Today on the radio there was a small business owner who was saying that he could not get a business loan to get the capital he needed for cashflow. He had several orders on the books, but he did not have the cash needed to buy the parts and pay his employees, so he was unable to fill the orders. He said that if he could just get a loan of $25,000, he could turn it into $100,000 within a year.
This made my ears perk up. I thought that maybe I could loan him $25,000, or maybe get together with a few friends and pitch in $5,000 each. Maybe we could give him a loan with an 10% interest rate or something – a little higher than the banks are offering because of the added risk we’d be taking, but then again he has not been able to get a loan from the banks so it would be a good deal for him. If he were truly able to turn it into $100,000 by the end of the year, paying us $2,500 for the use of our money would seem like a good deal. As it is he can’t make money and his customers can’t get their products.
I know I’d be taking a risk, but then every once in a while you take a risk. You say, “I don’t know if I’ll ever see this money again, and if I don’t that will be alright. Maybe I could make a good return from it, though, if things do work out.” There is a lot of risk but also a lot of reward.
But then it hit me. There are probably regulations on such loans. I would probably have to send paperwork into some government agency. I would probably have to hire a lawyer and an accountant to do things right, and even then they may make a mistake. There might be special regulations on me – I might have to file with the FDIC or the SEC or someone. They might say I’m a bank and need to keep a certain cash reserve. I might need to file all kinds of paperwork to open an account with the Federal Reserve. I might need to file 1099’s for my wife and kids and install wheelchair ramps on the doors to my house. The trouble was I just don’t know.
Obviously I decided to give up the idea.
There was a time when all I would need to do was look at the risk, see if I thought the guy had a good business and would be able to pay me back, and then draw up a contract and shake hands. Now there are so many regulations, all put in place in the name of making us safe. The trouble is there is a one-size-fits-all approach to everything, and the people making the regulations could really care less if loans get made or jobs are created – that’s not their job. They just make sure people follow the regulations.
Some people even go into a town and crucify a couple of capitalists, to make an example of them, and make the others scared, as a former administrator said.
There is a great deal of debate about the level of taxes. But the thing that really slows the economy isn’t the taxes, it is the regulations. How many businesses were not started just because people had a great idea but then didn’t even know how to navigate the labyrinth of government to get started. How many jobs don’t exist because it was too difficult to hire someone?
Couldn’t we just drop all of the regulations, see which ones are really needed, and start building again? Maybe make all regulations expire every ten years if not reinstated? Maybe see if anyone is reading all of the paperwork that is being generated and if not, stop requiring that it be generated. In the least, provide a lot of support to help people through the process – maybe even have civil servants fill out some of the forms for them.
It’s not the taxes, it’s the regulations that really cripple job growth.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.