Small businesses in the US play a hugely important role, with Goldman Sachs reporting that small businesses, those with less than 500 employees, make up 99% of all US employer firms. As well as generating large amounts of revenue for the wider economy, small businesses account for more than half of net new jobs in the private sector over the past twenty years.Small businesses in America rely on a number of economic factors that help them grow and succeed. These include access to capital, a supportive regulatory environment, access to a well trained workforce and an ability to harness technology.
Source: My Debt Story.
In terms of of access to capital, Goldman Sachs points out that small businesses typically rely on banks as their primary source of funding and are four times more likely to seek funding from a financial institution than any other source. However, small businesses report that they are often not able to source the funding that they need.
A business line of credit, as outlined at Business Line of Credit Hub, is a way for small businesses to get a revolving funding stream that enables them to fund their day to day operations. There are other forms of credit firms can get, like working capital loans, or trade receivables finance to keep firms liquid while they may have lots of payments going through. Also known as accounts receivable finance, this is “more like an advance or purchase of the receivable” as outlined by 1st Commercial Credit, one of several firms in the US that are providing such loans, working capital or a business line of credit loan.
A further issue however is that more than half of small businesses cannot get access to the entire amount of funding they require, whether in the form of debt or equity. While banks or other firms might therefore be able to provide some capital, this funding gap needs to be addressed for US small businesses to reach their potential.
Furthermore, according to a large Goldman Sachs-led survey many small businesses do not feel that the regulatory environment operates to their best interest. In fact, some two-thirds of small businesses say they do not fully grasp or are able to manage government regulations and laws. Further, there is a great burden of time on the owner typically, who will on average spend some 200 hours a year learning about new regulations and laws that affect the running of the business.
Another fundamental challenge small businesses face in the economic climate is sourcing the right staff needed to run their company adequately. Within this field, small businesses report that they also invest a great deal of resources in training existing staff through in house training to external classes. Goldman Sachs suggest that private-public partnerships - such as through engagement with community colleges - are an effective way of tackling this training issue while bringing more qualified individuals into the workforce, so helping to grow small businesses further.
Technology is also a barrier that many small businesses say they face when trying to grow or keep up with competition. Many small businesses state they cannot afford to invest in the most current technology, with nearly half of small businesses in America saying that cost is an issue. Many companies add that they feel that they are not ready for a cyber-attack with 40% of businesses reporting they don’t feel capable of handling one. This is despite a fifth of firms having endured such an attack
Goldman Sachs states however that while small businesses may not have the same access to technology as larger firms, they are actually very innovative, with “35% engaged in research and development in a new product or service, 46% are in the process of launching a new product or service, and 62% are improving the quality of an existing product or service.”
The findings highlight several addressable challenges that can be assessed and tackled in order to stimulate the small business economy of America. By doing so, such a boost could fundamentally transform the business landscape of the country for the better.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.