Not too long ago the Q2 Pepperdine Private Capital Access Index reported slow recovery in small business lending. “This study indicates small businesses are gaining a little ground. We still see the smallest businesses struggling to access capital the most, an indication their recovery is tepid at best. These companies need easier access to lending streams,” writes Dr. John Pagilia, director of the Pepperdine Private Capital Markets Project.
The report is very consistent with some of the ideas Lendio co-founder and CEO Brock Blake published on Forbes during Small Business Week. I’m convinced one of the biggest problems facing Main Street is the SBA’s definition of small business. Despite the fact that most of the Main Street businesses you and I can relate to are identified by Pepperdine as having net incomes less than $100,000 (56 percent), report incomes between $100,000 to $500,000 (24 percent), and have less than five employees (68 percent), the SBA considers companies with several hundred employees and $35 million in revenue as small businesses too. I’ve spent my entire career working in small business. I owned and worked in companies with three to five employees (placing me in Pepperdine’s 68 percent list), and I spent five years in a tech firm with 250+ employees that did $30 million in revenues. The latter didn’t feel like a small business to me—however, the SBA would consider them as such.
I find it ironic that the very businesses politicians like to hold up as the backbone of the U.S. economy aren’t able to access capital because, among other things, they don’t need enough. At Lendio, 59 percent of the small business owners who visit our site are looking for a loan of $50,000 or less. It doesn’t really take much to keep small business alive and thriving, even though (according to Pepperdine) 59 percent of them say it’s difficult to raise new business financing. In fact, according to the Index, only 33 percent of small business were able to get a loan according to the report. What’s more, 41 percent of small business owners had to tap into personal reserves over the course of the last three months. I don’t think that’s a good indicator of long-term small business growth.
As I speak with small business owners all across the country, access to capital is one of the biggest challenges they face. Unfortunately, as long as the SBA loan programs are geared to help small businesses on the “big business” side of the group, the Main Street businesses that keep our local communities alive and collectively have provided the biggest block of employment since the 70s, will continue to struggle. And, the trickle down will negatively impact communities large and small all across the nation.
I’ll admit that there is no simple answer to the financing needs of Main Street and acknowledge that the majority of those businesses don’t make it to their fifth birthday, but “…that’s the nature of the beast,” argues Gary Belsky, writing for Time. “What you want, from a job-creation perspective, is government to foster an environment in which starting a business—period—is easy. It’s a numbers game really; since most small business will fail or stall, you want to throw as many ideas on the pavement as possible so that the small percentage of start-ups that thrive is part of an increasing pool of new companies. The success rate may not change, but the absolute number of successes will.”
I’m convinced part of the answer to Main Street’s challenges regarding small business financing could be better addressed if the SBA started looking at the needs of Joe the plumber differently than his much larger siblings on the upper end of what the SBA considers a small business. I think it’s time the politicians stopped talking about how important Joe and his peers are and started doing something about it.
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Small business evangelist and veteran of over 30 years in the trenches of Main Street business, Ty makes small business best practices, tips and advice accessible by weaving personal experiences, historical references and other anecdotes into relevant discussions about leading people, managing a business and what it takes to be successful. Ty writes about small business financing and other best practices for Lendio, in addition to sharing his passion for small business every week on Forbes.com.