Not too long ago I read a very interesting article written by Gary Belsky and published by TIME, challenging Washington to stop praising small business and start funding.
I couldn’t agree more.
We’ve heard a lot this election cycle 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.”
I think many Americans are confused as to what politicians are talking about when they talk about small business. For most small business owners, I think we picture Main Street and the types of businesses we regularly patronize. With such a convoluted definition by the SBA, no wonder it’s so difficult to understand the candidates on either side.
I started my small business career driving the delivery truck and sweeping the warehouse floor in my Dad’s small industrial supply company—which is what most folks would consider a small business. I also spent several years in the marketing department of a software company with over 200 employees and revenues over $30 million. I have to admit, it didn’t feel like a small business, but it certainly was by the SBA’s definition.
Lest anyone think I’m casting stones at any one particular party, I’m not—there’s plenty of blame to go around. What’s more, I’m sure we’re going to hear more and more about this topic in the coming weeks, but I don’t expect we’ll hear anything about what they’ll do for the small businesses you and I identify with on Main Street. Most bankers want a credit score of around 720, 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 phone conversations with hisbanker. I wonder how much that hinders job creation?
“The real Little Engine That Could when it comes to job creation, as shown 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.”
Whether you’re a Republican or Democrat, shouldn’t we all be asking those politicians who claim they want to promote small business, why the banks that were “too big to fail” don’t seem too interested in small businesses that need financing for working capital or funding growth? Shouldn’t they (the politicians) be trying to figure out how to encourage financial markets that contribute to the job-creation incubator that is small business?
“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 of Main Street. I do think it’s time politicians (both red and blue) came to the table with ideas that will help the very entrepreneurs that are the most likely to really create jobs. I think it’s time to stop arguing about who is more small business friendly, and start explaining what they’re going to do to create an environment where more entrepreneurs can take the big leap.
“…[T]he more of those folks we can guide from fantasy to reality, the more jobs we’ll create down the line,” says Belsky.
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 also shares his passion for small business every week on Forbes.com. Follow Ty @tykiisel.