The State of U.S. Small Business: Progress Made, Work to Be Done

This is National Small Business Week. It has been so designated by the SBA. Our question is whether this week should be a time to celebrate accomplishments or to reflect on the work that remains to be done to continue to level the playing field for small businesses.
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In case you haven't noticed, this is National Small Business Week (Small Business Week). It has been so designated by the U.S. Small Business Administration (SBA).

In announcing Small Business Week, SBA administrator Maria Contreras-Sweet proclaimed that this is "...a chance to honor our nation's 28 million small businesses and to renew our commitment to fostering the entrepreneurial spirit that is central to the American experience." The SBA is holding a series of events this week to recognize small businesses and small business award winners.

Our question is whether this week should be a time to celebrate accomplishments or to reflect on the work that remains to be done to continue to level the playing field for small businesses. Given the contributions made by small businesses to the American economy and its revitalization since the Great Recession ended and their current status, we believe the answer is both.

The SBA reports that small businesses (enterprises with fewer than 500 employees) employed approximately half or 56.1 million of the nation's private sector workforce in 2012. The SBA further reports that small businesses accounted for 63 percent of the net new jobs created between 1993 and mid 2013 and 60 percent of the net new jobs from the end of the recession (mid-2009) to mid 2013.

Data from the payroll processor ADP indicated that 2014 was the best year for small business (firms with fewer than 50 employees) job creation since 1999. ADP's national employment report for the first quarter of 2015 showed that small businesses accounted for 45.6 percent (280 thousand out of 614 thousand) of jobs created. Using the SBA's definition (fewer than 500 employees), small businesses created more than 80 percent of the jobs in this time period.

No matter what definition or data is being employed it is clear that small businesses have been the primary engines of American job growth over the past several years. They have accomplished this in spite of a variety of problems since the Great Recession ended including major difficulties in managing cash flow, getting or renewing loans, and securing start-up capital.

In 2015, conditions for small businesses seem to be improving somewhat. According to a CNBC report, at the beginning of Small Business Week, Administrator Contreras-Sweet said that in spite of several challenges facing the sector, small business confidence had reached an all time high in the U.S.

That might be true based upon one study or data source. But, a review of a number of surveys suggests a much murkier picture.

The quarterly Wells Fargo/Gallup small business survey conducted in January of this year revealed that small business owners were the most optimistic that they have been in seven years. This was due to a variety of factors such as stronger revenues, improved cash flow and increased hiring.

In contrast, the monthly small business survey conducted by the National Federation of Independent Businesses (NFIB) in March found that small business optimism was at a nine-month low. This decline was attributable to the "rare occurrence" of a weakening on all ten components (e.g., plans to increase employment, earnings trends, and plans to increase inventories) of the NFIB Small Business Optimism Index.

Finally, the semi-annual Bank of America Small Business Owner study conducted in March showed a rosier perspective. Over 60 percent of owners believed that their business revenue will increase in the next 12 months and stated that they plan to grow their business over the next five years.

That's the good news from that Bank of America Report. The bad news is that the same study disclosed that 63 percent of the small business owners reported that their small businesses are still recovering from the Great Recession.

These are mixed results. They are evidence that while small businesses in general may have turned the corner they still need more fuel in their tanks and have quite a way to go in order to make it all the way up the street.

Their doing so is essential not only for a full economic recovery but also for renewal of the economy in a manner that maximizes the potential benefits for the American worker. This is so because -- unlike many of their corporate brethren -- small business owners tend to sacrifice personally to move their business forward and have an authentic and genuine appreciation for their employees.

The Bank of America study reports, "67 percent of small business owners would rather delay or reduce their own compensation than take any other course of action, such as delaying employee compensation or laying off employees." The study also found that virtually all (94 percent) of small businesses have employee appreciation programs with many having innovative features such as spot bonuses (44 percent); office recognition when an employee goes above and beyond (35 percent); and extra time off (34 percent).

As we noted in a prior blog, the government has taken steps to assist small businesses during these tough economic times. These include provisions for small business in the 2009 stimulus bill, the Small Business Jobs Act of 2010 and the Jumpstart Our Business Startups (JOBS) Act of 2012.

SBA has had a renewed energy and focus under the Obama administration. An interesting new initiative was the establishment of eight "ScaleUp Communities to spur job creation for growth-oriented small businesses." Other recent initiatives cited by Administrator Contreras-Sweet at the beginning of Small Business Week were: recruiting more credit unions and alternative lenders; streamlining the application process for small businesses; and excluding fees on SBA loans greater than $150,000.

That's a start. We need to intensify those efforts. The reason is simple. The numbers tell the story.

Small businesses are job creators. Small businesses create jobs throughout the U.S. and in neighborhoods across this country. Small business owners value and appreciate their employees.

We advocated some actions for consideration to pump up the volume of support for small businesses in another blog. We repeat them here because they are still relevant:

  • Pass legislation similar to the Small Business Jobs and Tax Relief Act
  • Conduct a systematic and rigorous examination of the areas that small businesses find problematic and implement a comprehensive program of reform to eliminate or correct them
  • Put SBA back in the direct lending business
  • Work with the private sector to develop a program modeled after American Express' Small Business Saturday held during the holidays into a small business weekend held monthly with appropriate advertising and media support and a different lead corporate sponsor each month

We would add to this list a place-based neighborhood revitalization initiative targeted to support main stream and main street businesses in poor inner city, suburban and rural areas.

This initiative would have local schools as the center piece and be targeted not to the fast growth companies that have substantial support already but to those existing "mom and pop" businesses and start-up entrepreneurial ventures that can bring stability and renewed energy to deteriorating neighborhoods. It should be created by studying the various enterprise and empowerment zone and other government initiatives attempted in prior years and developing best practice intervention models.

It is National Small Business Week in 2015 and America needs to think small to win big.

Small businesses have made progress since the Great Recession - but more work needs to be done. If it is, America and Americans will be better off and Small Business Week in 2016 will be bigger than ever.

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