Big Results for Small Businesses: More Success Stories from Financial Education

As unemployment rates have risen recently, more people are considering becoming entrepreneurs and many existing small business owners are looking for ways their companies can survive. The American Recovery and Reinvestment Act, enacted in February, recognizes the economic importance of small businesses by adding incentives such as reduced fees and increased guarantees for Small Business Administration loans. The FDIC wants educators to remember they, too, can do their part to stimulate the economy by helping entrepreneurs understand that financial education is an important first step in starting or running a small business.

"Financial education is as critical for small business owners and managers as it is for individuals managing their own money," said Luke W. Reynolds, Chief of the FDIC's Community Affairs Outreach and Program Development Section. "It is almost impossible to run a business if the owner does not understand the basics of budgeting and personal finance, including knowing when an idea for a new business makes sense financially."

This installment of our Money Smart News "success stories" features tips and information to help and inspire educators as they teach the basics of financial management to small business owners and managers.

First, FDIC staff notes there are many ways financial educators can effectively reach out to small businesses. These include educational efforts tied to:

• An individual development account (IDA) program. IDAs are matched saving programs that enable lower-income individuals to put aside money for a goal, such as starting or expanding a small business.
• Workshops sponsored by a financial institution reaching out to open new accounts for small business owners. "Just as there are unbanked consumers, there are also unbanked small businesses," explained Irma Matias, an FDIC Community Affairs Specialist. These businesses typically are cash based and rely on friends, family or even personal credit card lines to finance growth rather than turning to banks.
• Workshops or other outreach targeting employees of small businesses. For example, banks may be interested in promoting the benefits of direct deposit to small businesses that pay their employees in cash or by cutting a check. "Some banks may want to consider providing employees of small business customers with special accounts, including those employees who typically would not qualify to open a bank account due to credit problems," said Matias. "Everyone can benefit – employees, employers and banks – if they can save time and money with direct deposit or other electronic payment options."
• A course that focuses on the basic skills needed to start a small business.
• Workshops for small business owners that target other topics, such as obtaining credit.
• Reprints of the FDIC's Money Smart curriculum. "There are no copyright restrictions on Money Smart materials. Educators can reprint or use our curriculum in publications targeted at small business owners," said Reynolds.

FDIC Money Smart staff takes pride in sharing success stories from partners educating small business owners. One example comes from a nonprofit organization in St. Louis, Justine Petersen, which helps low- and moderate-income individuals build assets in various ways, including through small-business technical assistance and lending. Aida Ibragimova, IDA/Loan Fund Manager at Justine Petersen, told us about Mary, who owns her home and a home-based daycare center. However, Mary didn't have a bank account or insurance on her home or small business.

"Mary's credit score was low, and her poor credit history made it difficult for her to obtain a small business loan," said Ibragimova. But then Mary completed a financial literacy class based on Money Smart and taught by local financial institution employees. She obtained homeowners insurance, opened a savings account and was approved for a small business loan used to expand her business. "As a result of the class, Mary has a clear understanding of credit-related issues and understands how she can improve her credit profile," said Ibragimova. "Mary said the class has changed her life."

Appalachian Community Enterprises (ACE), a community development financial institution in Cleveland, Georgia, offers micro-loans, business planning and financial education courses to low-income entrepreneurs. Grace Fricks, President and CEO of ACE, provided the story of Laura, a co-owner of Pueblos Mexican Restaurant, who took Money Smart classes after she opened her first restaurant location. Today she owns four restaurants, including one in South America. Laura said the classes have helped her understand financial statements, and how to plan a budget and run a business.

Laura also offers restaurant staff the opportunity to complete financial education classes because she believes this helps reduce employee stress and increase employee retention in an industry known for high turnover. Fricks said that Money Smart classes likely prevented the loss of the home of one of Laura's employees. Maria, who speaks only a little English, saw the Money Smart slide that listed the pros and cons of homeownership. She did not understand the bullet about paying taxes. "What do you mean taxes?" Maria asked. With the help of the bilingual instructor, also a bank employee, Maria discovered that her annual property tax bill was being mailed to the previous owners of her home, not to her. She soon made arrangements to pay her back taxes. "That's the power of financial education using Money Smart," Fricks said.

See more Money Smart success stories (Read more.)