Several times each day the Coleman Report drops into my inbox. It’s a collection of small business banking articles that give readers a pretty clear picture of what’s happening in the world of small business lending. This morning, an article published by TIME, but featured in the Coleman Report caught my attention: Let’s Stop Praising Small Business—and Fund More, by Gary Belsky. I couldn’t agree with Mr. Belsky more.
We’ve heard a lot over the last several months of the Presidential Campaign about how important small business is to the economy. However, when politicians speak, I’m not sure they’re saying what we’re hearing. In fact, Belsky does a great job of outlining what most of the politicians are calling small business.
“[A]s much as politicians glorify entrepreneurs, it’s unclear how crucial they are when it comes to job creation. For that matter, it’s a little unclear what we’re talking about when we talk about small business. Because one entrepreneur’s small business is another’s gigantic competitor. According to the SBA, for example, a small business is defined in one of the following ways, depending on the industry:
- Annual revenues of $750,000 or less for most agricultural industries
- $33.5 million or less for heavy construction industries
- $14 million or less for specialty trade contractors
- 500 employees or fewer for most manufacturing and mining industries
- 100 employees or fewer for wholesale trade industries
- $7 million or less for most retail and service industries
“That’s a wide range of definitions, especially given the way politicians and Chamber of Commerce types like to portray entrepreneurs as an urban version of the family farmer. In fact, even the SBA’s small-business loan data is based on a sort of proxy measure. The agency defines a loan to small business as any business loan of $1 million or less. So a $1.1 million loan to a chain of dry cleaners with $5 million in revenues doesn’t get counted, while a $500,000 loan to a 150-worker auto parts wholesaler does.”
Is there any wonder why it’s so hard for anyone, including small business owners, to understand what the Presidential candidates are talking about?
I’ve spent my career working in small businesses. I started driving the delivery truck and working in the warehouse for my Dad’s small industrial supply business as a teenager, what I think most people in the U.S. would consider a small business. I also spent several years in the marketing department of a software company with over 200 employees and revenues in the $10s of millions. I have to admit, it didn’t feel like a small business, but it certainly was by the SBA’s definition.
I imagine that over the coming months as November looms larger, we’re going to hear a lot about how important small business is to this candidate or that candidate, but I doubt we’ll hear anything about what they’ll do for the small businesses you and I identify with on Main Street. What’s more, most bankers want a credit score of 720 or better, three or four years in business, and a fat savings account before they’re willing to take a risk on a small business loan. “If I had that I wouldn’t need a loan!” I sometimes heard my father say in a phone conversation with his banker.
“The real Little Engine That Could when it comes to job creation, as show in a 2010 study from the National Bureau of Economic Research—‘Who Creates Jobs? Small vs. Large vs. Young’—is new companies, regardless of their size,” writes Belsky. “As the authors (John Haltiwanger, Ron Jarmin, Javier Miranda) concluded: ‘Firm startups account for only 3% of employment but almost 20% of gross job creation. The fastest growing continuing firms are young firms under the age of five.'”
I find it ironic, from a banking perspective; the very fountain of job creation (politicians on both sides of the aisle claim they want to promote) fail to qualify for a small business loan at most banks. I have to ask, how do we create an environment where start-ups can thrive (and sometimes fail or struggle), while creating jobs (which is what they do best), and successful startups can blossom into thriving enterprises?
“When politicians criticize government for small-business-strangling regulation, they’re being disingenuous.” continues Belsky. “Most small businesses fail to grow because that’s the nature of the beast. 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 recognize that there is no simple answer to the financing needs Main Street businesses face every day, but it’s long past time for politicians (both red and blue) to come to the table with ideas that will help the very entrepreneurs that are the most likely to really create jobs (and they aren’t all sexy SaaS software companies either).
“Rather than arguing over who’s more supportive of existing small-business owners—or harping on regulations, which are not the problem; or worrying about weak borrowing, which is most likely a cyclical phenomenon—both candidates should explain how they’d help wannabe entrepreneurs take the big leap. Because the more of those folks we can guide from fantasy to reality, the more jobs we’ll create down the line,” says Belsky.
I don’t think I could have said that better myself.