Businesses are exploiting desperate people willing to work for free to keep their employment prospects alive. Image: CC Mark van der Chijs/Flickr

U.S. businesses are benefiting from a huge pool of unemployed workers who are willing to work for free to gain experience. The rise of unpaid labor has some analysts concerned that the phenomenon will further undermine the anemic labor market. However, the Labor Department has strict rules about unpaid internships that bring legal risks to companies who benefit from desperate people who will work for free.

Desperate people will work for free

Unpaid internships aren’t just the realm of recent college graduates anymore. With the economy only creating enough jobs for one-sixth of the nation’s nearly 14 million unemployed, seasoned workers are joining the ranks of unpaid labor. Although there are few official statistics about unpaid labor, all it takes is a quick look at the job listings on Craigslist to see that businesses are exploiting workers ranging from accountants to nurses who will work for free now in hopes of a paying job later. Unpaid workers can gain valuable experience, references and avoid a glaring gap in their resumes, but some businesses get what they pay for. Without careful screening, unpaid workers can be difficult to manage, and some companies could be better off simply paying an employee.

Are unpaid internships getting out of hand?

The rise of illegal unpaid labor in the aftermath of the recession has raised red flags with the federal government. “Not So Equal Protection — Reforming the Regulation of Student Internships,” is a report issued by the Economic Policy Institute last April. The report calls for more federal regulation of unpaid internships. According to the institute, current regulations controlling unpaid internships must be reformed, not only for the protection of unpaid workers, but to maintain a healthy labor market and prevent any further decline in wages, which have been sliding for 40 years. In the report, the institute contends that the present lack of clear regulations exposes unpaid labor to workplace discrimination and encourages businesses to replace paid positions with unpaid internships.

Current regulations for unpaid labor

Despite the institute’s call for more government regulation, federal and state rules require that workers must be paid the minimum wage and overtime. Larger companies planning to take advantage of unpaid labor must follow provisions in the Fair Labor Standards Act. Under the FLSA, an unpaid internship must primarily benefit the intern, who must be closely supervised and not replace a paid position. Companies violating the law often must provide back pay, pay fines up to $1,100 per violation and damages that equal the amount of wages not paid. But the FLSA doesn’t apply to small businesses — companies with less than $500,000 in annual revenue — the sector that does most of the hiring in the U.S. However, if small businesses engages in interstate commerce, which can be as innocuous as accepting credit cards or placing phone calls to another state, they forfeit the exemption from the FLSA.

Sources

Fortune

Inc.com

The Hoya

Though millions of dollars are available for small businesses, the money is not being claimed. Image: Flickr / mhofstrand / CC-BY-SA

Getting businesses the money they need has been the focus of recovery efforts. Loans and stimulus money have been focused on creating jobs through small businesses. Many low-interest and no-interest loans, however, are sitting unused.

Using small businesses to create jobs

The American Recovery and Reinvestment Act, among other things, made a point of trying to create jobs. Small businesses account for a large number of the jobs created in the United States each year. The Small Business Jobs Act of 2010 created loans and stimulus programs intended to encourage businesses to hire. The idea is that small businesses are the basis of the economy, and providing money and support would encourage growth.

Small business loan availability

A large portion of the small-business investment strategy from both the federal and local governments has centered on loans. These loans are offered with little or no interest to be paid. Everywhere from Delaware County, Ohio, to Louisiana, small businesses can get bad credit loans and emergency money for expansion, new jobs and the purchase of equipment. In some states, this money doesn’t have to be paid back if the businesses fulfill requirements such as staying in a downtown location or hiring low-income individuals. In other states, the interest is subsidized and stays low.

Unused emergency loans

Much of the emergency loans offered to small businesses is sitting unused. Many businesses are choosing traditional financing because loans through the Small Business Jobs Act of 2010 come with too many requirements. Businesses have to fill out extra forms and ensure that they are hiring low to moderate income individuals. Just one Ohio county has more than $1 million of available money that hasn’t been lent, simply because businesses are returning to banks for financing. This presents a problem, because the government has said funding will be taken away if more than $100,000 sits unused.

Sources

Dispatch Politics
The Advocate

To get the funding they need, small businesses must rely on the only credit left. Image from Wikimedia Commons.

Contrary to popular belief, there is still credit for small businesses to obtain. Unfortunately, the credit they can obtain isn’t in the form of a business loan from a bank or the Small Business Administration as much anymore.  These days, more small businesses are having to rely on credit cards.  A lot of funding that used to be readily available for small businesses just isn’t there anymore, and unless you’re running a Fortune 500 company, it’s hard to get the help you need.

Small business credit cards booming

According to CNN Money, more small business owners are having to rely on their credit cards to get the funding they need.  Many who apply for business loans are getting denied, but getting approved instead for a credit card.  The first quarter of 2010 saw a reduction of $40 billion in lending to small businesses, which is the lowest level since 2008.   Less than half of small businesses looking for funding in 2009 were actually able to secure a loan of any sort, and as of June of this year, the portion of the stimulus package that was dedicated to small business lending lapsed into oblivion.

What is in the way?

The normal way a small business gets a loan to get off the ground, or help them expand, is through either a small or mid-size bank.  There is also the Small Business Administration.  However, smaller banks do not have as much liquidity as they used to, and the SBA stimulus funding has run dry.  When a business owner applies for a loan, to buy equipment or start a company, they can pledge certain things as collateral, like property.  Since property isn’t as valuable anymore, less credit is going to be made available. They are forced then to rely on the one source of credit that’s readily available, which is credit cards.  If a piece of property isn’t as valuable anymore, it’s hard for a business to get mortgage loan modification to free up cash.

Someone is reaping all the benefits

An installment loan from the SBA includes a minimum term of seven years.   Credit cards, on the other hand, can take forever to pay off if one gets locked into making only minimum payments.  The difference between the credit card that John or Jane Q. Public has and a business owner has is that a business credit card is not covered by the CARD Act.  The main source of funding for credit cards is the biggest banks.  Bank of America, JP Morgan Chase, Citibank and Wells Fargo all lend huge amounts of money on credit cards.   Wait a moment; who was it that got the most bailout funds again?

Further Reading

CNN Money

http://money.cnn.com/2010/07/14/smallbusiness/bernanke_lending_credit_cards.fortune/

NY Times piece about SBA loans

http://boss.blogs.nytimes.com/2010/07/11/s-b-a-lending-plunged-in-june/

Small businesses showing no signs of current incentives to expand and grow

The National Federation of Independent Business (NFIB) compiles monthly and quarterly statistics on small businesses in the United States. Some of the areas covered in their “Small Business Economic Survey” include projected business expansion, earnings changes, sales changes and expectations, price estimates and changes, just to name a few.

The NFIB states that its federation includes some 350,000 members. Conducted among member businesses, the federation’s May 2010 “NFIB Small Business Economic Trends” survey discovered the following very interesting facts.

Small businesses report higher earnings

Small business earnings for the first quarter of 2010 have increased 9 percent, and up 12 percent from the end of the first quarter of 2009. The reason small businesses are experiencing higher earnings for April 2010 may be due to a rebound in the economy, but it still is too early to say whether this is the case.

Small business sales are rebounding

Small business sales peaked in late 2005, before the U.S. housing bubble burst. At this peak, sales for small businesses were at 15 percent. By early 2007, sales dropped to 5 percent. In January of 2008 that number dropped to -8 percent, and later dropped to -31 percent in mid 2009.

Since hitting that bottom, small business sales in the United States have risen. At last, sales were reported at -15 percent as of the first quarter of 2010, which is 30 percent below the 2005 peak of 15 percent. This 2005 number was taken before the beginning of the fallout of the housing bubble during that same year, and before the corporate banking derivatives in the autumn of 2008. Sales expectations have been in negative territory for 23 of the last 28 months, from January of 2008 to April of 2010.

In June of 2008, small business prices peaked at 32 percent. During the first quarter of 2009, small business prices reached a bottom of -25 percent. These prices declined for more than six months until early 2009. These statistics show that many small businesses, due to low sales, have had to lower prices to move inventory, which means that price deflation is occurring for many small businesses in the U.S. economy for over part of the past two years.

Small businesses borrowing less

The number of small business owners borrowing at least every three months hit its peak in April of 2006 at 40 percent. One year later, that number had dropped three percentage points to 37 percent. By the end of the first quarter of 2009, the percentage borrowing every three months had dropped seven points to 33 percent, and by April 2010, it had dropped a total of nine percentage points from its peak of 40 percent in 2006. This shows that small businesses, which are over 95 percent of the companies in the United States, are cutting back on expansion plans and, therefore, are not hiring as many new employees.

The ‘Citizen Consumers’ are the key

Capital expenditures by small businesses hit its peak in March of 2005 at 36 percent of the businesses surveyed, with capital expenditures hitting a low of 17 percent twice in December of 2008 and June of 2009. In April of 2010, it climbed just above the low at 19 percent. This shows that banks are lending less, partially due to the current banking crisis.

Also included is the fact that citizen consumers are significantly cutting back on discretionary spending and buying expensive new durable goods, if absolutely necessary. This is partially due to fears of the weak economy and losing their jobs. Many are using installment loans online to fund some purchases. And it is the U.S. consumer economy (which is over 75% of our nations GDP) that drives small business growth and expansion. It is the central factor that is contributing to the weakness in the current U.S. economy, which is clearly shown in the survey conducted by the National Federation of Independent Business.

Sources:

• Wikipedia NFIB entry: http://en.wikipedia.org/wiki/National_Federation_of_Independent_Businesses
• National Federation of Independent Business (NFIB): http://www.nfib.com/Portals/0/PDF/sbet/sbet201005.pdf
• US Small Business Administration: Office of Advocacy: http://www.sba.gov/advo/press/06-17.html

We are living in a difficult time, and everyone has their own sob story, which also includes businesses, regardless of their size. While the larger ones get bailouts from the federal government, small business owners have no such options available to them. Instead, they use installment loans to stay in business, but this is in no way equal to the bailouts. The best thing to do in this recession is to keep their customers happy and retain a strong base in the market, which should help them in the most difficult of times.

Loyal Customers

Customers are usually a fickle lot across the world, and seem to have taken the adage “the customer is always right” too seriously. One cannot deny them when they are right, but when they are not, it is best to make a “no” seem like a “yes”. How can small businesses keep their clients happy? Let’s take a look at some options, which can be of help to the businesses and also assist them in getting installment loans due to the good business they have.

Be Proactive

Numerous surveys have shown that a proactive approach in business is the best way to win over your customers, which applies to all aspects of the business from sales to billing to the after sales service. A customer is best served when all aspects are diligently taken care of, and nothing is left to chance.

Communication

It is really important to communicate well with your customers. Lack of communication often leads to disputes that can be detrimental to the business. You are after all trying to retain a customer for a long time, and you cannot treat consumers as an installment loan that you just pay off and be done. If you want the customer to return to your business and spend more money, you need to go the extra mile in making him comfortable.

Understanding

Understand what your customer is looking for. You will get to know this when you communicate well with the customer. They will then be willing to give you that extra bit of information that will not just help your business, but also make the customer feel he is a contributor to your success. Remember that the understanding you display does not cost you anything, but in return, helps you retain a customer who will remain loyal for a very long time with many happy returns. Moreover it will also help you repay that installment loan, which you had taken.

Follow up

One of the best ways to keep a customer happy is to follow up with him after the sale is complete. Do not just think you have done a good job, but go out of your way to see if you have fallen short in some way. Resolve any possible issue for the customer that may be there, and you will gain the customer’s trust, bringing them back over and over again.

Small Businesses Need Clients—Not Assistance

It is imperative for small businesses to keep their customers coming back again and again, because assistance in the form of a bailout is not available to these businesses who can manage with small installment loans. However, a set of happy customers will make life, and business, a whole lot easier otherwise!

Need an Installment Loan? Apply Here!

The way things are going, small businesses are going to need more than that. What about a cash advance for all? (Photo: flickr.com)

The U.S. has finally traveled out of the dark ages of recession, or so it seems, because a few people I know have had to utilize cash advance loans to keep their businesses afloat. Many of financial hardships that people are facing aren’t spewing forth from a lack of effort. Typically, recoveries from recession in the United States are lead by small businesses. It’s during this time that small businesses should be springing forth, and advancing the growth of the current economic state.

Positives of This Recession Break

The positive side of a “recession breather” is that small businesses can lease or buy fairly cheap commercial property while they prepare for financial growth and industry expansion. My friend and newbie online business owner Carl R. said, “I believe that in up to six months from now, the unemployment rate should scale back down to the eight percent, or maybe even five percent mark.” At that point, we should be celebrating and enjoying life, because small businesses would provide four out of five new jobs for Americans.

Is There a Dark Side to This?

Unfortunately, if we do happen to regress into another dreaded recession, falling from the “recession breather” we’re currently in, it could go down this way: unemployment could crawl “way above” 10 percent. That would definitely put us into another funk. Commercial Real Estate values would sink more than they expand, due to a lack of small business expansion. When small businesses refuse to expand, they react by rebuffing the notion of hiring, because of the possible lack of expansion. The concept is similar to a revolving wheel. Small businesses are the rise and fall of our country’s financial destiny. Small businesses fear the thought of consistently changing company policies and creating rigid changes in energy, union membership and health care matters. In this case, unfortunately, a cash advance loan wouldn’t help my friend Carl.

There are wonderful possibilities as to how small business power could signal an economic charge against financial woes and provide recession remission. However, the reality is that small businesses still aren’t hiring, and most are aware of the facts presented here.

Some Businesses are Doing Better than Others

Some of the conglomerates like McDonald’s, Green Mountain Coffee and Panera Bread have weathered the current recession, either by keeping profits at a set high or improving their sales figures. However, not all restaurants are operated and provide as much convenience as fast-food chains Most use and need credit lines to run their businesses.

Will President Obama Save Small Business?

There are numerous issues involved in the recovery of small business. Energy and union labor are two big issues worrying small business owners. President Obama’s plans for health care are a current worry as well. Inflation and commodity prices that determine the costs of food production and delivery all play a key factor in the anxiousness small business owners are feeling about what’s ahead in the upcoming months.

Michael Lind had some things to say on Salon.com about the ideas and future plans for Obamacare, in that it practically places small businesses on a financial “sacrificial altar.” I won’t delve into the intricacies of his statements, but if Mr. Lind’s words represent the thoughts of President Obama, and congressional Democrats (who poor and middle class people have been hoping would rescue our country from its existing financial position), small businesses will only be able to dream of expansion.

Not a Storybook Ending

The sad truth is that locked down small businesses won’t start hiring, and the result will be that the current commercial property bomb might not be defused in time. And I’m sure that no one wants to see America fall prey to the explosion of a second recession. Thankfully, a cash advance loan is there if – or when – you need one.

Apply for a Cash Advance HERE!