By John Arensmeyer
The recession and our delayed economic recovery have left small businesses across the country struggling to keep their doors open, not to mention turn a profit. Weak demand has led to poor sales—and as if that isn’t enough, these issues have been exacerbated by an additional set of problems preventing small businesses from resuming their traditional role as the nation’s primary job creators.
Small businesses are instrumental in rebuilding the economy—they create 65 percent of new jobs. But right now, there are significant roadblocks preventing them from putting unemployed Americans back to work. Small firms lack access to credit, which prevents them from growing and hiring. They deal with serious barriers to innovation. And their health care and energy costs are skyrocketing. Combined, these factors sap small business owners’ profits and are disastrous for their bottom line, making it nearly impossible for them to stimulate the economy. The solutions to the country’s economic problems start with small businesses. But they need help growing their firms and creating jobs in order to make a difference. To help them thrive, the government must pursue smart growth policies that will get small businesses back on their feet.
Small businesses are the engine of our country’s job growth: they employ half the nation and account for 44 percent of U.S. payroll. These figures underscore just how deep our nation’s roots in small business run. For these businesses to succeed, they need federal support. Yet the federal government spends a meager portion of its budget—just 0.026 percent—on the Small Business Administration. By implementing policies, developing new initiatives and protecting existing measures that help small businesses, lawmakers can give them the boost they need to rebuild America.
Give us some credit
One major area where small businesses need a hand is with access to credit. New opinion polling we released on Jan. 26 with advocacy organizations Main Street Alliance and the American Sustainable Business Council shows an overwhelming 90 percent of small business owners nationwide agree the availability of credit for small businesses is a problem, and 61 percent agree it’s harder to get a loan now than it was four years ago. A recent Pepperdine survey also found just 44.5 percent of small business owners who sought loans in the past year were able to get them, and 34.8 percent of the survey’s respondents agree that, of all the policies with potential to create jobs in 2012, increased access to credit is the most likely to do so.
The reason small firms need access to credit is so they can grow and hire—or sometimes just so they can get started. Take Laura Smith, for example. The 25-year-old owner of Yola, a fresh parfait bar in Washington, D.C., found that getting loans was virtually impossible for start-ups and aspiring entrepreneurs who don’t have collateral. Not only did Laura need her father as a co-guarantor in order to start her business, but Mr. Smith had to put up his own home as collateral.
If small businesses like Laura’s are going to succeed and help the economy thrive, it is crucial the federal government help boost state development funds, and support the Small Business Administration’s and community banks’ lending programs. In addition, increasing credit union lending authority would have zero cost to the federal government and is broadly supported by small business groups and credit unions. Small business owners need, and want, these types of policies, as the Pepperdine survey shows. What’s more, our own research reinforces Pepperdine’s findings: 86 percent of small employers we surveyed in June and July believe Washington doesn’t understand how small business works and doesn’t provide them with enough help. It’s time lawmakers step up to bat for small business.
The soaring cost of health care equals a sickly bottom line
Along with access to credit, another major problem we hear about from small businesses is the high cost of health insurance. Small business owners want to offer health coverage, but our research shows 86 percent cite cost as the biggest barrier. The Affordable Care Act, passed in March 2010, aims to lower costs for small businesses through provisions such as tax credits and health insurance exchanges, while also reducing the federal deficit.
New health insurance exchanges are the single most important provision in health care reform for small businesses. These online marketplaces will allow small businesses to pool their buying power and drive down the cost of coverage. This way, they’ll reap savings they can then use to expand and hire. Additionally, the small business tax credits—which are available to firms with fewer than 25 full-time equivalent employees with average annual wages less than $50,000—can help many small businesses better afford health insurance. Our research shows 4 million small businesses (84 percent of all firms with 25 or fewer employees) are eligible. And opinion research we released in January 2011 found that 33 percent of small employers said they would be more likely to provide health coverage to their employees because of the tax credits and the exchanges. Mark Hodesh is a perfect example of how this works. The owner of Downtown Home and Garden in Ann Arbor, Mich., qualified for a $15,000 tax credit this year. Knowing he had that credit gave him the confidence to add another person to his staff.
If more entrepreneurs like Mark were aware of this major benefit available to them, they’d be better positioned to save some cash on health care costs and hire more workers. Unfortunately, not nearly as many employers who are eligible for the credits have taken advantage of them. This is largely due to small business owners’ overall unfamiliarity with this provision of the Affordable Care Act. What’s more, opponents have spent a tremendous amount of time and resources discouraging small business owners from taking the credits for political purposes, which essentially amounts to them discouraging small business owners from taking free money. Whether it’s a couple hundred dollars or thousands, any extra money helps in this unforgiving economic climate. Granted, not every small business owner will be able to hire a new employee like Mark Hodesh was able to. But as a former small business owner, I know that when running a small company, every dollar counts. For the sake of these small businesses, it’s imperative the government and small business groups step up their outreach efforts and spread the word about health care tax credits and other provisions in the law that will help boost small firms’ bottom lines.
Energy drain
Small business owners’ health care bills aren’t their only costs skyrocketing these days. The rising cost of energy is another drain on small firms’ coffers. We released opinion polling in September 2011 showing small business owners believe bold clean energy policies will help save them money, which they can then invest in their business. A whopping 87 percent of small business owners believe improving innovation and energy efficiency are good ways to increase prosperity for small businesses. Among that percentage is Jody Gorran, owner of Aquatherm Industries, Inc. in Lakewood, N.J. As the owner of a solar pool heating company, Jody would directly see the impact of bold environmental policies.
While Jody is thrilled by the opportunity to create jobs in a relatively new market, he knows small business owners outside the clean energy market would benefit from higher energy standards, too. Strong national standards could prompt small business innovation at large, since demand would grow for services and products to help companies adjust to compliance standards. In past years, stronger national standards for clean energy have brought small firms long-term financial gains that far outweigh the upfront costs of compliance, and there’s no reason to expect this trend to stop.
More jobs mean more customers
We know smart clean energy policies will help small business owners save money and create jobs. But with unemployment still high, policymakers must act fast to address the jobs situation. Whether it’s implementing robust energy policies or passing parts of the American Jobs Act, immediate efforts to prompt job creation are critical. The American Jobs Act, introduced in September of last year, included provisions like payroll tax cuts that could bring small businesses new revenue to expand and hire. Although the plan died in the Senate, there are still components of it that can jump-start small business hiring if enacted. For instance, the plan includes payroll tax cuts and a provision for 100 percent expensing on capital goods. These are exactly what small businesses need if they are going to save enough money to hire new workers or purchase additional equipment for their business.
There are also elements of the American Jobs Act that would help rebuild America’s infrastructure by investing in roads, bridges and schools. This would create tremendous opportunities for small businesses. Not only do many small firms participate directly in these building projects, they also run the hotels, coffee shops, restaurants and other businesses that serve people working on those projects. Our new opinion polling shows small business owners support key provisions of the plan, especially when it comes to investments in infrastructure: 69 percent of small business owners support investing $50 billion in infrastructure projects that would create jobs, and 59 percent support creating a nationwide wireless network and expanding access to high-speed wireless services.
America’s small businesses also would see new revenue if certain tax policies were refined. Provisions included in the American Jobs Act would fill this need. By closing loopholes that allow large corporations and the very wealthy to get tax breaks that hardworking entrepreneurs don’t see, small businesses would benefit.
Another provision of the president’s jobs plan that shouldn’t end up on Congress’s cutting-room floor deals with trade and manufacturing sectors. It’s vital that small business owners have helpful resources to connect them with trade opportunities and help them find trade partners. By working toward balanced trade agreements that make it easier to export goods, the federal government will help small businesses strengthen their trade networks. This creates a cycle of prosperity that will result in more jobs, which leads to more spending power for consumers. This creates more sales for small businesses, which equals even more jobs.
Regulations are not the issue
Small business owners are pragmatic and bottom-line oriented. For their companies to flourish and for them to create new jobs, they have to be. That’s why many of them support government as a facilitator for setting practical rules of the road that promote small business growth. Our research confirms this: 46 percent of small business owners say the biggest problem facing their business is economic uncertainty, while only 13 percent say government regulation is their top concern.
That said, regulations can sometimes be a pain in the neck for employers, and regulations often affect small businesses more than big businesses. We agree that any regulations impacting small businesses should be carefully scrutinized. But in recent months, there has been an excessive amount of talk over regulations as small firms’ biggest obstacles to growth. This is an inaccurate prognosis of the small business condition. When examining the regulatory process, wielding a legislative hammer rather than employing a judicious and precise scalpel risks quashing regulations that are a boon to small businesses along with those that are a burden. As our research has shown, there is a constructive role for government in passing laws that stimulate small business growth.
The Great Recession has lingered long enough. Small businesses and the Americans they employ—or can no longer afford to employ—are strapped for cash and desperate for a solution. While the answer to our economic woes clearly lies in the job-creating engine that is small business, the path to our recovery must be forged carefully. The road back to a strong economy runs down the Main Streets of America, but these businesses can’t ignite economic greatness alone. The government must act now to implement policies that will get small businesses up and running. Only then will the rest of the nation be able to rise from the recession’s ashes.
John Arensmeyer is the founder and CEO of Small Business Majority.
