In a significant move to bolster small businesses, the Biden-Harris Administration has announced a series of new federal initiatives. The moves promise critical support to small enterprises across the United States.
The initiatives, focusing on financial aid and accessibility, aim to strengthen the backbone of the American economy by empowering small businesses to navigate funding hurdles while providing crucial technical assistance.
An Economic Imperative
Small businesses are a cornerstone of the American economy, significantly contributing to employment and economic diversity. Typically defined by revenue and employee numbers, which can vary by industry, the latest Small Business Administration (SBA) data shows they represent 99.9% of all U.S. businesses, totaling more than 33 million.
This vast network of small ventures is crucial in job creation, employing 61.7 million Americans. Furthermore, they account for 46.4% of all private sector employees, underlining small businesses’ critical role in sustaining the workforce and driving economic growth.
Over the past two decades, small enterprises have consistently contributed about 40% to the U.S. gross domestic product, translating into trillions of dollars in economic activity. In 2014, these businesses added nearly $5.9 trillion to the nation’s gross domestic product. In context, large companies contributed $7.7 trillion that year.
Small Businesses Face Big Challenges
Despite their pivotal role in the economy, launching and sustaining a small business can be fraught with challenges. The Bureau of Labor Statistics reports that 50% of small businesses fail within five years, and nearly 20% close in their first year. Beyond the initial establishment, small ventures must continuously strive to stay afloat, build brand recognition, and gain consumer trust.
Post-pandemic, small businesses also face significant staffing hurdles. With 9.6 million open jobs in the U.S. and only 5.8 million unemployed workers available, companies are grappling with a labor shortage, making it difficult to attract high-quality workers.
According to the U.S. Chamber of Commerce, lack of market demand and inadequate capital are the primary challenges small business owners encounter in keeping their doors open. Many owners find financing applications overly time-consuming, information on capital sources is scarce, and often, they do not meet the qualifications for a loan. Consequently, most small ventures rely on self-funding. The smallest businesses, with zero to four employees, typically use personal savings for financing. Larger enterprises, with five to 500 staff, also use personal savings but are more inclined to utilize credit cards and seek loans from local banks and credit unions.
As integral parts of the supply chain, small businesses face additional financial strain when customers do not pay invoices promptly. On average, half of all invoices remain unpaid by their due date, forcing these businesses to seek additional credit lines to cover the shortfall. While providing a temporary solution, this practice often increases costs for the business, reducing overall profitability.
Funding and Support
Recognizing these diverse challenges, the Biden-Harris Administration rolled out new measures as part of their economic strategy. These initiatives aim to provide much-needed support to small enterprises, reinforcing their role in the national economy.
Central to this initiative is the allocation of $50 million from the American Rescue Plan, explicitly aimed at helping underserved small businesses secure financing. With this funding, the Administration expects to create a more level playing field for those traditionally facing barriers to accessing financial resources. This latest step will add to the landmark $108 billion in loans already disbursed to small businesses during the Biden Administration, as reported by the SBA.
Additionally, the U.S. Department of Agriculture (USDA) recently announced a strengthening of its longstanding partnership with the SBA. This collaboration aims to create jobs and broaden access to new and improved market opportunities for rural Americans.
The agencies have pledged to boost investments in small and underserved communities to enhance the rural economy and generate well-paying jobs nationwide. Additionally, they plan to broaden opportunities for technical assistance providers, entrepreneurs, cooperatives, and small business owners in these areas. These efforts include providing resources to assist rural businesses in competing effectively in domestic and international markets.
In the announcement, USDA Deputy Secretary Xochitl Torres Small commented, “Strengthening our collaboration with the SBA helps us expand these opportunities for people to build brighter futures for generations to come.”
Broader Economic Implications
The Biden Administration’s targeted financial interventions aim to provide immediate relief and lay the groundwork for long-term economic resilience among small businesses.
The focus on financial aid and increased accessibility to resources is poised to cause a ripple effect throughout the broader economy. Data from the Federal Reserve highlights the role of small businesses in community wealth building, as business ownership is consistently positively correlated with income.
The U.S. Department of the Treasury (USDT) emphasizes that these funds are critical for economic sectors that rely heavily on small businesses. Small enterprises are vital contributors to job creation, innovation, and market diversity. The measures aim to enhance employment opportunities and stimulate consumer spending by ensuring they have access to necessary resources.
Furthermore, the focus on supporting minority-owned businesses aims to address economic disparities. This effort aligns with the broader objectives of creating a more equitable economic environment. USDT Deputy Secretary Wally Adeyemo notes that the announcements “will help unlock the potential of entrepreneurs in underserved communities across the nation who may have otherwise never had the support needed to pursue their business ideas and ambitions.”
A Promising Outlook
This support comes at a crucial time for small enterprises, many of which have faced unprecedented obstacles in recent years. Small businesses have faced extensive difficulties ranging from crippling supply chain disruptions to soaring inflation.
The injection of these funds will be crucial in enabling businesses to commence, recover, or expand in the face of these global and domestic fiscal challenges. For many small ventures, particularly those in underserved communities, these initiatives could be the difference between stagnation and growth and, in some cases, survival.
Targeted support aimed at small businesses represents a significant element of the Biden Administration’s economic strategy. By fostering a more resilient and inclusive future, this approach seeks to ensure the vitality and long-term success of a crucial segment of the American economy.
This post was produced by Mama Say What?! and syndicated by Wealth of Geeks.