According to the U.S. Small Business Administration, small (Main Street) businesses such as our local convenience stores, dentist offices, accountants, bookstores, etc. (with 1 to 19 employees) make up 98% of the businesses in our society. The SBA defines small business as businesses with fewer than 500 employees. According to the U.S. Census Bureau, out of these small businesses, 75% have no additional paid employees besides the owner and average revenues of about $44,000 annually. That number is significant because it means that most of the so-called “small businesses” are actually individual people that most likely operate as a sole proprietor.
These smaller business (or what Ken Evoy of SiteSell.com calls “small small businesses”) are continuously overlooked in regards to capital access. The SBA would like to make us all think that they are genuinely helping the “small small businesses” when in reality they are not. They are helping “larger small businesses” that only make up 25% of the total number of businesses considered small (with less than 500 employees). These “small small businesses” typically need microloans up to $50k or smaller “big” loans up to $250k.
In 2008 Terry Sutherland (from the SBA Press Office), stated that the average SBA loan was about $180,000 and 24% were under $100,000. In the current economy, the average SBA loan is about $485,000 and less than 9% are under $100,000. When you think about the number of “small small business” owners there are in comparison to larger businesses, you will understand why only 9% of them receiving funding through the SBA is completely unacceptable. Based on my professional opinion, it is pertinent that the SBA focuses more on actual small businesses because they make up so many of the businesses in our society.
Investing in “Small Small Business” Has Proven to be Beneficial
According to a study conducted by the microloan lender Accion Texas, “U.S. Microfinance: Small Loans, Big Results,” lending small amounts of money ($5,000 to $50,000) to “small small business” owners has contributed to the sustainability and growth of their businesses — specifically, job creation, sales, and revenue increases. The study found that 54% of participants who received a microloan from Accion Texas were able to hire nearly 6 new employees, 32% said their business revenue increase and 97% were still in business at least 2 years after receiving a microloan. This should serve as solid proof that an increase in lending small loans to “small small business” owners would be very beneficial to the growth of their businesses and the overall economy.
The SBA Can Help “Small Small Businesses”
It’s obvious that the SBA needs to revise its definition of a small business and reposition itself to focus on lending to businesses with the owner as the sole employee. Lending small amounts of money to lots of “small small businesses” will slowly (yet surely) increase jobs and business sustainability. The new SBA Administrator, Maria Contreras-Sweet, should be motivated and encouraged to lend to those that most banks and lenders often overlook. Small, small businesses are also critical part of our economy that should be given fair access to capital.