The private funding of CIT Group this week highlights once more how small- and medium-sized businesses, the backbone of the day-to-day American economy, are getting short shrift from the federal bailout and economic recovery programs.

CIT Group, Inc. is one of the nation’s prominent lenders, supporting more than 1 million small- and medium-size businesses, including some 2,000 vendors providing some 300,000 retail stores with merchandise. During the financial meltdown CIT continued to provide loans and financing to keep American small businesses running when the major banks hoarded their emergency bailout funds, and severely curtailed or ceased providing loans and financing to small businesses altogether. Now, faced with possible bankruptcy, CIT is about to secure a rescue loan from its existing bondholders.

Isn’t this how these things have been going all along?

• The big super-corporations get bail-out loans, but local community small businesses can’t get bank lines-of-credit or short-term bridge loans to stay in business.
• The big mortgage lenders get a helping hand as a reward for their bad decisions, but at the same time small businesses are closing, and their now-unemployed workers and owners lose their homes through mortgage foreclosure.
• The CEOs and financial wizards who precipitated the crisis are squabbling over salary and bonus packages larger than some communities’ entire annual budgets, yet unemployment is at its highest rate in a century.
• Some of the huge manufacturing industries, which employ less that 20% of American workers, get the big bailouts; meanwhile local, smaller companies, employing the vast majority of us, who provide us all with our daily product and service needs, have to resort to bootstrap financing to stay in business.

And now this. One of the few financial institutions that has continued to support American small- and medium-sized businesses is having to bootstrap-like finance itself, having been denied similar emergency financial assistance by the federal government. And there is no guarantee that the loan from current bondholders will be enough. As lack of financial support programs forces more local businesses to fail, the liquidity squeeze tightens on CIT. If CIT fails, then more local companies will be forced out of business. A bad downward spiral. In her What if CIT Group fails? WashingtonTimes.com post, Candice Choi looks at the implications. Other analysts fear a CIT failure will have a disastrous, major ripple effect throughout the entire retail economy.

If the economic recovery is going to happen anytime soon, the government, the top-level financial institutions, the investors and the holders of the wealth of this country are going to have to stop giving our small businesses short shrift.

Steve Lange
Senior Editor
Palo Alto Software

Words have meanings. Communication has the message, the message sent and the message received. We’re stuck with that. We don’t get to redefine words easily, for convenience. We need to respect the meaning in the other person’s head.

What am I talking about, you ask? (I know–it isn’t obvious.) I’m talking about . . .

• I worked with someone who said “public relations” when he meant what the rest of the world calls customer service. That made business discussions hard, sometimes, because we didn’t share the same definition for that phrase.
• Many people use the accounting term “goodwill” as if it were the ordinary, non-jargon English phrase “good will.” Goodwill in finance and accounting is the difference between the book value of a business and the amount paid by a business to buy that business.
• Many people have trouble distinguishing “assets” as an exact concept in accounting and finance from the general idea of assets as things that are good to have. So, for example, when they pay programmers to develop a website they want to think of that website as an asset. In general terms, it is; but in accounting terms, it isn’t. Website programming was an expense, and it doesn’t generate an asset on the books. That can be very confusing.
• And then there’s the whole problem of “value” and what things are worth. For accounting and finance, an asset is worth purchase price less depreciation. It isn’t worth what you’d sell it for or what you think people would pay for it. It isn’t even worth what it would cost to replace it. It’s worth what you paid for it, less depreciation. Period.

That bothers some people. Particularly in the business plan setting where they’re writing a plan to present the business to others, like a plan for investors, or to back a bank loan. They want to show the value of their website or the software, which has no value in the books (because development is an expense, not a purchase of assets). They want to show that the land and buildings are worth way more than what they paid for them.

In that case, what you need is patience. The extra value comes through to the books when you sell that land and those buildings, when you sell the software you developed, when you sell the website or, better yet, make sales of other stuff because the website is good. There’s a lot of value that goes into the text of the plan, but not the formal numbers, because it hasn’t been realized yet.

This problem of definitions drives some people crazy, and it makes me very uncomfortable. It’s not just trying to make trouble on my part. I seem old-fashioned and inflexible when I fall back on the more established, standard definitions of the words and phrases some people want to give their own special meaning to.