Being a responsible dedicated concerned American citizen, you deem it is time to take action in some small way to help solve our country’s problems with unemployment and a stagnant economy.
You have a great idea, and its time has come. You will need to buy stuff and hire people. With considerable personal sacrifice, you have been able to save startup money, but not quite enough. So you need to go the bank for a loan. That should not be a problem, because banks have more cash on hand than at any time in their previous history. Should be a slam dunk. Should be even better now that we are protected from bank excesses by the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed unanimously by Democrats in both houses of Congress when the Democrats were in control during the first several years of the Obama administration.
If you can obtain a long-term loan such as by refinancing your house, you should be fine. But most of the time an investor needs access to either short-term loans or commercial loans, and these loans are periodically renewable or have performance standards other than simply keeping payments current. With the typical loan, the real-world weight of government “protection” intervenes: over regulation, government obstruction, and the heavy hand of unintended consequences. As enforced by the bank regulators, the Dodd-Frank Act mandates that income from your business must be at least 1.21 times your expenses or your loan is in default. Never mind that you have made every payment on time and can continue to do so. Never mind that a startup business that breaks even in five years is a quite good business. Never mind that you have a ton of equity for guaranteeing the loan. Never mind that your expenses can be quite hard to predict. Never mind that the same rules apply even if you have already been in business for a number of years. Never mind. But “never mind” just doesn’t work well in the real world. So………in reality, you can’t hire people, you can’t buy or rent a building, you can’t buy supplies, you can’t expand, you literally can’t do anything without putting your entire investment and possibly much more at risk. Still wonder why we have an anemic recovery and high unemployment in this country?
Note that a business with excellent cash flow or a business with no short-term loans is not directly impacted by the Dodd-Frank Act, which explains why we still have some viable businesses and slow economic growth. No one really knows what will happen when interest rates begin to climb as they eventually must.
If you are not concerned, you should be.
***Gary A. Howie MSc, PhD*** is a business owner/rancher and a Life & Liberty News contributor
