SME Development Bank (SDB)

Over the Labor Day Weekend Sum2 announced The Hamilton Plan. The Hamilton Plan is a ten point program to foster the development of manufacturing in the United States by tapping the entrepreneurial energy of small and mid-size enterprises (SME). The plan’s 10 points address sustainable business models, GRC best practices, capital formation initiatives, SME banking, labor union stakeholder empowerment, association syndication, cooperative formation, support for public education and cooperative learning.

This is an introduction to The Hamilton Plan, why it’s needed and the call for the creation of an SME Development Bank (SDB) to facilitate capital formation to achieve the goals of the program.

The Hamilton Plan, named after the first Secretary of the Treasury of the United States, proposes a ten point program to develop small and mid-size enterprise (SME) manufactures. The Hamilton Plan invites business owners and executives, industry associations, chambers of commerce, banks, capital market participants, labor unions, academia, non-profit organizations and governmental institutions to join forces in a concerted effort to support the reestablishment of the manufacturing infrastructure of the United States.

The vital national interest can be served by institutions representing business, labor, local communities and government to join together to foster optimal conditions to incubate and develop SME manufactures. SMEs are a natural strength of the US economy. SME represent largest most vibrant sector of the economy and by combining the entrepreneurial drive and creative energy of SME’s with the pressing need for innovative manufactures; America can reestablish its ascendancy as a preeminent power in the global economy. The Hamilton Plan is designed to provide incentives and encourage the formation of support clusters to develop SME manufacturing.

The Hamilton Plan:

1. Adoption of World Business Council Standards for Sustainable Business
2. Establish Incubators for Targeted Growth Industries
3. Adopt Sound Governance, Risk, Compliance Practices (GRC)
4. Formation of SME Development Bank / Capital Formation Initiatives
5. Partnership Lyceums for Government / Business / Academic Institutions
6. Labor Unions as Preferred Stakeholder / Association Syndication Unions
7. Establish Cooperatives for Technology / Licensing / Commodities / Energy
8. Superfund for Progressive Tax Code / Universal Health & Benefits
/ Infrastructure/ Brownfield Remediation and Reclamation
9. Expand Public Education Funding & SME COOP Program
10. Support Millennium Development Goals

Capital Formation Key to Success

The Hamilton Plan in its entirety is designed to respond to the compounding economic and political crisis that is confronting the United States. The credit crisis, energy dependence, industrial stasis, trade deficits, geo-political instabilities, aging infrastructure and climate change are the result of long term systemic problems that government and industry has failed to address effectively. The Hamilton Plan advocates the adoption of the program to squarely address these pressing issues with the full understanding that it will require the concerted cooperation of all stakeholders to assure the continued development, security and prosperity of America.

The Hamilton Plan requires concerted focus of investment capital to fund development and to make sure that assets are allocated to channels that will assure optimal returns and that equity participation of stakeholders is protected and rewarded. The establishment of an SME Development Bank (SDB) is a structured investment vehicle and corporate institution that will focus, manage and administer capital formation initiatives to incubate and develop SME manufactures.

At its core, The Hamilton Plan seeks to preserve the free flow of investment capital to finance national economic development and empower SME manufactures. The Hamilton Plan is not a substitution nor in any way seeks to supplant the American free market system. The Plan is designed to unleash, pool and focus investment capital. The Plan leverages regulatory capital, compliance and governance. The Plan seeks to achieve strategic economic goals, build wealth and prosperity in US and realize broader goals and objectives to assure sustainable economic growth, ecological balance and global competitiveness.

SME Development Bank (SDB)

The SDB would be chartered to assure that capital is deployed to meet appropriate program projects and assure effective stewardship of shareholders capital. The SDB would be the repository for economic and regulatory capital. It would maintain capital adequacy ratios in conformance with Basel II directives. The SDB would serve as a fiduciary to distribute capital through local community banking channels. SDB governance would assure that program objectives, ownership equity, credit requirements, capital allocations, shareholder rights and income distributions are made to SDB shareholders.

Government funding of the SDB would consist of share purchases financed by capital from a national development Superfund. The Superfund would receive tax receipts from a progressive national tax program, budget allocations, licensing and royalty receipts, dividend reinvestment’s and capital gains proceeds from the sale of assets.

Shareholders in the SDB would be community banks, institutional fund managers, state/local/federal government, private equity firms, business owners, company management, associations, labor unions, employees, academic institutions, non-profits organizations. Different forms of capital would be recognized and used to purchase shares in the SDB. For example, local governments can purchase shares in the SDB with tax credits or land grants or infrastructure improvement projects; labor can purchase shares with sweat equity, academic institutions with intellectual capital etc.

Securitization of SDB shares can be created to trade on public exchanges. Any secondary market listings would occur after underlying assets have been properly seasoned. Shares in the SDB would offer terms of extended time frames for investment lockup and share redemption.

Community Bankers as Risk Managers and Distribution Conduits

Community Banks have a critical role as an SDB equity partner. The community bank is the primary channel by which equity and credit capital is provided to the SME. They are front line risk managers and advisors for portfolio companies. Community banks are astute relationship managers. Community banks understand local market conditions and can link assets and service providers to build support clusters and expanded value chains for SMEs. Community bankers will help SMEs focus on capital allocation strategies and support efforts in encourage growth and profitability.

They will provide help in the following areas:

Corporate Governance
Risk Management
Business Promotion, Acceleration and Development
Corporate Advisory Services
Information Services
Performance Evaluation Services

Community banks will be offered regulatory capital relief through its equity participation in the SDB. Community banks will form a joint back office (JBO) to address regulatory capital requirements for its participation and share ownership in the SDB. Community banks must continue fulfill capital requirements for retail banking and other lines of business in accordance with regulatory requirements of its governing agency. State regulatory agencies relating to SME banking regulation, enforcement and inspection would conform to a unified national banking regulatory agency.

Community banks will share in the equity appreciation of the SME and any distributions, dividends or corporate actions the Board of the SDB effects. The differentiation of credit and equity capital participation will be accounted for at the SDB level. Administrators for hedge funds and other Alternative Investment Vehicles have developed sophisticated partnership and shareholding accounting capabilities that can address questions of share class ownership, tranche construction and attributes, asset valuation, distributions and returns.

The community bank in working in conjunction with the SDB will help SME’s effectively manage risk, improve stakeholder communication, implement effective corporate governance that create sustainable business practices to assure long term profitability and growth.

The Hamilton Plan lays the foundation for SMEs to seize market opportunities. SMEs in partnership with community bankers must assess products and markets, business functions and critical success factors. Sufficiently capitalized by the SDB, the SME and local bankers will execute an action plan to support the corporate mission in line with the larger goals of The Hamilton Plan to build wealth for its shareholders and assure the future prosperity of America.

Risk: manufacturing, small and mid-size business, global competitiveness, middle class, national prosperity