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Taking Stock in Main Street: The Importance of Small Business

Small Business Investing is Medicine for the Economy

A small business is defined as a business with fewer than 500 employees. They are our nation’s biggest innovators and top job creators. Consider the following statistics from the Small Business Association (SBA) that highlight the importance of small business and small business investing:

  • There are 30.2 million small businesses in the U.S.
  • Small business account for 99.9% of all U.S. businesses.
  • Small businesses employ 58.9 million employees or 47.5% of all U.S. employees.
  • Small businesses increase private sector employment and generate much of America’s exports.

One of the biggest challenges facing small business owners and entrepreneurs has been and continues to be the inability to access sufficient credit and capital. Roughly 30% of small businesses and startups run out of cash, and many small business owners struggle to provide retirement benefits for their employees.

Research shows small business lending levels are still lower than they were before the Great Recession. Many small businesses are struggling to grow and thrive, but small business investing can change that..

In order to foster our economic recovery, we need to help the small business community achieve its fullest potential. It’s important for investors to know that entrepreneurship is on the rise, and investments in the small business community can be ripe with opportunity. Here are a few reasons why accredited investors should consider taking stock in small businesses again.

Small Business Investing Helps Businesses Lacking Credit

It’s no secret that credit is a long-standing problem for small business owners. Lending to small businesses is considered more risky, because they must prove that they can repay their loans. And while the Small Business Administration is offering more loans to entrepreneurs than before the Great Recession, many are still having a hard time finding the credit they need.

Small Business Majority’s scientific opinion polling reveals 90% of small business owners believe the availability of credit is a problem, and 61% agree it’s harder to get a loan than it was in 2008.

A 2018 survey by the Ewing Marion Kauffman Foundation also found that most small businesses feel ignored by the government. Small business owners were unhappy with current government resources, which they felt supported larger, established businesses over their own.

Despite a shortage of capital, small business is the engine that drives the economy and job growth in the U.S. Small businesses.A healthy small business community is crucial to our economic growth. In order to boost small businesses’ bottom lines, small business investing ensures that entrepreneurs have the capital they need to grow and hire.

Small Businesses are Innovative

As stated, entrepreneurs create more jobs than any other sector of the economy. But what many don’t know is that they are at the forefront of an evolving employment landscape—one where brick-and-mortar storefronts are being replaced by online retailers, and freelancers are the new version of the 9-to-5 office worker. Many workers are using emerging technologies to leave the traditional workforce, and small businesses and the self-employed are leading this movement.

This new freelance economy is stimulating innovation and entrepreneurship in a way that has never been available before. In fact, independent workers now represent more than one in three working Americans, and their numbers are expected to keep rising. Freelancers are projected to total 86.5 million (50.9% of the total U.S. workforce) by 2027..

While such entrepreneurs are innovative and savvy, they still experience many traditional barriers to access to credit, which is preventing many from taking the freelance economy even further.

Alternative Financing Options

Entrepreneurs are looking beyond traditional lending to find ways to move forward with a new business idea or grow their current enterprises. Crowdfunding is becoming a popular way for entrepreneurs to address credit problems by allowing them to raise capital via the internet. And organizations like Funding Circle are helping match investors with small business owners looking for capital. How much about crowdfunding is hype?

Rapid growth in this space shows there is a community of individual investors who are interested in and also actively seeking opportunities to support innovative entrepreneurs in all parts of the country. And while these new financing options are helping address some barriers to entrepreneurship, there’s still more to be done.

[Editor’s note: These crowdfunding platforms are typically more useful for small businesses that are having trouble finding investors, or businesses that have limited access to investor networks. While they are an available option, they are not always an attractive option for businesses or investors as they tend to raise less capital that traditional investing routes and increase the number of shareholders. Choose a platform that is open exclusively to accredited investors, and do your due diligence before making an investment.]

Small businesses and entrepreneurs have long been America’s engine for job growth and innovation. To fully realize the economic potential of America’s primary job creators, we must ensure greater access and more options for obtaining capital.

Small business investing is the driver for our nation’s growth, job creation and competitiveness.

[Editor’s Note: This is an updated version of an article originally published on March 2, 2015.]

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About John Arensmeyer

John Arensmeyer has used his long experience as a business owner to build Small Business Majority into a nationally recognized small business organization and the leading advocate for critical public policy issues facing America’s entrepreneurs—particularly healthcare, access to capital, taxes, retirement/asset building, and numerous workforce issues. The organization is focused on empowering America's entrepreneurs to…

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