Just 3.7 percent of high-level job seekers exiting the program were starting new businesses down from 7.6 percent in the first half of 2009 and 9.6 percent in the second half of last year, according to a survey conducted by the company on July 19.

Experts suggest that an improving job market and the difficulty getting small business loans may be steering people away from entrepreneurship, said Business Week.

Federal Reserve Chairman Ben Bernanke said last week that small businesses, and especially startups, are crucial to job growth and economic recovery. Bernanke once again called on banks to loosen credit to small businesses.

Some see the lower startup rate as a sign that the economy is improving. The unemployment rate is still high, but the private sector added 593,000 jobs in the first half of 2010, according the Bureau of Labor Statistics.

Startup activity typically increases as the economy improves, Challenger CEO John Challenger said in a statement.

Bernanke urged banks to loosen lending to smaller companies at a Fed conference Monday, saying that small businesses employ about half of all Americans and account for 60 percent of job creation.

Startups are especially vital, Bernanke said. Over the past 20 years, startup businesses accounted for about a quarter of all job creation.

Meanwhile, big companies are building up their cash reserves and are expected to report strong earnings in the coming week, said the Associated Press.

According to the National Federation of Independent Businesses, roughly one-third of small businesses seeking credit have had trouble getting it. Banks counter that the demand for credit remains weak.

Several big banks, including Bank of America, JPMorgan Chase and Citigroup, have pledged to increase small business lending this year. Total lending to small businesses has continued to decline, however, dropping from around $710 billion in the second quarter 2008 to less than $670 billion in the first quarter of this year, said the AP.

A number of small business owners say they are relying on personal credit cards or dipping into their own savings to stay afloat.

Volcker Rule

Named after Paul Volcker, former Chairman of The Federal Reserve, the rule bans banks from proprietary trading. Banks can invest in private equity and hedge funds but are capped at 3% of the fund’s capital. For Tier 1 capital, the investment can be more than 3%. This is an amended provision from the bill introduced in May, when banks were completely barred from investing in hedge funds and private equities. This change was made in response to the Massachusetts Republican, Senator Scott Brown, whose concerns were that the ban would torment Boston-based State Street Corp. Brown along with three other republicans was the first to vote for the Senate bill, breaking party ranks. Proprietary trading is now defined as a principle for trading account of banks and financial institutions that are supervised by the Fed for purchase, sale or any other transactions. Any bans on proprietary trading actually reduce profits. Goldman Sachs says that 10 percent of its annual revenue comes from proprietary trading.

Derivatives

In a last minute deal, lawmakers for the first time introduced a regulatory structure for $615 trillion in the counter derivatives market. This provision will push banks to use some of their swap trading into subsidiaries. This will reduce the taxpayers’ risk by barring their trades from institutions that receive federal benefits. Senator Blanche Lincoln, chairman of the Senate Agriculture Committee actually introduced the original proposal to ban all swaps-trading by commercial banks. But, later there were negotiations among all parties, secretaries and directors whereby it was agreed that banks can maintain their trading operations until and unless they are used to trade interest rates or hedge risk or foreign exchange swaps. Now, federally insured banks will get two years time to clear un-cleared default swaps to separate capitalized subsidiary.

Consumer Bureau

A protection bureau at the Federal Reserve to police banks and financial services against abuse from credit-card and mortgage-lending, will be created. This plan is in opposition to the opinion of Republicans and financial industries. Obama proposed a stand-alone consumer agency to prevent financial crisis. Travis Plunkett, the Director at the Consumer Federation of America, said “It’s an agency with considerable authority to protect consumers from abusive financial practices, which is a landmark achievement.”

This bureau will be an independent authority though it will be housed at the Fed. It will be responsible to write consumer protection rules for banks and firms that offer financial services and will be headed by a director appointed by the president. It will enforce rules for firms with more than $10 billion in assets.

Credit, Debit cards

The Federal Reserve will have the authority to limit swipe fees during debit card transactions. Now retailers can refuse credit cards for less than $10 purchases. U.S. merchants pay interchange fees in Visa and MasterCard debit cards. Last year, the fees amounted to $19.7 billion and accounted to 1.63 percent on an average for each sale.

Oversight Council

It is meant to establish financial stability. The ‘Oversight Council’ will monitor large Wall Street firms and other real players and would respond to system risks. It will be headed by the treasury department. With 2/3 of the vote, the council can leverage capital requirements on lenders and bring hedge funds and broker dealers under the Fed’s authority. It will also have the power to force companies to divest their holdings if they become a threat for the financial stability of the country.

Bank Capital Rules

Introduced by Senator Susan Collins, the bill will force some banks to show their capital. It is going to show its impact on ‘Trust Preferred Securities’ (TruPS). Banks with $15 billion in assets will find 5 years time to replace TruPS with common stock and other securities. It is found that smaller lenders sold $45 billion in TruPS out of the $150 billion issued by US banks. According to Richard Bove, analyst at Rochdale Securities, smaller banks like McLean, Capital One Financial Corp. & Buffalo and M&T Bank Corp would be hurt the most as they heavily rely on TruPS.

The Federal Reserve

The Federal Reserve will possess a broad supervisory scope and will bring transparency to its 96 year history. Headed by Chairman Ben S. Bernanke, a new Financial Stability Oversight Council will be created that will deputize the Fed to implement tough standards for disclosure, capital and liquidity. The rules will be the same for all financial companies and banks that pose a financial system risk. The Fed’s bank supervision was earlier curtailed but now the bill would allow the Fed to keep supervising banks like Goldman Sachs, Bank of America and Central Virginia Bank shares Inc, which have assets around $471 million.

There are also other provisions under this bill that enforces amendments in segments such as Credit Raters, Private Equity, Failed Firms, Risk Retention, Fiduciary Duty and the Insurance Industry. The changes have helped to regulate discrepancies in the US financial system with concessions granted to taxpayers and banks.

The new program is modeled after state initiatives known as capital access programs (CAP), in which borrowers, lenders and local economic development entities contribute a certain percentage to an investment fund that is used as collateral to support loans issued to borrowers, according to the Dow Jones Newswire.

CAPs have a strong record of lending to minority and women-owned business that may have had trouble getting credit or faced discriminatory lending practices.
Some critics worry that the new program might have some of the same problems that plagued the TARP plan. TARP funneled money to large and mid-size banks in order to boost small-business lending but it remains to be seen if that’s actually happened, said Dow Jones.
The Federal Reserve and FDIC have made a priority of bringing local business leaders and community banks together, an effort praised by the National Minority Business Council President and other groups.
“As a society, we must level the playing field and make capital more available to small enterprises,” Javier Palomarez, president of the U.S. Hispanic Chamber of Commerce.

Dell is the number one provider of personal computers to small businesses, and in an effort to maintain that customer base, the company is offering more credit and discounted services to small businesses. Some of those deals include interest-free credit on purchases over $25,000 and free or discounted computers if a small business buys other products, says the Wall Street Journal.

Those efforts seem to be working, as Dell’s small and medium business units posted a 10 percent gain in revenue in the fiscal fourth quarter over last year, said the Journal.

Bank lending to small business has been tight, and Dell extends most of its $7 billion of available credit directly instead of through traditional loan providers. The company told the WSJ that about 22 percent of its small business customers rely on store credit for purchases.

The strategy may prove risky for Dell if those customers default on their loans. To minimize that risk, Dell asked some of its customers to teach salespeople about small business budgets. A Dell spokesperson told the WSJ those training sessions have helped the company evaluate credit risks.

Based on data gathered from Intuit’s online payroll service, companies with less than 20 employees have added jobs since June 2009, said Business Week Additionally, data from SurePayroll shows the average paycheck for workers at businesses with fewer than 100 employees has stabilized, said Business Week.

President Obama has put forth a number of measures intended to get people back to work, including tax incentives for businesses that hire new employees and pushing banks to free up more credit for small businesses.

John Bishop, a labor economist at Cornell University, told Business Week that temporary incentives like tax credits could create more than 2 million jobs in a year.
“It potentially has a huge effect, and small business would be the primary beneficiary of that,” Bishop told Business Week.

Associated Press business columnist Joyce Rosenberg has these tax tips for small business owners:

* Get organized. Invest in accounting software that will keep you organize. You can input information from all those receipts and invoices into the program and send a file to your accountant at the beginning of the year, saving yourself a whole lot of time and grief.

* Hire a bookkeeper. If you can’t afford to hire a bookkeeper, consider getting an intern, such as a student studying accounting at a local college and have them set up a ledger system. Also consider putting all business expenses on one credit card.

* Read your mail. This sounds obvious, but again some business owners are so busy, sorting through mail can be a chore that gets pushed to the back burner. Not opening important mail from the IRS can lead to penalties and fees down the road.

* Listen to your CPA. Start talking to your accountant now. If you don’t understand what he is saying, ask. Remember, there are no stupid questions, only stupid mistakes.

The 22 banks that got the most help from the Treasury’s bailout programs have cut their small business loan balances $12.5 billion since April, when the Treasury began requiring them to file monthly reports, according to CNNMoney.com.

Bankers defend the cuts, saying small business loans are too risky and fewer entrepreneurs are seeking credit because of the recession.
But many small business owners say lending standards have grown more restrictive the past three years, and a report from the Federal Reserve backs that up, said CNNMoney.com.

Earnings at most big banks have turned around. JPMorgan, for example, reported earnings of $3.3 billion in the last quarter of 2009.

A number of politicians including the president have railed against bank executives for their unwillingness to free up credit while continuing to dole out huge employee bonuses.

Rep. Peter Welch, D-Vt., introduced a bill calling for a 50 percent tax on bonus compensation in excess of $50,000 at banks that received government bailout money. All revenue raised from the tax would go directly to the Small Business Administration to fund a new direct lending program, said CNNMoney.com.

The business owners discussed trouble getting credit and government regulations they said are hampering their operations, among other topics.

Woody Hall, the chairman and president of Diversapack, a film manufacturing company operating in several states, said the credit crunch is hampering his company’s growth. “We just opened up a new manufacturing facility employing 50 employees and expected to grow to 150 over the next few years. We basically had no bank financing,” Hall said, according to the Washington Post.

Former chief economist for the World Bank Joseph Stiglitz said exorbitant credit card fees are hurting small businesses and the government needs to address that. According to the Washington Post, Stiglitz said the exchange fee on purchases is “a 2 percent tax on all small businesses. A lot of them have small margins. Imagine you’re got a small margin and you’re giving half of that to banks on exchange fees — how aggravating.”

Geithner acknowledged the government needs to find a way to compel banks to extend more loans to small businesses.

The president’s 2010 budget plan doubles funding for the Community Development Financial Institutions fund, which helps provide loans to small businesses and consumers in disadvantaged communities that lack access to affordable credit, reported the Wall Street Journal.

The tax credit program, funded by the economic stimulus package, will reward private sector companies that invest in energy, education, health care and manufacturing projects to create jobs in low-income areas. The credit would cover 39 percent of the cost of the investment over a seven-year period.