Financing for small businesses is fuel for economy


It’s a tried and true stump speech staple: “Small business is the engine of our economy.” Politicians on both sides of the aisle laud the virtues of entrepreneurial risk takers and hail their resilience as being what embodies the best of the American dream. Yet for all the complimentary rhetoric, there is still a woeful lack of action to protect and empower small-business initiatives for the real job creators in America.

Small businesses create nearly two-thirds of all net, new jobs and employ half of the private-sector workforce. The stump speech rhetoric is real. But small-business owners know the process of growing a business is not as simple as opening a storefront. It takes dedication, commitment, skill, risk, patience and — perhaps most important — access to capital.

Access to capital is simultaneously critical and difficult for both aspiring entrepreneurs and existing small businesses to obtain, especially as the business grows, a dynamic that has grown more acute since the financial crisis and throughout the tepid, uneven economic recovery. As commercial small-business lending has declined because of tighter lending standards in the wake of the financial crisis, options for those looking to start or grow a small business have become harder and harder to find.

The latest Economic Report from the National Small Business Association shows that despite more small businesses having reported that they’ve been able to obtain adequate financing to further invest and expand their business than in the past four years, one in four small businesses still lacks much-needed financing.

Often, would-be entrepreneurs turn to the structure and proven record of growth that the franchise business model provides. Franchising enables small businesses to be launched with the training and support of a well-established brand, which continues to create jobs, despite the ongoing and very challenging economic and public policy headwinds facing the overall business community.

But even lending to franchises, like other small-business lending, has run into its share of challenges. While lending to franchise businesses has improved in the past year, the industry still had a projected 18.6 percent shortfall in 2012, which meant that nearly 94,000 jobs were not created and $12.9 billion in economic output wasn’t generated, according to a report commissioned by the International Franchise Association.

Under the leadership of Karen Mills, the Small Business Administration stepped in to fill the gap, providing a critical lifeline to the small-business community, to the tune of $60 billion over the past two years combined and $101 billion in new lending to more than 218,000 small businesses since the recession began.

But given all the hurdles that job creators have to navigate, it is no wonder that more than one-third of small businesses are not confident in the future of their own business, according to the NSBA’s Economic Report. This makes it all the more important that Congress avoid the specter of increased taxes and cuts to small-business loan guarantees due to sequestration.

The debate in Washington is raging around how to get our fiscal house in order — as it should be. With our national debt growing at an unsustainable rate, getting federal spending under control must continue to be a top national priority. But equally important is getting our economy growing again. Just as politicians say in a stump speech, small businesses are what grow the economy, and we need to see incentives for small businesses across the country to start up and expand operations and facilities so they can continue to hire more people. In addition to avoiding crippling regulations and taxes, improving access to capital also must be a priority. There is a direct correlation between access to capital and job creation.

The SBA has innovative and smart initiatives that make it easier for those small businesses that are growing to obtain capital. In addition to loan guarantee programs and outstanding technical assistance, their 504 “Debt-Refi” program, for example, enables small businesses to unlock capital currently locked up in old debt. For Robert and Mary Perez, who own and operate six Wendy’s franchises in Arizona, the monthly savings they achieved through “Debt-Refi” enabled them to hire three managers at higher starting salaries and increase staffing hours for existing team members. Those are real jobs, which add up as they are being created in communities in every congressional district across America.

As policymakers continue to grapple with how we get our economy growing again, small-business leaders, lenders and owners are coming together to encourage them to remember what works, what doesn’t work and to not cut off the fuel to the engine of economic growth they so love to praise.

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