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."

Furia refers to his company's extreme hybrids as computers with cars built around them. The XH-150s prototypes are Saturn Vues, but the body could be just about any mid-size SUV. Affordability isn't an issue. Once in production, Furia estimates that the technology would add only about $1,000 to the price of the base vehicle after the new manufacturers hybrid tax credit is applied.

The only holdup is money to get started – AFS Trinity doesn't have $260 million lying around to secure the government loan it needs to take over a factory and start production. Dozens of small, progressive companies face similar challenges.

Furia believes the answer for his company could lie in the economic stimulus package. The American Reinvestment and Recovery Act of 2009 set aside $2 billion in grants for advanced battery development. If AFS Trinity can get $200 million from that grant program, it will have enough cash to secure $1.3 billion from the green retooling money. The green retooling money is expected to begin trickling out in April, and Furia is working hard to get his plan in front of the Obama administration.

"My approach is this: The car – it works. It's ready to go into production. We've got the engineering firm to convert a factory, we've got the technology, nothing needs to be invented, we just need money, and from there it will all come together. If you like the project, tell us how we can do it. There are many different ways to make something like this happen. We don't care which program makes this happen, we just need help."

The government could rewrite the rules for the advanced vehicle development loans. It could buy a factory from GM, Ford or Chrysler on condemnation. If GM goes into bankruptcy, a court-appointed trustee could also intervene in the best interest of the company's shareholders.

AFS Trinity's engineers are eying several possible automobile factories recently shuttered or on the chopping block. Reopening one of those factories would get experienced local workers back on the job quickly, and it would boost the local tax base, Furia says. For example, if GM decides to close its Spring Hill, Tenn., plant, where Saturn Vues used to be produced, AFS Trinity taking over the operation would keep autoworkers employed and Spring Hill, a town built around the auto industry, in business. 

"I think the Obama administration could seize on this business and this opportunity to show how meaningful this green transition is to the economic recovery. If we can recycle one plant and save those jobs, how many other plants could be retooled? This can't be the only one."

Furia says he tried talking to the Big Three about licensing the technology for their vehicles or creating a joint venture but he ran into a tribal mentality in Detroit:

"Their answer is, 'We'd rather do it ourselves.' But they're not doing anything."

AFS Trinity believes its plan meets everything President Obama is calling for to breathe life back into the economy. It would put people back to work, keep an otherwise-shuttered factory as a contributing part of the local tax base, and address the country's energy needs. Just switching to electricity for cars would reduce CO2 emissions by about 50 percent, even with coal power. And the power needed to charge up 180 million cars in the middle of the night, when power consumption is at its lowest and most cars would be recharged, is already available from the plants producing power now.

"If you make a car that people want, that people love, they're going to buy the car," Furia says. "That's going to move money into the economy."

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