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Big Ideas for Small Business

 

 
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A Five-Step Roadmap for Rebuilding the U.S. Small-Business Sector, Reviving Entrepreneurship, and Closing the Racial Wealth Gap

 

 

Authored by:

Peter Bassine • Associate, Latham and Watkins
Della Clark • President & CEO, The Enterprise Center
Gary Cunningham • President & CEO, Prosperity Now
Benjamin Della Rocca • Student, Yale Law School
Bulbul Gupta • President & CEO, Pacific Community Ventures
Marie C. Johns • CEO, PPF-Leftwich; former SBA Deputy Administrator
Bruce Katz • Director, Nowak Metro Finance Lab at Drexel University
Nate Loewentheil • Vice President, Camber Creek
Jamie Rubin • CEO, Meridiam NA
Mary Jean Ryan • Chair, Wash. State Small Business Recovery Working Group
Luz Urrutia • CEO, Opportunity Fund

Authored by:
Peter Bassine
Della Clark
Gary Cunningham
Benjamin Della Rocca
Bulbul Gupta
Marie C. Johns
Bruce Katz
Nate Loewentheil
Jamie Rubin
Mary Jean Ryan
Luz Urrutia

Small businesses in America are in crisis. Since COVID-19 hit nearly 25% of all small businesses have closed at least temporarily. In the hardest hit sectors--restaurants, hotels, and retail--the numbers are far higher. These closures have left millions of Americans out of work, transformed lively neighborhoods around the country into retail graveyards, and destroyed the wealth built by families over generations. 

Small businesses drive our economy, employing 47% of the U.S. workforce, generating two-thirds of new jobs, and serving as a critical path to economic self-sufficiency. Small businesses animate our neighborhoods, reflecting, embodying and sustaining the unique cultural fabric of their communities. Yet, small businesses have never been a central focus for federal policymakers. As a result, the federal government did not have the expertise or resources to meet the exigencies of the pandemic. 

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The storms of COVID-19 were a fierce blow to an economic sector already battered by the unrelenting winds of economic centralization. Since the late 1990s, more than two-thirds of all U.S. industries have grown more consolidated. Even more strikingly, the rate of business creation has fallen by half since the 1970s. Entrepreneurs of color continue to struggle against structural constraints. While Black Americans are 12.3% of the population, they own only 2% of small businesses. Latinx Americans are similarly underrepresented. From the challenges of finding equity to launch a new venture to the difficulties in accessing bank credit for expansion, minority entrepreneurs must climb a far steeper path than their white counterparts. Because minority businesses operate with less capital, they are also more likely to fold under pressure. COVID-19 is a case in point. The Federal Reserve of New York reported that from February to April the number of Black businesses declined by 41 percent.


 

It is clear to all observers that absent major federal interventions, whole swathes of the small business sector will never return, minority business owners will suffer more than their fair share of the burden, and entrepreneurship levels will remain depressed for a generation or more. But the collision of these forces – COVID-19, economic consolidation, and deep racial inequality – also create a window of opportunity for significant reform.

 

This report provides a five-step roadmap towards a more inclusive, dynamic, and productive small-business sector. We break down the five steps into ten major policy recommendations with detailed policy proposals. While the federal government must take the lead for many of our recommendations, we also suggest how it can galvanize the full energy of public, private and civic institutions at the local, metropolitan and state level. 

Importantly, we do not believe that federal small business programs need to be consolidated into a single agency. What matters is the focus, scale and scope of small business programs across the federal government. That said, the Small Business Administration will be critical for executing on this roadmap and needs significant investment. 

Many of our proposals within these recommendations build on existing programs, like the Obama-era State Small Business Credit Initiative (SSBCI). In other cases, we advocate for bills currently making their way through Congress, like the RELIEF for Main Street Act. We also advance a number of novel ideas, including:

  • A federally backed, first-loan loss guarantee program for fintech lenders that operates at the portfolio level to enable disadvantaged entrepreneurs to access right-sized, federally subsidized loans without the onerous paperwork required under current law; 

  • The development of a private sector Environmental, Social and Governance (ESG) standard for procurement from disadvantaged business owners, around which the private sector could mobilize to bring the benefits of contracting set-asides to a broader market; 

  • A new federal Small Business Ecosystem Demonstration Project to catalyze and evaluate ways of driving transformative small-business outcomes at the metropolitan level. 

 
 

There is no question that the COVID-19 crisis is a turning point for America’s small businesses. Absent a broad national commitment to rethinking how we collectively support those businesses, it will be a turn for the worse. But if we come together and follow the steps outlined in this report, over the next ten years we can:

  • Create 1.5 million net new small businesses

  • Grow the small business share of employment by 25% 

  • Triple the number of small businesses owned by Black & Latinx Americans

  • Grow average minority household worth by 20%.

Our hope is that the report serves as a rallying point for all those who care about small business in America. Together, we can build a more competitive, dynamic and fair economy with a flourishing small-business sector that enriches our individual and collective lives. 

 

Big Ideas for Small Business was developed with support from the Kauffman Foundation and draws upon Kauffman sponsored initiatives, including America’s New Business Plan and the Capital Access Lab.  The views expressed in this report are exclusively those of the authors.

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