Donald Trump’s nominee to lead the Small Business Administration (SBA), Linda McMahon, can actively facilitate job growth and a more robust economy just by leveling the playing field for small businesses.
Small companies face big barriers such as federal policies favoring large companies, bank policies restricting access to affordable capital and banking industry consolidation that limits options. Yet small business development can broadly increase incomes and build wealth.
McMahon will take over when many businesses are experiencing a shift in how they operate. More companies are adopting “high road” practices that reflect both the positive and negative impacts of their operations on the environment, society and taxpayers. This new model works, but government policies will either speed or slow the transition.
McMahon is a successful entrepreneur who knows the challenges faced by small businesses. To encourage their development, she should lead on these initiatives.
Work to promote community bank lending to small businesses
Big banks dominate Small Business Administration lending programs. They often avoid making loans to early-stage businesses while cherry picking the best clients from local banks that have nurtured and grown them. As more community-based lenders merge or are acquired by larger banks, new and small businesses have far fewer options to access affordable capital they need.
{mosads}Further reducing access, some big banks make SBA loans to small businesses that could easily qualify for conventional loans. To discourage misuse, McMahon must enforce the rules that require lenders to make SBA loans solely to small businesses that demonstrate a need for SBA financing.
Community banks need SBA help, too. They comprise 92 percent of all U.S. banks but control only about 13 percent of all the capital available to lend. Moreover, they hold 43 percent of all small business loans. Community banks are handicapped in making SBA loans due to the program’s ever-changing rules. Simplifying community banks’ access to SBA’s program would let them provide much needed loans to deserving firms.
Expand the program for investments in microentrepreneurs
Many thousands of microbusinesses with fewer than five employees deserve more help. According to the SBA, microbusinesses created 5.5 million net U.S. jobs, an astounding 90 percent of total U.S. jobs, between 2004 and 2010. Loans less than $50,000 are essential for these firms’ growth but are hard to obtain. The SBA’s Program for Investment in Microentrepreneurs (PRIME) distributes funds to disadvantaged and low-income microbusinesses. It is also a vital tool, but it, too, needs more funding.
Invest more in minority-owned and woman-owned businesses
In 2016, only 26 percent of all SBA loans made under the SBA 7(a) loan program went to minority-owned businesses and only 18 percent went to woman-owned businesses. The U.S. population is 38 percent minority and 51 percent female, meaning the SBA numbers show a huge mismatch between need and allocation of loan capital. McMahon should expand funding to modernize the SBA microloan program, 8(a) business development program and women business development centers.
Increase support for employee-owned cooperatives
Cooperatives, or employee-owned companies, grow local economies and stabilize communities by reinvesting capital in the local economy and creating new, good-paying jobs. These community-based businesses exist in every sector of the economy. They deserve more financial and technical support from SBA. Tax advantages available to employee stock ownership plans (ESOPs) should be made available to cooperatives. McMahon should also ease lending requirements for cooperatives and offer more 8(a) contracts.
Increase government business with small companies
Small businesses are not securing their fair share of government contracts. This year, SBA reported that 5 percent of all government contracts went to women-owned small businesses. It’s worth noting that it took 15 years to reach this goal. McMahon should ensure these businesses receive far more serious consideration for government contracts, as well as those in historically underutilized business (HUB) zones and economically depressed communities.
McMahon should also tackle Federal Strategic Sourcing Initiative (FSSI), which actively disregards smaller firms. Big companies are routinely awarded federal contracts, freezing out thousands of small businesses, many of which are owned by women, minorities and veterans. If she can take these initiatives, she can lift up small businesses and boost the economy for millions of Americans.
Mike O’Donnell is executive director of the Colorado Lending Source. Richard Eidlin is vice president of policy for the American Sustainable Business Council.
The views of Contributors are their own and are not the views of The Hill.