Stimulating small business

Christy Mihos sold his 11 Christy's stores earlier this year. His grandfather started the chain in Brockton in the 1920s. (File Photo)

In January, Christy Mihos sold his 11 Christy's convenience stores to Hess Corp. They were the last of 150 shops in the chain started by his grandfather in the 1920s. As the owner of a small business, Mihos decided he was at too much of a disadvantage in the current economic climate.

"When Ford is negotiating salaries of $55 an hour, and GM is paying $80, and these are the companies getting federal bailout money, how are small businesses supposed to compete?" he said. "Small business really doesn't have a seat at the table when it comes to the way government hands out this aid."

Like Mihos, many small business owners are questioning how much help they will receive from the $787 billion economic stimulus package passed last month, as well as from new tax policies in President Obama's proposed budget. Under the stimulus package, $6 billion to $8 billion is set aside to provide tax breaks to small businesses - defined as those with fewer than 100 employees. The incentives include a $250,000 deduction for capital investments and a 50 percent bonus deduction on capital investments made in 2009 that normally would be deducted over many years.

In a recent poll by Employers Holdings Inc., a workers' compensation consulting firm based in Reno, 55 percent of small business owners said the economic stimulus package doesn't have enough provisions to help small companies. Many components aimed at helping them may not yield results immediately, they said - including the goal of giving small businesses 23 percent of the federal contracts handed out under the spending package.

On Monday, Obama and Treasury Secretary Timothy Geithner took steps to lessen that skepticism, at least on one key front. They outlined a plan to raise federal loan guarantees in hopes of freeing up credit for small businesses. The program will also require the 21 biggest banks that received federal bailout money to file reports showing how much money they are lending to small businesses.

"At least it's a start," said Cap Willey, former chairman of the National Small Business Association. "Now, it's just a question of seeing whether it works."

Willey said the administration's plan addresses the difficulty the Small Business Administration has in making loans through secondary banks. It also pushes banks that received bailout money to commit to lending to small businesses. Having access to credit will give them a chance to compete for contracts, said Willey, who now works with the accounting firm CBIZ Tofias in Cambridge.

"The big thing is the credit crunch," he said. "Small businesses are going to need credit to take on these contracts."

Andy Murphy, a principal of Davies Murphy Group, a Burlington marketing firm, said some of the tax breaks on capital purchases would help firms that need to purchase expensive equipment, but there were few perks for service-oriented companies like his, which has 46 employees.

"To me, the elephant sitting in the room is the cost of health insurance," Murphy said. "If they really wanted to help small businesses, they'd figure out a way to get that under control."

Davies Murphy Group has seen double-digit rate increases in its health insurance costs in each of the past three years, including a 22.2 percent increase in 2008. The $200,000 it spends annually to offer full coverage to employees is its third biggest expense, after payroll and office space, according to Murphy.

"If they keep increasing it the way they have been, it will be right up there with the office space," he said.

Some small businesses, however, are optimistic about the effects of the stimulus. They are typically clean-tech companies that are making products to help meet emissions standards or companies that support the construction industry, which is expected to be one of the biggest benefactors.

One such company is Holliston-based Rypos Inc., which develops filters that cut diesel exhaust pollution. Chief executive Peter Bransfield said Rypos may gain from some of the $300 million in grant money aimed at boosting ecofriendly technologies, but it is most likely to be helped indirectly - by increased spending on construction.

Bransfield said smaller firms are more focused on operating on a day-to-day basis and may not have the staff or resources to pursue grants.

"I think the speed the grant money needs to be spent with will hamper small companies trying to get into the fight for it, because they're simply not set up to move that fast," he said. "The way the money is coming down has some structural problems, but the second wave of spending should help companies that support the construction industry."

Rypos began commercially producing its filters at the end of 2007 and now has 22 employees, up from eight a year ago. The company predicts $9 million in revenue this year, up from $2 million in 2008, but the projection is not based on receiving a boost from the federal government.

"I'm hopeful" the stimulus will help, Bransfield said. "But I'm also a little skeptical, if only because everyone else is a little skeptical."

Jim Holzman, president of Ace Ticket, said that as the company readies to open its flagship location on Causeway Street in Boston, the capital expenditure provision will allow him to write off the cost of computers and a new telephone system. The reduction in payroll taxes will also help his 32-employee company, Holzman said.

The company still sees strong demand for tickets to sporting events, he said, but fans who may have purchased tickets for $75 to $100 a year ago are now looking to spend $30 to $50.

"The hope is this stimulus will create jobs and create more discretionary spending," he said.

Scott Latham, an assistant professor of marketing at Bentley University, recently conducted a study of 250 companies across a wide range of industries for the Corridor Nine Area Chamber of Commerce, which covers Central Massachusetts. Healthcare and social service companies were surprisingly upbeat about business prospects, he said.

"When you looked closer at the data, the reason they were so optimistic is because of the stimulus," Latham said. "You can make the argument that this recession is largely driven by fear, and if this gives them a sense that some of the municipal funding they lost is being restored, that there is a light at the end of the tunnel, then in that regards, the stimulus may work."