Day: May 2, 2023

On April 12, 2023, the U.S. Small Business Administration (SBA) published two new rules: (1) Small Business Lending Company (SBLC) Moratorium Rescission and Removal of the Requirement for a Loan Authorization (Moratorium Rule) and (2) Affiliation and Lending Criteria for the SBA Business Loan Programs  (Affiliation Rule), collectively, the Rules. The Rules focus on combating persistent gaps in access to capital affecting small business owners in underserved communities. Starting May 11, 2023, small businesses and entrepreneurs will have more opportunities to obtain capital for growth and development.

The Moratorium Rule

Small businesses and entrepreneurs face major issues related to limited access to capital and restrictions imposed on lenders, especially within the 1,600 bank deserts in America. To combat those issues, the Moratorium Rule (1) lifts the moratorium on licensing new SBLCs and (2) adds a new type of lending entity called a “Community Advantage SBLC.”  SBA decided to lift the moratorium, which capped SBLC licenses at 14 for the past 40 years, to increase the number of nontraditional lenders, afford entrepreneurs business opportunities, and create more jobs in underserved communities.

A Community Advantage SBLC is a nonprofit lending organization focused on providing small businesses and entrepreneurs in underserved communities access to capital. In other words, the Community Advantage SBLC program was established to reduce the capital market gaps by increasing the availability of 7(a) loans.

The Affiliation Rule

To facilitate the 7(a) and 504 loan process, the Affiliation Rule streamlines SBA’s lending criteria by reducing the number of factors lenders must consider, in addition to creditworthiness and reasonable assurance of repayment. When approving loans, the new rule allows SBA lenders and Certified Development Companies to consider (as applicable) any of the following three criteria, individually or collectively:

1. the credit score or credit history of the applicant (and, if applicable, the operating company), its associates and any guarantors;
2. the earnings or cashflow of the applicant; or
3. any equity or collateral of the applicant, where applicable.

Additionally, among other revisions, the new rule requires SBA lenders to:

• use appropriate and acceptable commercial credit analysis for similarly sized non-SBA guaranteed commercial loans;
• underwrite SBA loans in the same manner they underwrite similarly sized non-SBA guaranteed commercial loans; and
• require hazard insurance as collateral on 7(a) loans greater than $500,000 and 504 projects greater than $500,000.

In the event a small business or an entrepreneur’s 7(a) and 504 loan application is denied, SBA will allow either the Director of the Office of Financial Assistance or the Director’s designee(s) to make the final decision on reconsideration. Previously, only the Director of the Office of Financial Assistance had this authority. The change is expected to facilitate fair and expeditious loan reconsiderations.

Another noteworthy change is that borrowers may use 7(a) loan proceeds to fund partial changes of ownership, as well as full changes of ownership. In other words, borrowers can:

• purchase a portion of a business or a portion of an owner’s interest in a business;
• purchase the entire business or an owner’s entire interest; or
• purchase the partial or entire interests of multiple owners.

SBA intends to allow the selling owner to remain as an owner and involved in the day-to-day business, including as an officer, director, Key Employee, or employee when engaging in the partial selling of ownership.

Summary

Together, the Rules afford small businesses and entrepreneurs more access to government-guaranteed lenders equipped with the necessary tools to streamline application and review processes, approve loans, and assist applicants in achieving their business objectives.

Overview

The discussion around Tesla, Inc. (NASDAQ:TSLA) stock has recently focused on elements of its latest Q1 earnings report, namely its ongoing price cuts as well as the company’s overall pivot to a higher volume/lower margin automotive sales strategy. Along with this, there have been references to an autonomous driving future and Tesla’s role within it.

My perspective on the autonomous driving opportunity is that it’s many (15+) years away. While the streets of San Francisco may swarm with driverless vehicles, I foresee that this is the type of technology that will be relatively polarizing for consumers across America as a whole. Most of America isn’t a “tech hub” and most people are not too likely to be comfortable with unmanned vehicles rolling around their neighborhoods. This may be speculative, but it lines up quite well with common sense as well as my anecdotal experience.

As such, I foresee that autonomous driving will progress with a complex trajectory that sees a limited self-driving capability being rolled out state-by-state. This will serve to create a complex legislative situation at the Federal level, akin to what we’re seeing now with cannabis. In the end this will net out to a much longer timeframe to roll out the technology as well as commercialize it. To that end, I am skeptical it will be a material factor on Tesla’s bottom line for at least 15 years.

Furthermore, I think the discussion around Tesla’s automotive division, while warranted, is missing an aspect of Tesla’s business that makes it particularly interesting as a growth stock: energy storage. This article will focus on the opportunity there in particular.

Energy Storage

Tesla’s energy storage business has been growing steadily since its inception in 2015 and has recently hit critical mass, generating over $1B in revenue every quarter since Q3 2022. While it was only 6.55% of the company’s overall revenues in the most recent quarter, this represented the largest proportional contribution of this segment yet. The YoY growth figure of 149% shows that the company has a real growth business in its hands.

Tesla’s energy storage offering is actually two-pronged, with both a consumer and commercial offering. Each of them represents a significant market opportunity in its own right.

The consumer offering involves setting up a solar panel on one’s home that subsequently stores energy for future use. This energy can be utilized to do anything from power one’s home to charge your electric vehicle. The total addressable market (TAM) for this would be something in the realm of all consumer electricity expenditure. Some back-of-the-napkin calculations for the U.S. indicate that this is a $300B market in its own right:

U.S. Total Households	123.6M
U.S. Avg Household KwH Usage Yearly	10,632
U.S. Avg Household KwH Total	1.31 Trillion
U.S. Avg KwH Price	$0.23
U.S. Household Electricity Market Size Est.	$301.3B

Click to enlarge

Source: Author’s Excel Spreadsheet, U.S. Energy Information Administration.

The commercial (grid-scale) storage solution is also interesting and plainly useful. States that see large fluctuations in electricity prices, such as California, would benefit from this in particular. A documentary from CNBC states that this market was already $3.1B in 2020 and is expected to hit $15.04B in 2027.

This is because grid-scale storage is particularly useful for the ongoing transition to green energy. Unlike fossil fuels, green energy – such as solar – can take a long and variable time to generate specific quantities of energy. This creates a much more significant variability as to energy supply – even though energy demand remains as it was. As such, you need storage if you’re going to leverage clean energy at scale. Otherwise, you will have shortfalls and blackouts when energy supply and demand fail to line up.

Tesla Market Positioning

Tesla is very well positioned to enter and capture a significant portion of the energy storage market because batteries are one of their core competencies. If Tesla had not been a battery innovator in the first place, they would not have been first-to-market with electric vehicles. The company has continued to deepen and broaden this core competency while also beginning to bring it to market via the energy storage business. Elon Musk himself said that the energy market is larger than the automotive one.

This makes Tesla very unique from an automotive perspective. Generally. automotive companies purchase batteries and do not develop them in-house. As such, they are not positioned to capture any portion of the energy storage market, at least not in a way that would be economic. This is now a significant long-term differentiator for Tesla that could very well overtake its core automotive business in the very long-term.

Conclusion

While a perennially expensive stock and one that is currently trading at a 41.64 TTM P/E ratio, I think Tesla, Inc. is uniquely positioned to capture one of the largest growth markets of the next two decades. Just like with the electric vehicle business, it is way ahead of prospective competitors in terms of actually getting something to market. This time, however, it is also a very large company with significantly more resources. This should allow Tesla, Inc. to continue growing this business without too much regard for the competition or for margins – allowing it to eat up market share. In due time, however, I think the energy storage opportunity will yield returns for the company as well as its shareholders, and I’m still bullish on Tesla, Inc.

The Reserve Bank is set to keep interest rates on hold at 3.6 per cent amid signs consumer spending is slowing before the board meets tomorrow. 21 of the 30 market economists surveyed by Bloomberg predict the cash rate will remain steady as Commonwealth Bank predicts a rise by 25 basis points. Despite the forecasts, RBA Governor Philip Lowe has not ruled out further increases.

Judo chief executive Joseph Healy on Monday said the bank’s margins – what it earns on loans after costs – would rise to between 3.3 to 3.5 per cent in fiscal 2023, up from a previously expected 3.1 to 3.3 per cent.

The upgrade was driven by better than expected deposit costs and treasury movements. This was even as its “market leading” deposit rates had pushed funding costs higher in the past month.

Mr Healy’s confidence in Judo’s high margins comes as the big four have been vocal about their focus on capturing the higher margins available in the business lending market.

Challenged on his plans to hold on to high margins, Mr Healy said even though “a loan from Judo, once banked, is no different from a loan from any other bank” businesses were willing to pay half a percentage point more for Judo loans to secure the certainty the bigger banks do not provide.

“The experience on how you get that loan, and the experience that you have once the relationship is established, is where our point of difference is. And we believe, and I know this from deep experience, that customers generally are happy to pay up – our assumptions is up to 50 basis points – for that experience.”

With business customers valuing timely responses to credit applications, and given Judo is aiming to capture only a fraction of the $470bn small and medium- sized lending market in Australia, Mr Healy believed “that we can select the credit and customers that fit our profile”.

In the past month, the cost of new deposits was “at the top end of our through-the-cycle expectation of 80-90 basis points” over benchmark rates.

The neobank – which has no physical branches – expected solid business lending growth in the last quarter of the year.

It was on track to meet the rest of its fiscal 2023 guidance metrics, with unaudited profit before tax for the nine months to March 31 now at $86.7m.

Goldman Sachs said the update implied the business was running up to 25 per cent ahead of its fiscal 2023 forecasts, but would be immaterial to expectations in the 2024 financial year.

Judo shares rose as much as 6.85 per cent before closing 1.21 per cent higher at $1.26.

Sources said Barrenjoey sold a large stake of Judo shares on behalf of UniSuper, one of three substantial shareholders, at about $1.25 per share.

A mom revealed on TikTok that she was shamed by his school after packing chips in her son’s lunch. In a TikTok video, mom, Megan (@peaveymegan), wondered what she should do after receiving a seemingly snarky note on her 3-year-old son’s leftover “trash” from his school urging her to stop sending him with “unhealthy” snacks.

Not only did the mom find the note itself inappropriate and passive aggressive, she also explained why using words like “healthy” and “unhealthy” when talking about food can have detrimental, lifelong effects on a kid’s relationship with food.

“I sent my son to school with Pringles, which is a very age-appropriate snack for a three-year-old,” she began.

“And this is what the school sent, ‘Please help us make healthy choices at school,’” she reads off her son’s empty Pringles container. “They snack-shamed my three-year-old. They snack-shamed me by writing that passive aggressively on his trash.”

She explains that she messaged the school and expressing how taken aback and frustrated she was with the note, saying that in their household no food is deemed “unhealthy.”

“At our house, we do not label things as ‘healthy’ and ‘unhealthy’ because that starts eating disorders,” she said.

She then asked her followers if they, too, thought the entire scenario was “ridiculous.”

The video soon went viral with thousands of TikTok users commenting in solidarity with Megan.

“I beg you to confront the teacher asking for her dietary credentials or certifications in childhood nutrition. She can’t tout her opinions as advice,” one TikTok user wrote.

Another user agreed, pointing out that teachers often will give out “unhealthy” snacks to children as incentives.

“Hi… school custodian here!! Believe me when I say the amount of candy these teachers are giving your kids… lollipops and jolly rancher wrappers every day. Yes, even in elementary schools!”

Another user had a great idea for a clap back and wrote, “Send Pringles the next day that say ‘when you buy it, you can decide what the snack is.’”

When the video went viral, Megan explained in a follow-up video that the attention became overwhelming and she decided to delete it. However, once she heard back from the school regarding the passive-aggressive note, she re-uploaded the clip.

“So I dropped my son off at school today. I checked him in, and I saw that the director was there, so I initiated the conversation. So, I just shared how I was disappointed with how, you know, it was handled. I wish that they had reached out to me directly. I said it was kind of passive aggressive to write it on his empty Pringles Cup,” she said in the follow-up video.

Megan then explains that the director responded, claiming that she was actually the passive-aggressive one for continuing to send Pringles in his lunch after they had sent the note home.

She clarified that yes, when they first enrolled in the school, there was literature sent home about packing “healthy” foods for their children, but she said Pringles didn’t come to her mind.

“I didn’t consider Pringles to be this unhealthy snack,” she said. “I considered things like Cheetos, Doritos, Milky Way bars, things like that to be an unhealthy snack. So, I would, of course, pack like Pringles with granola bar, yogurt, fruit, all that kind of stuff. So I didn’t really think it was applicable to me. I didn’t think that those messages applied.”

She said the school did not apologize or acknowledge that the note on her son’s lunch trash might have been a bit inappropriate, instead the school escalated the situation.

“My son’s been [at this school] for quite some time, and we had him registered for their summer program for three days a week. And at the end of the conversation, she shared, ‘We no longer have a part-time spot for your son this summer.’”

Megan promptly removed her son from the school all together.

Even though she doesn’t even need to explain why she packed chips, Megan explains in another video that she is a working mom who has limited time to pack lunches. “Sometimes it’s easier for me to just throw in a freaking thing of Pringles, okay?” she says.

“If we’re sending food that we think is is good for our children, then why can’t they just let them have that?”

She reflects on how out of control the situation got, leading to her three-year-old leaving the school early, losing his summer spot, and no longer seeing his friends from school. However, when it comes down to it, Megan knows that she’s doing what’s best for her son and his relationship with food.

“We don’t put weight on food in this house. If my kids want a cookie for breakfast, it’s okay, great, and nine out of ten times they don’t even eat the cookie but they will focus on that if you say ‘no.’ We don’t say, ‘This is healthy, this is unhealthy,’” she says.

“We don’t want them programmed like that. I have a background in mental health counseling. I am not gonna let my kids get a freaking eating disorder because of a school labeling things as ‘healthy’ and ‘unhealthy.’ That, to me, is unhealthy.”

And she’s totally right. Not only is the language her son’s school used problematic, but classifying foods as “good” or “bad” is also classist. According to the U.S. Department of Agriculture, 13.5 million U.S. households were food insecure at some point in 2021.

Low-income households tend to eat less nutritious diets than other households. On average, they do not meet Federal recommendations for consumption of fruit, vegetables, whole grains, and low-fat dairy products, and they consume fewer servings of these nutritious foods than other households.

“It’s not a lack of knowledge; it’s a lack of money,” Corinne Eisler, a registered dietitian and pediatric nutrition expert explained to Today’s Parents. “A child should never be shamed because they don’t have an optimal eating plan.”

Several dietician experts have spoken out in recent years against trying to restrict certain foods and label them as “unhealthy” or “bad” for children.

Restricting “unhealthy” foods is not the answer to getting kids to find “better” alternatives. In fact, that might even have the opposite effect.

A 2002 study published in the American Society for Clinical Nutrition journal revealed that girls whose diets and access to junk food were tightly controlled by their parents when they were five were more likely to overeat at age seven. The girls who overate were also 4.6 times more likely to be overweight when compared to their peers who were more in control of their snacking.

It’s all about balance.

“It’s important for our kids to understand it’s OK to occasionally have a treat,” registered dietitian Jodi Holland told Today’s Parent. “It’s also important for them to understand why it’s best to fill up on healthier foods the majority of the time.”

TECH4GOOD

The convergence of technology, information, and commerce is ushering in an incredibly exciting new world of economic power before us. E-commerce has become a crucial part of modern life and has transformed the way we all shop and do business. This evolution has created new opportunities for entrepreneurs, businesses, consumers, and job seekers. It has also forced the digital transformation of all economic actors. The growth of this new economic engine is going to be critical to the future of our country’s economic development.

However, the increasing popularity of e-commerce has also brought up several challenges including fraudulent activities, data privacy concerns, unfair competition, and content control. At the other end of the spectrum is the need for innovations in Internet commerce to continue for its vast potential to develop and benefit society.

On the side of the government, e-commerce is a relative greenfield. Most of its current laws and regulations are meant for a brick-and-mortar business environment. A regulatory issue of increasing concern is the ability to implement policies in a borderless internet world. The internet made commercial borders superfluous. There is also a need today for the government to revisit its taxation policies to ensure that it can collect the right taxes from online merchants. E-commerce in the Philippines is nascent and is expected to become the dominant way of doing business in the country very soon.

A pending legislation, the Internet Transaction Act (ITA), was passed by the House late last year and has now reached the Senate plenary. It establishes a code of conduct for e-commerce transactions and creates an e-commerce bureau under the Department of Trade and Industry, which will have the authority to regulate commercial activities conducted over the Internet. The business sector and most trade organizations, including the Alliance of Tech Innovators for the Nation (ATIN) of which this author is the Lead Convener, support the passage of this bill.

The ITA, in general, provides the necessary mechanisms to ensure that the rights of both consumers and online merchants are protected and the privacy of personal information is maintained. It provides a redress mechanism that institutionalizes a notice and takedown process to address erring merchants and products. It also creates an online business registry to make it easier for consumers, e-commerce platforms, and regulatory bodies to make verifications. It also mandates the creation of an online dispute resolution platform to provide a venue for both buyers and merchants to settle fulfillment issues. Another important provision is the establishment of the Philippine e-commerce Trustmark which will be implemented by DTI and is meant to help build more trust and confidence in the e-commerce ecosystem.

Some provisions of the proposed legislation can be further improved. For example, the provision on liability should be worded in such a way that it encourages good behavior on the part of the merchant and not just hide behind the platform. It also puts a high regulatory burden on the platforms, like verification, which they are not capacitated to do and may entail higher costs for them to comply with which eventually will be passed on to the consumers. We all need to be mindful of the fact that e-commerce is not just about the platforms. Another concern is the enforceability of some of the provisions because of the borderless internet world. These are areas where the platforms can provide further insights.

A thriving e-commerce landscape would bring in more jobs, revenues for the government, drive entrepreneurship, and help our MSMEs become more competitive. For this to happen, we need to see the government, e-commerce players and consumers work together. The regulatory scope can be an issue because of the enormous size of the market and the current capacity of the government. The e-commerce space is very dynamic and fast-changing. The nature of regulations that will be imposed will need to be flexible enough to adapt to the changes.

It is in the interest of businesses to provide consumers with safe transactions, proper handling of personal data, and secure business practices to win their confidence. This is the reason why the business sector generally supports the early passage of the ITA. They see it as a way of removing ambivalence in rules and processes to allow e-commerce in the country to really grow and keep pace with global developments.
We all want to see an ITA that would help us benefit from the emergence of e-commerce as an engine for economic growth. Our legislators should be reminded of the words of the former CEO of Cisco Systems John Chambers “We need to be very careful not to rush in and stifle the opportunity e-commerce brings to our country in terms of job growth and economic growth by just applying old-world regulations to this new world.”

(The author is the lead convenor of the Alliance for Technology Innovators for the Nation (ATIN), vice president of the Analytics Association of the Philippines, and vice president, UP System Information Technology Foundation. Email: mon.ibrahim@aap.ph)