As reported by CNN, Google's venture capital arm will utilize Google's wealth of PhDs to help evaluate companies and select those with the most promising technologies. The types of companies it will seek include those in the internet, software, clean-tech, bio-tech and health care spaces.

Even if your small business won't be pitching to Google, venture capital (though also very tough to come by these days) has to be considered by start-ups looking to grow their businesses. The government stimulus making headlines primarily relates to bolstering bank loans to small businesses. As noted in the Wall Street Journal's Independent Street, while senators push for more bank lending, many small businesses report that a lack of cash flow or collateral makes loans an unviable option.

New businesses have long had to rely on non bank loan financing, including venture capital, angel investors, family and friends. In the case of venture capital, this involves presenting would be investors with a venture capital plan. Here are a few tips about writing an effective venture capital plan.

One might have thought that multimillion dollar bonuses would not be as big of an issue in attempting to help small businesses as it has been in bailing out financial services giants like AIG. However, it looks as if restrictions on hefty executive compensation may pose obstacles to small businesses getting the promised $15 billion in new loans backed by government money.

SBA loan broker-dealers are part of the secondary market for many small business loans. SBA backed loans are made by banks who then sell them to broker dealers, who bundle them up into securities. Right now, there is a shortage of buyers for these securities.

As mentioned in this blog, a primary component in the Obama Administration’s stimulus package for small businesses is to buy up $15 billion worth of securities backed by small business loans. In theory, buying $15 billion of these securities from the broker dealers would free them up to buy up $15 billion in new SBA loans made by banks.

Potentially impeding the effectiveness of such a plan, many of the most important SBA loan broker-dealers say they will not participate due to the conditions placed on receiving the government money, including limits on executive compensation.

Yesterday the Department of Justice and the F.B.I. released their annual Internet Crime Report. It cited a 33% increase in complaints received by the Internet Crimes Complaint Center (IC3). At the same time that overall cybercrime is on the rise, small businesses in particular have become prime targets for computer crimes.

According to the IC3 report, the top types of complaints included undelivered merchandise (32.9%), internet auction fraud (25.5%) and credit card fraud (9%). For more details on the report, see coverage on FindLaw's Blotter.

With the increased ways in which business is conducted online, small businesses can become cybercrime victims in a multitude of ways -- as online purchasers who do never receive their order, as sellers to online credit card fraudsters, or as the holders of lots of data which nefarious hackers would like to borrow, for example.

Last week the U.S. Trademark Trial and Appeal Board denied trademark registration for the designs of three famous Fender electric guitars. The case illustrates the limits of using trademarks to protect your product designs.

To many guitar heros (real and would-be), Fender guitars represent the iconic electric guitar. Despite this, as Musical Instruments Professional reports, the designs of Fender's Stratocaster, Telecaster and Precision guitars were denied trademark registration.

The reason? Trademark protection is designed to protect symbols that indicate the origin of a product or service. Some symbols, such as an invented word used as a fanciful product name, have what is called "inherent distinctiveness." This means that the person applying to register the trademark will not need to prove that the consuming public has come to associate the trademark with the maker of the goods or services.

The configuration of a product, however, cannot be inherently distinctive under US trademark law. This means that someone applying to register the design of their product as a trademark must prove that the design has "acquired distinctiveness." If they cannot prove that consumers have come to associate the product design with its maker, the trademark application will be denied.

SBA Raises Surety Bond Limit to $5 Million- How Surety Bonds Work

Friday, the US Small Business Administration (SBA) raised the limit for SBA backed surety bonds for small businesses from $2 million to $5 million. With the increased limit, the SBA hopes more small businesses will be able to compete for larger public construction and service contracts.

Surety bonds are like insurance -- they guarantee to the party hiring a contractor that the contractor will not default on the contract or fail to perform. They are vital for bidding on and winning a wide array of government contracts.

Even with Friday's increased limit on SBA guarantees of surety bonds, contractors don't go straight to the feds for surety bonds. Surety bonds are underwritten by insurance companies. They are sold through bonding agents. For qualifying small businesses, the SBA provides the insurance company a guarantee of between 70% and 90% of the surety bond. As announced in the SBA's press release, the SBA will now guarantee surety bonds of up to $5 million ($10 million for certain federal projects).

Healthcare Reform the Top Small Business Concern

What do we repeatedly hear is the number one driver of new jobs and innovation in the US? Small business. And the number one hurdle faced by small businesses? Health care costs. This week the National Small Business Association (NSBA) launched its Health Reform Today website, while today, the Government Accountability Office (GAO) released a report finding that the health insurance market for small business has become dominated by few insurance companies.

In an NSBA press release, NSBA President Todd McCracken states that “[t]he number of small-business owners who are able to provide health insurance to their employees has dropped from 67% in 1995 to 38% in 2008.” As noted in another NSBA release, almost half of small business owners surveyed in the NSBA’s 2008 year end economic report cited heath care costs as the single largest threat to the wellbeing and survival of their business.

Layoffs at Google, IBM; Common Questions when Firing Employees

The downturn continues to claim jobs, even at dominant behemoths like Google and IBM. This week Google announced it would layoff of around 200 sales and marketing employees, while IBM announced plans to axe 5,000 US workers. Businesses of all sizes are experiencing the unenviable task of letting employees go. When doing so, they often face common questions about last paychecks, severance packages and references for ex-employees.

This is Google's third and largest round of job cuts in 2009. However, according to Business Week, the total (around 340) is incredibly small for a company of Google's size, and much smaller than the 10%-20% reduction many companies have found necessary.

As reported by the Washington Post, IBM will let 5,000 American employees go as it continues to move US jobs overseas. It will reportedly help laid off workers find jobs with IBM abroad. These jobs would pay local rather than American salaries. Two month ago, IBM laid off 4,000 sales employees.

While most small businesses won't have to lay off thousands, and may not be able to offer ex-employees the severance benefits coming to ex-Googlers, employers of all shapes and sizes face similar questions when letting employees go. Here are a few.

With stimulus money starting to flow for a wide variety of "shovel-ready" government projects, many small businesses want to know how they can take advantage of forthcoming opportunities. One good way to start: Central Contractor Registration (CCR).

Businesses must be registered in CCR to bid on the vast majority of federal contracts. Registering through CCR also allows a business to provide its information to a central federal database accessible to a multitude of government agencies.

The Government Accountability Office (GAO) has released a report finding fraud and abuse within the Small Business Administration's Historically Underutilized Business Zone (HUBZone) initiative. The HUBZone program is designed to provide federal contracting assistance to small businesses located in economically distressed areas. In light of the GAO's findings about businesses getting HUBZone benefits who shouldn't, here is a quick refresher on who does qualify for access to HUBZone contracts.

The GAO report found that 19 companies in Texas, California and Alabama received nearly $30 million in HUBZone contracts, despite not meeting the program's eligibility guidelines. It highlighted instances of continued misrepresentations by companies in the program who clearly did not meet guidelines themselves, or who subcontracted the work out to non-HUBZone companies, in violation of HUBZone rules. The report expressed fear that "[a]s a result of SBA's control vulnerabilities, there are likely hundreds and possibly thousands of firms in the HUBZone program that fail to meet program requirements."

New COBRA Premium Subsidies: Employers Must Notify Ex-Employees

The American Recovery and Reinvestment Act of 2009 (ARRA) added important COBRA benefits for laid off workers. Instead of the ex-employee needing to pay the full cost of COBRA coverage, now, the federal government will now subsidize 65% of COBRA premiums for up to nine months. By April 18, employers must notify some previously laid off employees of their potential COBRA premium reduction.

Under ARRA, individuals involuntarily terminated between last September 1 and the end of this year may qualify to pay only 35% of the cost of COBRA coverage. The remaining 65% is to be covered by employers, who then can claim the amount covered as a rebate on their 2009 income tax return.

News of stimulus money gives hope not only to small businesses in need, but also to scam artists looking to prey on those seeking government assistance. With headlines publicizing increased federal support for small business loans, small businesses need to be on alert for loan scam artists. Here are 6 tips for avoiding small business loan scams.

  1. Beware of any loans or financial assistance offered via unsolicited phone call,
    email or letter.
  2. Beware of any lender who guarantees your loan without reviewing your credit, or makes promises that sound too good to be true.
  3. Beware of anyone who pressures you to make a decision on the spot.
  4. Beware of anyone requesting payment of fees before the loan is made. Costs such as processing fees are normally taken out of the money loaned, not paid beforehand, and never before the loan has been guaranteed.
  5. Never make a payment by wire transfer or money order.
  6. Research any lender or loan broker before doing business with them. Lenders and loan brokers must register with the states in which they do business. Contact your state Attorney General's office or your state's Department of Banking or Financial Regulation to check their registration.

Stimulus Package for Small Business: Increased SBA Backed Loans

President Obama's Treasury Department announced a new effort to unlock access to small business loans. Under the plan, the government will buy up securities backed by small business loans, guarantee a higher percentage of individual small business loans, and require lenders to periodically report how much they are lending to small businesses.

Normally, loans backed by the U.S. Small Business Administration (SBA) are sold by lenders to investors on the secondary market. With credit markets tightened, a lack of purchasers on the secondary market has resulted in far fewer new SBA back loans because lenders still have the old ones on their books.

As announced in a Treasury Department press release, to help loosen this log jam the government will purchase $15 billion worth of securities backed by SBA guaranteed loans. This will hopefully allow lenders, freed from some of the old SBA loans, to make new SBA backed loans to small businesses.