Surveys show that five years after the 2008 financial crisis and before the sequester, small businesses still have a hard time getting loans. And the smallest of companies, with the most potential for growth, have the most difficulty accessing credit.
A recent survey commissioned by the American Sustainable Business Council and the Main Street Alliance asked owners of smaller companies, those with two to 99 employees, if access to sufficient loans and credit at reasonable rates was a problem. Almost half (45%) said that it was at least somewhat of a problem. This survey skewed heavily towards very small businesses – so called micro-businesses – with 38% of the businesses having two to four employees, and 52% total having fewer than 10 employees.
If we’re concerned about job creation, access to credit for small businesses needs a boost. What can be done?
My 25 years of experience in the micro lending field have led me to understand that the single most effective way to increase the access to capital for small businesses overall is to support business assistance programs.
Consider Jose and Rosie Rodriquez in California. They wanted to expand their tire company to include a car wash and audio store, but they didn’t qualify for a loan. After two years of business and credit assistance from El Pajaro Community Development Corporation, they qualified for a $1.5 million SBA loan from a community bank. They have 16 employees in King City, an area with high unemployment.
Across the country, business assistance programs such as Small Business Development Centers (SBDC), Women’s Business Centers (WBC), non-profit entrepreneurial training organizations such as El Pajaro and non-profit lenders create the pipeline of loan-ready borrowers. This is particularly important for communities struggling to emerge from our prolonged Recession, in which home equity was lost and banks closed branches.
Micro-businesses need management tools and skills; they need networks and support systems; and then they need access to capital.
Without business technical assistance – think solid business plan, robust cash flow statements, marketing plan – new or struggling business owners can’t qualify for loans– therefore slowing the job creation process. Business owners who receive solid, effective entrepreneurial training and assistance have an 80 percent success rate, compare to the 80 percent failure rate of small businesses that don’t. Also, businesses that receive assistance create two jobs in addition to their own over a three-to-five year period on average.
In 2011, members of my network organization, CAMEO (California Association of Micro Enterprise Opportunity), served 21,000 businesses with training, business assistance and small dollar loans. These firms, which were largely startups, supported or created 37,000 jobs for California and generated $1.5 billion in economic activity – raising state revenues, decreasing demand for government services and contributing to local economies. Similar success is possible in every state.
Despite its positive impacts on the economy, government on all levels is cutting the funding for business assistance programs. Across the country, many organizations were funded with Community Development Block Grants, but those funds were slashed. In his FY 2014 budget, President Obama zeroed out the small PRIME program, an SBA program that funds non-profit entrepreneurial training programs and cut funds for SBDC’s and WBC’s – all of which have proven effective. Meanwhile, the SBA budget shifted $40 million to an unproven pilot program.
We know what works in improving the access to capital for small business. Everyone – from business owners to lenders and policy makers – must recognize that the first critical step in the capital access process is business technical assistance.
Congress should restore the PRIME program and fully fund SBDC’s and WBC’s at a meaningful level, so that business support organizations can continue to help small businesses create jobs.