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When Small Business Does Well, America Does Well

Small businesses that grow into medium-size and large businesses are the key to America’s future, President Barack Obama told an Ohio audience this week (Feb. 22) at the Winning the Future Forum on Small Business.

“When our small businesses do well, America does well,” he said.

A number of small business owners there told him that one of the largest factors holding back the growth of small business was their lack of access to credit.

But is the answer that easy?  Is increased access to capital alone sufficient to ensure the health of small businesses in this country? What else should government do to spur small business growth and help continue the recovery of the economy?

To find answers, BusinessNewsDaily reached out to a number of authorities on small business. Here’s what we heard.

“Our research indicates that poor sales and uncertainty continue to be greater problems for significantly more small business owners than access to credit. That said, a majority of small business owners able to judge credit think it is more difficult to obtain than one year ago. Note that there is no “normal” credit market.  People expect that the credit situation should return to what it was five years ago – which was totally unsustainable.  Historically, access to credit has fluctuated.  And, of course, one of the biggest contributing factors to the credit market ”problems” is the fact that the real estate market is still so unstable.

“We’d like to see more efforts at the federal level that would give small businesses more fairness, more freedom and more certainty. That comes from maintaining low individual income tax rates (most small business owners file their taxes as individuals), limiting the burden of regulations (which disproportionately impact small firms), and health care reform that reduces the cost of insurance for small businesses and the self-employed.”

Jean Card, vice president for media and communications, National Federation of Independent Businesses

“The president is right when he looks to  small business growth and technology innovation to spur economic recovery, but access to capital continues to be where we are hurting the most.  The president can make a real difference if he can deliver on his State of the Union promise to provide $30 billion in small business loans. Access to global markets is also vital for technology entrepreneurs. Protecting intellectual property and eliminating artificial barriers to trade are key areas the administration can help small technology businesses grow.”

Morgan Reed, executive director. Association for Competitive Technology

“I don’t think the administration is doing enough because it’s focused on solving the problems of a small number of businesses, mostly high-tech startups and not the mass of typical small businesses. “The reality is that most job creation comes from a lot of “Joe the Plumbers” adding an apprentice and a lot of bakery owners adding one new baker and lots of hair dressers adding one stylist.  These people are not hiring and we need to get them to do that again. What the data show is holding these people back from hiring is little demand for their products, the high cost of health care for employees,  the rising cost of adhering to federal regulation, and the decline in home equity values to finance businesses.  If we want to stimulate the existing small businesses to each add a small number of employees — which is the most effective way to enhance employment — we need to address these kinds of big problems.

“Similarly, the administration has focused on expanding small business administration loans, but only about 1 percent of small businesses in this country get SBA loans.  By contrast, one quarter of small business owners use the equity in their own homes to finance their businesses.   In work I’ve done with colleagues at the Cleveland Fed, we’ve found that the decline in housing prices wiped out about $25 billion in potential credit to small businesses.   Where is the replacement credit for that money?  It can’t come from expansion of the SBA loan program because the SBA loan effort isn’t big enough to replace it.  If you want solve the problems small businesses face with financing, you need to focus on things like home equity loans.”

Scott Shane, A. Malachi Mixon III professor of entrepreneurial studies, Case Western Reserve University

”Access to credit is a significant problem. It’s been terrible. Even companies who had credit at one time have seen it dry up.  We need much more aggressive efforts to make sure businesses can get their hands on credit. The only thing that’s going to get us going again is to grow.
”Technology and clean energy will be the drivers of growth. Green technologies are important. Countries like China and some European nations are pushing their economies forward on the notion of clean energy. We run the risk of losing our edge in technology if we can’t figure out how our economy can benefit from it. We have to make sure that we’re translating our core technologies into operational businesses.”

John Arensmeyer, CEO, Small Business Majority

"Access to capital certainly is a challenge for small businesses. But government should not make the mistake of trying to be the provider of such capital. Instead, government needs to establish a positive environment in which entrepreneurship and investment can flourish. That mainly means -- after protecting life, limb and property, enforcing contracts and providing sound money -- getting out of the way. Unfortunately, over the past three years, government has been very much in the way, and through excessive spending and regulating, has created a great deal of uncertainty that has reduced both investment and credit. To sum up, the best actions government could take right now would be to cut government spending, deregulate, significantly and permanently reduce taxes, and let free enterprise thrive."

Raymond J. Keating, chief economist, Small Business & Entrepreneurship Council