On April 28, 2011, REAG Co-Founder and Managing Director, Scott Mashuda participated in the White House sponsored event, “Startup America: Reducing Barriers Roundtable” in Pittsburgh, PA.
“Startup America” is a White House initiative to celebrate, inspire, and accelerate high-growth entrepreneurship throughout the nation. The coordinated public/private effort brought together an alliance of the country’s most innovative entrepreneurs, corporations, universities, foundations, and other local leaders to work with a wide range of federal agencies to dramatically increase the prevalence and success of America’s entrepreneurs.
Mr. Mashuda introduced the following 3 small business barriers to the discussion:
- Access to Capital
- Taxes
- Reduction in Paperwork
As part of the collaborative problem solving effort, participants were encouraged to bring solutions for reducing these barriers, not just the barriers themselves.
Mr. Mashuda shared the following potential solutions:
- Make principal repayments on small business debt tax deductible. Many entrepreneurs and small business owners are forced to leverage their companies to make it through start-up or recessionary times. These owners, specifically LLC’s are taxed on the company’s earnings with no consideration to the fact that these earnings may not have been distributed to ownership, but rather used to pay down debt. Taxing pre-debt earnings puts the entrepreneur / owner in the difficult position of needing to pay taxes on money they did not actually receive. Taxing entrepreneurs strictly on their distributions rather than the company’s earnings would eliminate this hindrance to growth.
- Make credit card interest for small business owners and entrepreneurs tax deductible. Since a track record is required to obtain third party financing, many entrepreneurs are forced to bootstrap their startups with credit cards. Making this interest tax deducible, the same as third party loan interest would ease the tax burden on entrepreneurs during start-up.
- Make interest income for investors in small businesses tax deductible. This would encourage individuals to lend money to small businesses that do not have access to bank debt. The idea would be to incentivize family, friends and other non-qualified angels to invest in entrepreneurial enterprises.
- Make dividends to minority owners in small businesses tax exempt (or taxed at a lesser rate) in an effort to encourage high net worth (non-qualified angels) to invest in startups.
- There needs to be recognition and incentive for SBA lenders to lend based on cash flow. Cash flow repays loans not collateral. The current focus by the SBA on collateral in order to contribute their guarantee inhibits lending to service based and technology businesses with minimal fixed assets.
- Increase the rate at which capital flows by enacting a reduction in paperwork act similar to the Reagan Paperwork Reduction Act.
Mr. Mashuda would like to thank the Administration for providing the forum by which entrepreneurs can introduce barriers to growth and share potential solutions. We are hopeful that our voices will be heard in Washington and changes are implemented.
To discuss these ideas in further detail, please contact Scott Mashuda at (412) 894-3244 or by e-mail at smashuda@reag.com.
