As part of our yearlong project "The State of Small Business," Business News Daily plans to report on the small business environment in every state in America. In this installment, we asked a few of Pennsylvania's roughly 1 million small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.
Pennsylvania's entrepreneurs are not greedy; their state's business climate is relatively stable and they know it. But the ho-hum nature of the Keystone State's business community has visibly left many hoping for more. Pennsylvania boasts manageable tax rates, a growing labor force as well as growing employment, and easy access to some of the most sought-after markets on the East Coast. Still, the state's economy isn't flourishing as many would hope, even if it isn't facing as serious economic issues as some other states.
Access to capital remains restricted to many businesses, and for most small business owners, obtaining a bank loan means personally guaranteeing it. And while it's not impossible to get capital, banks have definitely tightened their belts since 2008. Pennsylvania's gross domestic product also lagged behind the national average in 2014, and saw a very average compound annual growth rate through the past decade. Overall, entrepreneurs are happy to be in Pennsylvania and count their blessings, but they won't be content with mediocrity forever; small business owners are looking to the future in hopes of improvement.
Healthy, growing labor force
Pennsylvania is one of a small handful of states that has experienced great growth in the employed population, while also experiencing growth in the labor force as a whole. As a result, as employment numbers have grown, so, too, has the unemployment rate, up from its low of 4.6 percent at the start of 2016 to 5.3 percent in May, according to the U.S. Bureau of Labor Statistics. This presents a good opportunity for those employers with positions to fill, and entrepreneurs report that skilled labor is commonly available for more technical jobs.
However, the job growth has kicked into gear so quickly – in the past six years the state's economy has added about 4 million jobs – that some employers are still having a difficult time benefiting from the current state of the labor market.
"Although the area has plenty [of good workers and skilled talent,] it doesn't seem to have enough for the demand of growing businesses and a healthy economic forecast," Kornel Kurtz, president of web design and marketing company WebTek, said.
Proximity to large markets
Not only is Pennsylvania home to Philadelphia, a large city with a reasonable cost of living, it's also located in the same geographical neighborhood as some of the biggest cities on the East Coast. This makes establishing business connections, bringing in potential investors, and accessing other nearby large markets far easier for Pennsylvania's entrepreneurs.
"With its proximity to cities like NYC, Boston and D.C., and its growing tech community, Philly has become an attractive place for top tech talent," Aaron Rovner, VP of business development and marketing at contractor quotation platform ServiceWhale, said. "And the train ride for a VC coming from NYC to Philly is a little over an hour — definitely not a big concern, especially if the company has a promising business model."
Manageable tax rates
When it comes to taxation, Pennsylvania is a mixed bag. While it has one of the highest corporate income tax rates in the country at 9.99 percent, it also has a low personal income tax rate of 3.07 percent. This means for pass-through entities, like LLCs, business owners are taxed at the personal income tax rate. For C-Corps, for example, the higher corporate income tax rate applies. In addition, Pennsylvania levies a moderately high 6 percent sales tax rate. Even so, most small business owners we spoke to said they find the tax climate manageable.
"Philadelphia tax rates are actually somewhat high compared to other major metros around the country. However, because we have so much more opportunity and a very reasonable cost of living, it balances out," Rovner said.
"In Pennsylvania, [the regulatory and tax environment] really has not changed that much over the last decade. Overall, Pennsylvania is still a good place to manufacture in the U.S.," Endrea Kosven, founder of Legacy Chiller Systems, said.
Access to capital
Much of the country is having a difficult time accessing capital. Of course, getting a loan is still possible for a business with a strong balance sheet and a decent credit history, but even for those entrepreneurs, many larger institutions have tightened their belts since the financial crisis. The result is a somewhat challenging process to access credit for many small business owners in Pennsylvania.
"Banks are willing to lend money, but only if the small business owner agrees to personally guarantee it," Bob Bentz, president of mobile marketing agency Purplegator, said. "This is a big problem for small business owners, because their larger competitors have access to capital without such guarantees."
As is the case in many states with less-than-stellar access to capital, entrepreneurs said they've frequently turned to smaller, local institutions for assistance. Typically, local federal credit unions or small banks are more willing to partner with local businesses, according to several small business owners who spoke with Business News Daily.
"There are numerous small business loaning organizations around and strong community banks readily available to lend funding and support local businesses," Kurtz said.
Pennsylvania is certainly not in dire economic straits, but its unimpressive growth leaves entrepreneurs in the nation's sixth largest economy wanting for more. In 2014, gross domestic product for the state grew by just 1.5 percent, which trailed behind the nation's already sluggish 2.2 percent growth rate. In the 10-year period from 2004 through 2014, the state's compound annual growth rate was a disappointing 0.9 percent.
"For the past seven years, market growth has been anemic and disappointing, especially given the low interest and government quantitative easing environment," Steve Cordasco, CEO and founder of the wealth-management Cordasco Financial Network, said, referring to U.S. Federal Reserve policies instituted after the financial crisis.
But the outlook is generally positive. Pennsylvania's state government is not experiencing the daunting budgetary issues that some other states in the region (such as New Jersey and Connecticut) are, and many hope that depressed energy prices (impacting the state's sizable coal and gas industries) will turn around and spur further economic growth.
"I feel as though the state economy is improving, although it could be better," Mike Canarelli, CEO and co-founder of Web Talent Marketing, said. "The recession affected every state, of course, but our local economy seems to be thriving.
"[The economy is,] overall, fair," Kosven, of Legacy Chiller, said. "And with inflation so low, in general, prices have held stable."
Resources for small businesses in Pennsylvania
If you're a small business owner in Pennsylvania looking for resources to help you move forward, here are a few organizations you might want to learn more about.
SCORE's volunteer business professionals and expert "mentors" give counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are free and volunteer-driven. Here are some of the chapters in Pennsylvania.
U.S. Small Business Administration District Offices
The U.S. Small Business Administration (SBA) offers financing and grants, as well as consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA and avenues for obtaining assistance after natural disasters.
Pennsylvania Small Business Development Centers
Pennsylvania hosts a number of development centers for small business. Each is dedicated to supporting the development and retention of small businesses, helping entrepreneurs do everything from crafting business plans to navigating the state's tax code. You can find your region's small business development center at the link below.
Are you an entrepreneurial organization or resource for small business owners, but are not listed here? Let us know. Contact the author at email@example.com.