Small Business Access to Capital: Critical for Economic Recovery

As the nation slowly emerges from trying economic times, it is difficult to overemphasize the contributions that entrepreneurs will play in creating jobs and expanding the economy. According to the Small Business Administration (SBA), small firms represent 99.7% of all employer firms, employ just over half of all private sector employees, pay 44% of total U.S. private payroll, and have generated 64% of net new jobs over the past 15 years. Clearly, any strategy to jump-start the economy must have a robust small business component that allows entrepreneurs to access capital and retain existing cash flow from operations in order to start, grow and expand their enterprises.

To that end, healthy credit markets are essential in creating an environment that enables capital to be properly allocated and risk to be priced accordingly. Well functioning credit markets provide entrepreneurs with the financing they need to commercialize innovation, seize marketplace opportunities, and compete internationally resulting in hiring and economic expansion. Conversely, when credit markets are in turmoil, paralyzed by uncertainty, or overburdened by the heavy hand of government, financial institutions are unable or unwilling to extend credit. This sidelines entrepreneurs from moving forward with opportunities that may generate jobs necessary to grow the economy and for economic prosperity.

With the unwinding of the housing market, a severe liquidity crisis, and the general deleveraging of the financial markets, the 2007−2009 economic downturn for small business owners and their employees was severe and widespread. To survive the sharp decline in the economy, Main Street businesses had to dramatically slash payrolls and reduce inventories. Frozen credit markets, in turn, accelerated the downward spiral of reduced consumer spending and weakened demand for goods and services, which resulted in additional layoffs and a prolonged and deep recession.