The State of Small Business: New Jersey

Category: Small Business Borrowing
Published: Wednesday, 20 January 2016
Written by Admin

As part of its year-long project, The State of Small Business, Business News Daily will report on the small business environment in every state in America. In this edition, we asked a few of New Jerseys 810,000 business owners to tell us about the challenges and opportunities of doing business in their state. Heres what they had to say.

Running a small business in the most densely populated state in the nation brings with it many daunting challenges. High taxes and a high demand for property, for example, drive up the costs of doing business. On the plus side, however, New Jersey also offers entrepreneurs a bustling and diverse marketplace and business owners reap the benefits of the states close proximity to New York City and the residual wealth and affluence that enters the state as a result.

Business owners report they struggle with balancing the pros and cons of doing business in the Garden State, where small businesses employ the majority of the private sector workforce. Small businesses were the source of 1,735,727 jobs in 2012, 50.5 percent of the Garden States private sector employment, according to data compiled by the US Census Bureau.

Opportunities A bustling, diverse, and innovative environment

With more than 8.9 million people packed into just less than 7,500 square miles, New Jersey is the most densely populated state in the US According to the US Census Bureau, New Jersey hosts about 1,195 people per square mile, as opposed to the national average of 87 people per square mile.

That diversity spells opportunity for small business owners.

I think New Jersey offers a lot of diversity which is really excellent, said Caroline Blazovsky, owner of My Healthy Home. By having a business here, we can really be at the forefront of whats going on in the country. Were innovators, we have a large population and big cities, so rest of country looks to us for big ideas.

Nancy Bukovina, a mentor at central Jersey SCORE, said access to such a robust marketplace is worth the high cost of operating. Despite the exorbitant taxes and the cost of real estate, she said there are countless opportunities for niche marketing and developing a loyal customer base no matter the industry your business operates in.

There are benefits that go with the high cost. Youve got a dense marketplace, the ability to reach a fairly good population in close proximity, and you can do very targeted marketing, Bukovina said.

Proximity to New York City

A significant portion of New Jerseys population works in New York City or Philadelphia, connecting the Garden State with two robust metropolitan economies. The wealth and affluence that returns to the state as a by-product translates into opportunities to small business owners.

Were right outside New York. Theres a lot of high-paying jobs in the city, so there is more money here than there would be in other states, and theres a lot of opportunity in that, said Dr. Dan Margolin, owner of the NJ Foot and Ankle Centers podiatry practices.

Deborah Sittig and Karen Carolonza, co-founders of the Boonton-based public relations firm Green Room Communications, agreed that their proximity to New York has helped their business succeed.

New Jersey is a positive for us because a lot of [our clients] travel to New York, and were right here, Sittig said. Weve been able to reap benefits from a diverse population, all that transit, and a big economy.

Supportive local communities

A number of the business owners said they feel supported by their local communities, who regularly patronize their establishments because they recognize the value small businesses offer their towns. In addition, some local municipalities offer small businesses access to resources and programs to help encourage startups and the growth of existing businesses.

Hillsborough Township, for example, has resources to help people who want to start businesses in the township, Bukovina said. One such resource is the Shop Hillsborough Rewards Program, which offers residents a property tax incentive in return for patronizing township businesses.

Marla Camins, co-owner of Drama Salon and founder of Camins Communications, said no matter the difficulties they face, both she and her husband know there is a loyal following of friends, neighbors, and acquaintances who prefer to shop local than simply go to a larger company.

We have a great community and people appreciate the fact that were independent and not a franchise. That is such empowering support, Camins said. Because of the business climate in general, its harder to turn a profit, but were really optimistic about our community and the people who continuing to support us.

Small businesses are looking for growth capital

Daniel Sorrell, first vice president and leader of Valley National Banks Community Lending Team, said there are encouraging signs in small business borrowing activity in New Jersey. While the recovery from the 2008 recession has been slower than many hoped, Sorrell told Business News Daily that small business borrowing is on the rise.

I think borrowing is growing. In the last two or three years its ticking back upwards, Sorrell said. Were seeing a lot of volume in applications hellip; It just seems like things are getting better.

Following the economic crisis of the late aughts, Sorrell said a lot of businesses were shaken out of the marketplace, while the ones with real staying power weathered the storm. Now, he said, it seems small business owners are ready to start expanding and investing in their operations once again, as more and more seek out financial support.

We see an improvement in the quality of people applying, so we can loosen up the terms a bit and be more flexible, Sorrell said. Thats a positive development for New Jersey.

Challenges High taxes and cost of living

Its no secret to its citizens that New Jerseys taxes are, across the board, pretty hefty. In 2015, the nominal corporate income tax ratein New Jersey was 9 percent, falling between its tri-state neighbors of New York, which has a nominal rate of 7.1 percent, and Pennsylvania, which has a nominal rate of 9.99 percent. These figures dont include any deductions, credits, or exemptions available under state laws. For pass-through entities, such as LLCs, subject to the individual income tax, such as LLCs, New Jerseys rate is based on a six bracket system ranging from 1.4 percent in the lowest tier incomes of $0 to $20,000 annually up to 8.97 percent in the highest tier incomes of $500,000 or greater annually. New Jersey residents also endure the highest property taxes per capita in the country, according to an analysis performed by the Tax Foundation.

It has been difficult to operate in a state in which there is limited tax relief, William Bauer, managing director for the Meadowlands-based leather accessory manufacturer ROYCE, told Business News Daily. Corporate tax rates, individual income tax rates, sales tax, unemployment insurance tax, and property taxes all take an immense toll on our ability to attain profits.

New Jerseys seven percent sales tax is the highest in the tri-state area as well, with Pennsylvania at six percent and New York at four percent. Bukovina, the SCORE mentor, said high taxes are part and parcel of a generally high expense of living and operating in the Northeastern US That also goes for rents and the price of property, which all add up to a relatively high cost of doing business, she said.

What we cant help is that this is just a high cost area, Bukovina said. Everything costs more in New Jersey. As a brick and mortar, you are going to pay higher rent here than if you were in, say, Pennsylvania in the Lehigh Valley. And yes, we have high taxes, and that certainly does not help the small business person.

The spread of big business

In many industries, the expansion of big business is also a concern for small business owners in New Jersey. In 2012, small businesses faced particularly stiff competition from larger firms in the retail, finance and insurance, and information industries, according to data compiled by the US Census Bureau. But even in the industries where small businesses make up a majority of the companies operating, there are still significant challenges posed by going head to head with big businesses that can achieve a great economy of scale.

[A big challenge] is the competition of big business, said John Zaccone, owner of Northstar Truck Lettering and Signs.

The chief concern, naturally, is that big businesses can typically offer what small businesses do at a lower cost. For many small businesses, the challenge is to provide a superior level of quality and differentiate their own operation from more well-known national or even global brands. Marla Camins, who is based in East Brunswick, NJ, told Business News Daily that she has seen the toll big business can take on smaller companies both in the salon business and for her marketing clients.

Theres so much competition from franchises that provide similar services without the same level of training, which cuts into our market, Camins, who is also a member of the Central Jersey Business Association, said. So, were continuously trying to grow and expand and maintain our quality of service.

She added that tailoring a marketing campaign to help small businesses stand strong against competition from larger companies which have much larger public relations budgets can be a challenge.

A lot of businesses have to fight against franchises that have the ability to buy everything cheaper and sell it cheaper. It can be frustrating for any business, old or new, to try and know what the best marketing solution is for them in that case, Camins said.

Concern over future natural disasters

In the wake of natural disasters like 2012s Hurricane Sandy, which hit New Jersey particularly hard, small business owners are also keeping a suspect eye on Mother Nature. More recently, when Hurricane Joaquin threatened to strike the Jersey Shore, many entrepreneurs were reminded of the toll Sandy took on commerce. Now, as the scientific community predicts significantly more extreme weather by 2050 as a by-product of climate change, small business owners also need to focus on the environment in addition to the economy. That is especially true in a state that counts tourism as a staple of its economy.

We experienced tremendous loss of both merchandise and operating technology during [Hurricane Sandy] and we sustained some flooding during the most recent Hurricane Joaquin, Bauer, the managing director at ROYCE, said.

For ROYCE, the threat of future floods and disasters is enough of a concern that the company is looking to relocate. Thats a trend that could prove difficult for New Jerseys economy if more businesses decide to head for the hills and seek shelter across state lines.

Others, like Zaccone of Northstar lettering, actually benefited from the destruction wrought by Hurricane Sandy. Signs and paint jobs were damaged in the storm, and entrepreneurs who were eager to rebuild turned to Northstar for solutions. The recovery grew Zaccones business and earned him a reputation as someone who can get the job done when small business owners need it most.

Hurricane Sandy helped my business grow, Zaccone said. The growth was bitter sweet, but has gained me more exposure and repeat customers.

Resources for Small Businesses in New Jersey

If youre a small business owner in New Jersey looking for some resources available to help you move forward, here are a few organizations you might be interested in learning more about.

New Jersey SCORE

SCORE offers volunteer business professionals and expert mentors to help give counsel and guidance to entrepreneurs looking to start or expand their business. Their services are entirely free and volunteer-driven. Here are some of the chapters in New Jersey.

Northwest New Jersey SCORE

Central Jersey SCORE

Southern New Jersey SCORE

Metro SCORE New Jersey

Bergen County SCORE

New Jersey Business Action Center

The New Jersey Business Action Center was established in 2010 as a resource for business owners in the Garden State. In addition to mentoring and counseling, they also will redirect entrepreneurs to a number of available resources throughout the state.

Office of Small Business Advocacy

New Jersey Small Business Development Centers

There are 12 small business development centers in New Jersey. Each is dedicated to supporting the development and retention of small business, from helping entrepreneurs craft business plans to navigate the states tax code. You can also visit:NJSBDC.



The Federal Reserve's Christmas gift to banks | Farmer

Category: Small Business Borrowing
Published: Saturday, 02 January 2016
Written by Admin

Christmas, were reminded, comes but once a year, which it true unless youre in the financial industry in general and its banking subset in particular. Then its a year-round feeding festival.

This year the banks found under their tree a long-sought interest rate rise, a gift from the Federal Reserve, which acted in the belief - despite Republican claims to the contrary - that the US economy is doing just fine, thank you.

Wed better hope so. For the jack-up in interest rates, while modest, will translate overnight into higher costs for auto loans, home mortgages, small business borrowing, possibly even credit card fees and charges.

Just the sort of thing that could choke off the business rebound if the Fed has guessed wrong on strength in the economy. Its a crapshoot.

It theres a potential upside to the interest gambit its this: Banks and lending institutions could justifiably raise the current next-to-nothing rates on individual saving accounts, the instrument so many middle income Americans count on as a hedge against increases in everyday living costs.

Be a nice Christmas gesture.

The banks could do that and probably will in time - but dont hold your breath waiting for that great day. If history is any guide they do it in their own sweet time. They wont be hurried, these bankers; theyre, from all appearances, indifferent or immune to public opinion.

Recall the aplomb with which the big Wall Street bank moguls gave themselves hefty pay raises in 2009 fresh after having been bailed out by the federal government - raises often financed out of the bailout money.

Theyve no shame. It was a collective thumbing of the nose by the banking barons at the public that saved their ... assets, so to speak.

Anything that can be done about it? Not really. Financial policy is the province of a closed club of bank executives, federal and state regulators, the federal reserve governors and an armada of lobbyists arrayed in downtown Washington ever ready to swoop down on Congress should it show a shred of independence or consumer consciousness.

Its an incestuous group of people who move regularly between the financial industry and the Washington regulatory agencies, much like the often maligned military-Congressional-industrial complex. Theres no real difference and the conflict of interest is just as grievous.

MoreJohn Farmer columns

The knowledge of how the world of money works is too arcane and complex to be trusted to outsiders, they insist. For example, one justification for the rate is the cry that hand-wringing bankers have raised that Inflation is coming! Inflation is coming!

Its been coming, if you believe the banking crowd, for, lo, these many months, even years. Never seems to get here, however. But ... whatever, as Bob Dole used to say.

Its worth noting how little has been said during our dreadful presidential campaign about federal financial policy other than Republican griping about the federal deficit, which has been driven as much as anything by GOP inaugurated wars financed on the credit card.

Even Democrats have been mostly silent on the subject. One major criticism of Hillary Clinton involves her too-close ties to Wall Street, something most New Yorkers in Congress - even Democrats - suffer from.

One Democrat who doesnt is Vermonts curmudgeonly Socialist Sen. Bernie Sanders as he made clear in a New York Times op-ed this week. He attacked the interest rate hike as the latest example of the rigged economic system.

Hes got a three-point cure. First, stop banks from gambling with depositors money. Second, quit rewarding the banks with interest on the excess reserves (now $2.4 trillion, he estimates) they keep stashed at the Fed. Third, compel banks to lend more to small business and hard-pressed homeowners and to cut credit card interest as a condition for financial help from Washington.

In addition, Sanders wants to restore Glass-Steagall, the Depression era act that split investment banking and the ordinary commercial kind. It was abandoned by Bill Clinton in a lousy 1999 deal with Republicans that set the stage for the Great Recession a decade later.

Hes got all good ideas but one: Sanders would break up the too-big-to-fail banks. Unfortunately, theyre probably necessary to ensure adequate financing for American businesses in a global economy. Without proper banks theres no proper credit.

Sanders deserves more attention than he gets. Hes a stealth candidate, I suspect. His supporters are passionate. He could raise hell if the Democratic race ended in a brokered convention where grassroots passion can overcome prudence, the prevailing wisdom and even the polls.


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Big Banks Cut Back On Small Business

Category: Small Business Borrowing
Published: Friday, 11 December 2015
Written by Admin

(FROM THE WALL STREET JOURNAL 11/27/15)

The biggest banks in the US are making far fewer loans to small businesses than they did a decade ago, ceding market share to alternative lenders that charge significantly higher rates.

Together, 10 of the largest banks issuing small loans to business lent $44.7 billion in 2014, down 38% from a peak of $72.5 billion in 2006, according to an analysis of the banks federal regulatory filings.

Through August, banks this year originated 43% of business loans of up to $1 million, down from 58% for all of 2009, according to PayNet Inc., a tracker of small business credit.

The change has opened the door to higher-cost alternatives: Nonbank lenders increased their market share to 26% from 10%, with corporations that lend to their business customers or suppliers making up the balance.

At least 60% of our borrowers would fall into classic bank lending criteria, said Rob Frohwein, chief executive of online lender Kabbage Inc., which charges rates that average about 39%, versus the typical 5% to 6% or so that banks charge small firms with good credit.

At some big banks, the credit card has become the default loan source for small businesses. Rates on cards issued to small businesses average 12.85%, according to Creditcards.com.

At JP Morgan, the Ink small-business credit card accounts for more than 90% of loans to businesses with $1 million or less in revenue. One reason is that it costs the bank about the same to originate a $100,000 small business loan as it does for one of $1 million, the company said. Credit cards cost a lot less to issue.

You have to figure out a way to make a $100,000 loan make economic sense, said a JP Morgan spokeswoman, adding that a new, centralized loan operation is supposed to cut the cost and time of originating smaller loans.

The dollar amount of small loans to businesses held by banks increased by an average of 7.3% a year from 1998 to 2008, said DePaul University finance professor Rebel A. Cole, providing fuel for economic growth. Firms with fewer than 500 employees account for more than half of private sector jobs in the US according to the Bureau of Labor Statistics.

Banks of all sizes held $598 billion in small loans to businesses as of Sept. 30, according to the Federal Deposit Insurance Corp., down nearly 16% from a peak of $711 billion in 2008. By contrast, loans to larger companies increased 37% during that time.

The largest banks have essentially abandoned the small business market, said Mr. Cole, who analyzed bank regulatory filings for The Wall Street Journal. The analysis looked at loans of up to $1 million, adjusting for bank mergers and acquisitions.

Weak demand, tighter lending standards and high costs have put a lid on small business borrowing in the past seven years, even as other types of financing -- home mortgages, auto loans and corporate finance -- have rebounded.

A prolonged decline in new business formation has reduced the borrowing pool. Plus, banks have been slower to ease lending standards for small firms than for big ones after the recession.

Many banks are less interested in small business lending because it isnt as profitable as loans that more easily fit into standardized approval and repayment processes -- such as credit cards and mortgages -- and can be packaged into securities for sale to investors, according to Federal Reserve Bank of Cleveland senior policy analyst Ann Marie Wiersch.

Small business loans are often as nearly as complicated for banks to complete as large loans, with less return. We all struggle to make money on the lending side, said Jay DesMarteau, head of small business banking at TD Bank. Its a lot of work to try and find these little companies, underwrite them and manage the book.

Jorge Rodriguez, owner of a Peruvian restaurant in Los Angeles, said Wells Fargo amp; Co. -- his bank for several years - - turned him down three years ago when he sought financing to remodel and expand.

They wouldnt even look at me as a viable client, said Mr. Rodriguez, who secured a $311,000Small Business Administration loan from BBCN Bancorp Inc., a local community bank, with a recent rate of 5.5%.

Wells Fargo rejected Mr. Rodriguez again in 2014, he said, this time for a $25,000 loan to buy liquor and other supplies. He turned to two online lenders, with rates above 80%. He has since refinanced those high-cost loans and secured additional funding to expand from Opportunity Fund, a nonprofit lender, that had an annual rate of 12.3%, the lender said.

A Wells Fargo spokesman said the bank follows a consistent process for evaluating loan requests but doesnt comment on specific borrowers.

All 10 banks in the analysis conducted for the Journal said they remained committed to small business lending. Some said the government data doesnt capture small-business loans above $1 million, the reporting threshold.

Two of the banks, Wells Fargo and Capital One Financial Corp., said they partner with nonprofit lenders that provide credit to small firms that may not qualify for conventional loans. Wells Fargo said it extended roughly $50.9 million in loans, investments and grants to nonprofits that support small business economic development in 2014.

Bank of America Corp. began offering lines of credit of $10,000 to $100,000 this summer using a less expensive underwriting process that includes a review of checking and merchant payment processing accounts, instead of checking years of tax returns and financial statements.

Before the new program, if you wanted $10,000, $15,000 or $20,000 in credit, the option we would give you would be a credit card, said Bank of America Small Business Executive Robb Hilson. If someone wants to buy a forklift, it doesnt make sense to put it on a credit card.

(END) Dow Jones Newswires 11-27-150247ET Copyright (c) 2015 Dow Jones amp; Company, Inc.


Higher Rates May Cut Small-Business Borrowing Costs: Searching for Alpha for ...

Category: Small Business Borrowing
Published: Friday, 11 December 2015
Written by Admin

I wrote about the unintended consequences of artificially low rates a few months ago. A recent Wall Street Journal article examined another result of the ongoing stimulus the unwillingness of big banks to loan to small businesses.

After all, banks exist to make money for their shareholders; ranking out tiny loans to non-Fortune 500 companies isnt likely to move the needle. The result is the development of so-called shadow banks, which are much more willing to lend. According to the WSJ article, nonbank lenders now account for 26% of all loans to small businesses, up from 10% in 2009. But they charge much higher rates often multiples of the typical 5% to 6% that banks levy.

A move by the Fed to raise rates would serve to increase the profit margin for such loans, making them more appealing to banks. The potential result is a reduction in borrowing costs for small businesses, assuming banks can gain market share from nonbank lenders.

So in the economically unusual scenario known as quantitative easing, rising rates might actually stimulate economic growth.

How will investors fare in a higher rate regime? As Ive mentioned several times before, stocks actually perform pretty well as rates rise. And if the housing market can keep it together in the face of pricier mortgages, higher rates might be the catalyst this economy needs.