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Subscribe to RSSThe theme of job creation has consistently topped the list of concerns most discussed by American politicians vying for office in 2012—and it’s also topped the list of complaints of Americans who are fed up with the down economy.
Coffee giant Starbucks, for one, says it’s lending a hand to job creation efforts by partnering with the non-profit Opportunity Finance Network, a national network of 180 community development financial institutions (CDFIs) that orchestrate loans to businesses in low-income communities. The Seattle-based coffee chain kicked off a collaboration with OFN on November 1 in which people can donate money online or at some 7,000 Starbucks locations nationwide, which the OFN will in turn use for loans to small businesses at each of its CDFIs.
Starbucks on Tuesday announced that the partnership, which it’s calling the Create Jobs for USA Fund, has already generated $1 million in donations for the Opportunity Finance Network. Starbucks gave OCN $5 million at the start of the collaboration, which, when paired with the additional $1 million raised, it claims will create up to $42 million in loans to small businesses. And when a person donates $5 to Create Jobs for USA, they're given a red, white and blue wristband that reads "indivisible."
The whole idea took shape when Howard Schultz, who is chairman and CEO of Starbucks, got frustrated with the summer’s debt ceiling showdown and made a pledge to withhold all donations to political campaigns until a plan to reduce debt is reached. He cited his disappointment with “the pervasive failure of leadership in Washington” in a full-page ad in The New York Times. Job creation was the second prong of Schultz's pledge, according to Starbucks spokesman Jim Olson
While discussions about job creation usually center around government stimulus or incentives for businesses to hire more workers, Starbucks says the Create Jobs for USA Fund is a “peer to peer job creation program,” citing economic studies indicating that the jobs that are being created tend to be at small businesses.
“If you look at research and job growth that is taking place, small businesses are really driving the new positions that are being created,” said Olson. “If you are going to try to add jobs, we felt that the place we could make the biggest impact was in the small business community.”
So how, exactly, does the $6 million raised by Starbucks turn into $42 million in loans? Starbucks says that research by the OFN and independent economists determined that each dollar granted to a CDFI creates seven times that amount in available capital for loans, since the CDFI can in turn borrow against pooled donations.
So Starbucks gives the money to the Opportunity Finance Network, which lends money to small businesses, and then ostensibly jobs are created. The OFN has a 98 percent return rate on its loans, and Starbucks and OFN say that a job is created with every $21,000 in loans, or every $3,000 in donations.
Says Olson, “There’s a huge pipeline of businesses out there, either existing businesses or entrepreneurs with business plans, who want to expand, but it takes capital to expand, and when they don’t have access to traditional sources of capital, this CDFI network is an alternative for them.”
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Starbucks knows the definition of 'indivisible.' Howard Schultz you're the man! I will keep buying my fav coffee@ starbucks.
Lending to small business is declining. This is a trend of the past 30 years. It is not a new thing. The banks have been lending to the consumer instead of the businesses. This is part of the banks troubles now.
In the past, the banks used to hold their money mostly in US treasuries. That is why in past crisis they could remain solvent even if other assets lost their value. Their US debt would still be secure. Loans to consumers are backed by an asset such as an house. Today the banking industry is invested 95% in consumer loans and mortgages. This is why the banks were insolvent when the housing market collapsed and required a bank bailout.
Loans made to consumers are non-self liquidating. The consumer consumes. The consumer does not create value. Their ability to pay mainly depends on their job. Consumer loans are not put to use to create new value in the economy. On the other hand, loans to businesses are used to produce new value, to employ people, and to earn money so that the debt can be paid. These are self liquidating loans. And we have very little of them left now.
Banks see this as a deflationary collapse and they do not want to lend. Deflation occurs when total debt reaches it's growth limits and borrowing stops. Here is our debt problem:
www.tradingstocks.net/html/inflation_deflation_credit_bub.html
Once deflation starts, it is hard to turn the boat around because:
1. FED makes credit available. [Yes they do]
2. Banks must lend. [No they don't, because they don't think they will get their money back]
3. Borrowers must borrow. [No they don't, because they don't think they can pay it back]
4. For price inflation to happen, consumers must spend extravagantly and chase too few products with too much money. [Consumer is a saver now]
www.tradingstocks.net/html/prepare_for_market_crash.html
The summary of the problem is that the entire nation has borrowed from the future and never paid back for many decades. When the future arrives, the value of what was borrowed in the past, will be deducted from the economy, first with a deflationary collapse, possibly followed by hyperinflation if the FED prints too much money.
There is no free lunch. Economic crash cannot be avoided. What was borrowed will be paid back. It can be postponed by more borrowing, but that only makes it that much bigger once it arrives. Printing money only changes who pays for it, possibly raising the total amount America has to pay.
Interesting, nowadays people have to borrow money to start a business. Years ago, one could save money to start a business. Looks like we are heading back into another bubble heh heh
Yup, borrow money on your home equity, your car or whatever you have left if one has any equity left or ones home has any value any longer. Also, you need a job heh heh. What a joke lol
As the Starbucks helping the small businesses, this will strike down on the rate of unemployment and create more and more jobs.
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The big problem I have with this initiative is that it completely discriminates against white people. We all know darn well that "underserved communities" is just code word for minority neighborhods. "Indivisable", Mr.Schultz? Then why are you dividing us up with your small business loan program? Do you believe that all white people have the money to start a small business tucked under their mattress?
Have you ever heard of an Economically Disadvanaged Small Business?
It doesn't mean they are "white" or " code word for minority neighborhoods" It is the governments way for encouraging Small Businesses to develop their businesses in locations known as a HUD zone where they bring positive economic capital to that area. Hoping that if this business takes " the blunt of the blow", if you will, by setting up their satellite location there they can help the community. Whether it be a "underdeserved neighborhood", or a city that doesn't bring in as much revenue as other cities because they are not "business certified" areas (yet).
Becoming an Economically Disadvantaged Owned Small Business (EDOSB) sets you apart from other Small Business'. A easy way to think about it is, you qualify to dip your hands in many different pots of money because you offer so much more for the community and the economy that "just" a small business.
I hope that helped.. I think its a fantastic thing personally because many companies who qualify for this money compete with other companies for the funding from the government and loose. This is a great way to help them until they can find another alternative to bring home the bacon.
I would hate for them to resort to paycuts, or even worse letting people go because their current contract cannot support them.
Have a great day :)
P3DAL I agree with you the SBA has been giving out enterprise loans for many years. But the thing I have a problem with is that 1 million that was donated, he should be giving that out as grants and not loans that he is making money off of! Loan out what ever you put in the pot but what is given should be given back freely.
The financial services industry extended $607 billion in loans to small businesses during the first half of 2011, just $45 billion less than the loans they held for all of 2010, according to a new report from the Financial Services Roundtable, a group representing 100 of the largest banking and services companies in the United States.
An interesting alternative to borrowing bank money. Hopefully this method successfully creates these jobs that are being prospected.