Entrepreneurship Is Suffering, Here is How Access to Capital Can Help.
Increasing access to capital will boost startups, which in turn boosts the American Economy.
Recently, in a Washington Post article, JD Harrison talked about how, although the economy is on the recovery, entrepreneurship is suffering.
“By many accounts, the American economy is roaring back. Hiring is accelerating, wages are rising and the labor force is growing. Confidence among business leaders regarding the year ahead is on the rise, too.
In one area, though, the economy seems to be in serious trouble – and that’s entrepreneurship…
New research shows that the country’s rate of new business creation, which peaked about a decade ago, plunged more than 30 percent during the economic collapse and has been slow to bounce back following the recession.”
Now there’s a lot of theories out there on why there aren’t as many businesses starting up as there used to. Some say it’s student loans, some say it’s the current political climate. My personal opinion is that it’s access to capital.
99% of American companies are small businesses according to recent data by the SBA. That means that 99 out of 100 job sources have fewer than 500 people. Startups contribute to this gigantic network of small businesses, filling the gaps when businesses fail. Not only that, they’re constantly inventing new ways to do things, while helping the American economy continue to grow.
Maria Contreras-Sweet, the Administrator of the SBA, recently stated that there needs to be a change.
“If there’s broad agreement that small businesses are the engine that powers the American economy, shouldn’t it be easier to fuel the tank?
Access to credit continues to bedevil too many U.S. entrepreneurs. Eighty percent of small business loan applications are rejected, according to some industry estimates, and more applications than we can count are never filed because of the difficulty of getting an appointment with a loan officer.”
Clearly, the SBA is heading in the right direction, they’ve recently unveiled a lot of initiatives to get banks lending more to small business owners. Charles Green of AdviceOnLoan said “Contreras-Sweet seems to be pushing from both sides. The SBA is trying to grow bank participation, efficiency–and hence profitability–in SBA lending, and essentially ‘grow the book’ of every bank’s SBA loan business.”
So the SBA is pushing to help out these new businesses, but there’s a group of lenders that have been doing this all along.
Brock Blake, CEO of Lendio, said in a recent Forbes article, “I’ve written before about how important access to capital is to small business. And, how non-bank alternative lenders are the real innovators in small business lending right now.”
Alternative lenders specialize in providing loans to small businesses that might not fit the profile that traditional banks and lenders are looking for. A lot of businesses have been started with help from these alternative lenders.
Harvard Business Review published a study showing that online alternative financing has funded over 11 billion dollars in small business loans. Let’s say the average alternative loan is around 25,000 dollars, that means online alternative financing has already helped over 400,000 small businesses find capital they might not have had access to. As we’ve seen with the recent IPO’s by OnDeck and Lending Club, the space is heating up fast.
To me, I’m really surprised more emphasis hasn’t been put on the lack of startup credit. Access to capital is the fuel that drives the American economy, and if we can maintain the economic growth we’ve had and get startups going again, we’re going to see the economy reach heights we haven’t ever seen before.