Reading for Hard Times (NYT)

Reading for Hard Times

By PAUL B. BROWN

As the recession continues, small businesses and entrepreneurs can use all the ideas, suggestions and tips they can get.

The nation’s publishers are trying to oblige. Here are some nuggets worth considering, from a crop of books that have just gone on sale.

‘ILLUSION OF CONTROL’ Depending on your perspective, this will — or won’t — make you feel better, as you go about trying to put out 23 small fires during the day.

“We suffer from an ‘illusion of control,’ that fools us into thinking the future is more predictable and less uncertain than it really is,” write Spyros Makridakis, Robin M. Hogarth and Anil Gaba, the authors of “Dance With Chance” (Oneworld Publications).

In other words, the world is a lot more random than we would like to believe.

The main message from the authors — a retired professor of decision science, a cognitive psychologist and a statistician — is that you need to accept that there are many things beyond your control and work to recognize what can and cannot be predicted.

Only when you know what you have a true chance of influencing can you “realistically manage the uncertainty we confront in our daily lives and avoid falling victims to the vagaries of chance,” the authors say.

Or, to put it another way: Concentrate on the things you can control and let everything else happen as it may.

WHAT WORKS “We’re badly in needs of rules of thumb that work, that make sense, that can guide us through and past these turbulent times,” writes Alan M. Webber, co-founder of Fast Company.

He provides 52 of these rules, gleaned from observation and interviewing people for decades, in “Rules of Thumb” (HarperBusiness).

These are among our favorites:

¶“When the going gets tough, the tough relax. Any time you approach a task with fear, you are at least a double loser. First, you color the work with it and increase the chances of failure.”

¶“Change is a math formula. Change happens when the cost of the status quo is greater than the risk of change.” Until the risk of not changing outweighs the danger of trying something new, the odds are everything is going to stay just as it is.

¶“The difference between a crisis and an opportunity is when you learn about it.” If you wait too long, a problem really does become a crisis. The idea is to spot the potential concern while there is still something positive that can be done about it.

BE NICE Most managers understand that the harder employees work, the better the company’s performance, Henry Paul and Ross Reck write in “Instant Turnaround!” (William Morrow) “What managers don’t get is that the better they treat their employees, the harder they’ll work.”

This business parable stresses such advice as “be real; be appreciative; be interested; be nice” when dealing with the people who work for you.

The payoff from all this, the authors contend, is that your behavior will get people excited about coming to work and giving it their best efforts. That, they contend, is “the best bargain on the planet” since it costs nothing and requires only a minimum of effort.

LAST CALL Implicit in these books is the assumption that you, and your employees, want to improve performance.

Why would anyone want to do that, ask the comedian Jeff Foxworthy, and Brian Hartt, a comedy writer, in “How to Really Stink at Work” (Villard).

If you are successful, there will be more work to be done, and the authors say they don’t see the point of that. “Shouldn’t you want to work less?” they ask. “Isn’t that what life is all about?”

To make sure you don’t succeed, they offer a number of tips. This one is representative: “Try putting up one of those motion-activated wall hangers — like that loud laughing skull they sell at Halloween that goes off when you walk past it. It will keep people from wanting to come and talk to you about anything.”

To Get a Business Loan, Know How the Bank Thinks (NYT)

To Get a Business Loan, Know How the Bank Thinks

By SCOTT MEDINTZ

To hear some small-business owners talk, getting a loan remains all but impossible. And yet, many bankers claim that their small-business loan volume is up significantly. So, is the small-business credit crisis over or not?

At first blush, the evidence seems contradictory. On one hand, many national banks have drastically cut back small-business lending. In addition, Advanta, a major issuer of small-business credit cards, declared on May 12 that it was closing customer accounts to new charges.

On the other hand, the Federal Reserve’s April survey of lending practices showed credit conditions have loosened. The Small Business Administration says the weekly volume of loans to small businesses is up more than 25 percent since March. And community banks, those smallish, old-fashioned institutions that make up the vast majority of the country’s 8,300 banks, say that they are ready to take back customers from the national lenders.

Much of the confusion has its roots in contrasting banking strategies. Big national banks are much more likely to have been drawn into the morass of securitized loans, credit-default swaps and the like, which has forced them to preserve capital by curtailing lending.

The smaller banks, meanwhile, have traditionally made their livings off of loans that they carry on their own balance sheets to individuals and small businesses. For them, despite the economic crisis, the current situation is more or less business as usual.

Indeed, a May survey of 1,500 small businesses by Barlow Research Associates found that companies that applied to small banks for loans in the past year were three times as likely to get credit as those who applied to large banks.

Nick Sarillo, owner of two Chicago-area pizza restaurants called Nick’s Pizza & Pub, says he recently found himself on the wrong side of that divide when he sought to borrow $2.3 million to open a third location.

In late 2007, he was engaged in the loan review process with LaSalle Bank — historically a popular regional lender for Chicago-area small businesses — when LaSalle was acquired by Bank of America, the financial giant.

Bank of America told Mr. Sarillo it wanted 20 percent down, twice what LaSalle had been requesting. Then, he said, after two months of slow sales last year at his restaurant in Elgin, Bank of America doubled the required down-payment again, forcing him to postpone the deal.

Now, he said, he is shifting his business to the First Community Bank in Elgin. A spokeswoman for Bank of America said the bank does not comment on individual customers. But she said, “We continue to develop small business relationships and are committed to the small business customer and space.”

Bankers say that some of the confusion in the marketplace has been caused by ill-founded complaints by small-business owners. Consider that most small companies are not looking for loans: the Barlow survey found that 70 percent of small businesses had not applied for any credit in the past year. That, said Bob Seiwert, head of the American Banker Association’s Center for Commercial Lending and Business Banking, is because fewer businesses see opportunities to grow in a down economy — and the businesses that do come looking for loans tend to be financially vulnerable and thus most likely to be turned down for sound banking reasons.

“The fact is, a lot of borrowers just aren’t creditworthy,” said Sherrill Stockton, senior vice president of Sonoma Bank, which is part of Sterling Savings Bank in Spokane, Wash. “But it’s human nature, if you get turned down, to go around saying that there are no loans available.”

Bankers say that small-business owners looking for a loan should start by knowing which business measures — debt-to-equity ratio, for example, or net margins — lenders focus on when evaluating loan applications in their industry. Bankers say would-be borrowers should demonstrate exactly how they plan to use the money and why the plan makes sense.

This month, for instance, Chandan Patel borrowed $3.7 million from Sonoma Bank to buy her second hotel property, a Comfort Suites hotel in Castro Valley, Calif. She said she had demonstrated to her banker that she would be able to increase the property’s average daily rate, a critical yardstick in the hotel industry, by raising room prices while improving customer service and adding amenities. It helped that she was able to point to a track record of maintaining an unusually high daily rate at her other property.

Both bankers and borrowers say the human side of lending requires as much attention as the technical aspects. Small-business owners should cultivate a relationship with a local banker — ideally, long before they need a loan — and treat that relationship as a long-term partnership.

Bob Davis, chief executive of Virtual Driver Interactive, which makes driving simulators, benefited from a personal banking relationship when he was looking to buy his California business from his former employer late last year in the early days of the financial crisis. For tax reasons, the deal had to happen in just 90 days, or it would not happen at all. And because the business had been part of a larger operation, its financial performance was difficult to demonstrate. “It wasn’t an easy sell,” Mr. Davis said.

He happened to meet Greg Patton, the chief executive of Sierra Vista Bank in Folsom, Calif., at a local golf course, and Mr. Patton invited him to spend a couple of hours talking about the business. “No numbers, no spreadsheets, let’s just talk,” Mr. Patton told him.

After the talk, Mr. Patton became an advocate for the deal, Mr. Davis said. He asked for a set of financials and a two-year projection for the business. More important, though, he coached Mr. Davis through the loan review process. More than once during the process, issues came up that could have scuttled the deal. Each time, Mr. Davis says, huddled with his bankers and found a solution. The $900,000 loan went through in February, just ahead of the deadline.

Still, business loan applicants should expect to be closely scrutinized, especially by smaller community banks that have generally eschewed the formula-based lending practices many national banks adopted in recent years.

But Ranjit Kushwaha, who recently borrowed in the high six figures to buy the building in Monterey, Calif., that houses his Indian Summer Restaurant, was glad to see his bank being careful. “They made me jump through all kinds of hoops,” he said. “They’re very cautious — but that’s good. Otherwise, we’d all end up with the same problems again.”