Federal Loan Rules Stymie Innovation by Shutting Out Small Businesses

In the United States right now, small, innovative companies are ready to launch clean energy projects that could revolutionize the American auto industry.

They have proven prototypes and business plans to rejuvenate shuttered factories and put people back to work. All they need is the money to begin work. And there’s the rub.

The money is there, but they can’t get it.

While the credit crisis has cut off funding from banks, the federal government is sitting on a $25 billion Advanced Technology Vehicles Manufacturing Loan program meant for retooling factories to produce more fuel-efficient vehicles. That money could be an engine for innovation, but small businesses are effectively shut out because the loans require recipients to put up at least 20 percent. To retool a factory for production, 20 percent easily equates to more than $200 million.

That 20 percent poison pill penalizes small businesses that are technology-rich but cash-poor, says Ed Furia, a former EPA regional administrator whose company AFS Trinity Power Corp. has developed an extreme hybrid that gets 40 miles per charge and allows an off-the-shelf lithium ion battery to go 150,000 miles, compared to a standard hybrid’s 25,000.

“The Obama administration has to take a second look at this legislation," Furia says.

"If you think that small businesses are the source of innovation, and if you think that the money for innovation is going to come from this program, then you’re going to have to make it friendly to small business. Don’t just spend it on the big car companies that have resisted developing efficient technologies. In the case of GM, Chrysler, and Ford, we've dumped a ton of money into them and they don’t even have a plan.”

Byron Kennard, executive director of the Center for Small Business and the Environment, has been working with the White House Council on Environmental Quality to help the new administration understand how small businesses could be key to solving the country's energy problems – and what Washington needs to do to lift the barriers.

Small businesses make up about 80 percent of the clean tech industry, and they have a proven track record of innovation. As Kennard likes to remind lawmakers,

“Entrepreneurial booms got us out of the last five recessions.”

For entrepreneurs to get the economy out of its latest recession, small businesses need access to credit. They need federal grants, rather than high-cost loans, Kennard says. Federal procurement could help as well by putting new technology to work in government vehicle fleets that need fuel-efficiency upgrades anyway.

The first company Kennard mentions when he talks with federal officials about the potential for small businesses to resuscitate the American economy is Furia’s AFS Trinity "because it is green, equipped and ready to go."

AFS Trinity’s extreme hybrid technology drew a lot of media attention at the Detroit Auto Show in January for its ability to solve one of the electric vehicle’s biggest problems: battery power.

The Achilles heel for electric vehicles and plug-in hybrids is how much acceleration stresses its batteries. As Furia explains, "batteries like to be sipped – they don’t like to be gulped." AFS Trinity re-envisioned the problem and created a combination lithium ion battery-ultracapacitor system. The ultracapacitors store energy electronically, and they don’t wear out.

“In our vehicle, the batteries are always coasting. If you have to accelerate, the capacitor can deliver all the energy quite fast – you can go zero to 60 in 6.9 seconds. The capacitor loves to gulp, and it can do it over and over and over again."

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