Dear Divided Congress: Small Business First

The tightly divided government, even if Republicans take control of the House of Representatives, is expected to continue. The new Congress will need issues that can both garner bipartisan support and boost the economy. Here’s a suggestion: start with a small business.

Prioritizing small businesses will break the political deadlock as they provide a way for both parties to support job creation, revitalize ailing communities and improve US competitiveness.

Even after the painful experience of COVID-19, small businesses continue to be the backbone of America’s economy. They make up 99 percent of employer firms and employ about half of the country’s workers. Each year, young small firms (less than five years in business) account for the lion’s share of net job creation.

To help small businesses, policymakers should focus on three areas that business owners and entrepreneurs consistently highlight in conversations and polls. They are labor, capital, and labor (again).

Address recruitment challenges

In a September survey of 10,000 Small Businesses Voices by Goldman Sachs, 47 percent of small business owners surveyed said “difficulty finding and retaining employees” was the biggest problem for them. That was four points more than a few months ago. Similarly, the National Federation of Independent Business (NFIB) found that 46 percent of respondents in their survey have job openings they can’t fill — and it’s not due to a lack of effort.

The NFIB notes that the net proportion of small companies that have increased their compensation, while down slightly this year, remains at historically high levels. According to the 10,000 Small Businesses Voices survey, one of the biggest challenges when hiring is that “big companies offer more generous pension and health insurance benefits.” That’s not exactly surprising. Big companies are, well, bigger and can spread the cost of pensions and healthcare across a larger pool of employees.

For small companies, the financial and administrative burdens involved are high. In our conversations with numerous small businesses over the past two years, we’ve repeatedly heard this observation: “Tax credits are too expensive for small businesses to take advantage of.”

Hiring challenges hamper job creation and business growth: Nine in 10 respondents to the Voices survey say hiring difficulties hamper their bottom line. And while many small businesses offer these benefits — 52 percent of workers in companies with fewer than 50 employees have access to a pension plan — more can be done. Congress could help by directing the Small Business Administration (SBA) and other agencies to raise awareness of what’s already available for small businesses, reform existing small employer tax credits, and create options that are better for small businesses function. Promisingly, a series of bipartisan bills that could pass this year, known as SECURE 2.0, would expand the tax credit for small employers who set up retirement plans. This would be a strong signal of support for small business job creation.

Expand access to capital

Funding is a constant challenge for small businesses, many of which operate on tight margins or with just a few weeks’ cash buffer. You need outside capital to hire people, make investments, and prepare for tough times.

Post-pandemic, small businesses are poised to grow. More than half of those surveyed in the NFIB survey have made investments in the last six months and a quarter plan to do so in the coming months, numbers roughly comparable to pre-pandemic levels. Half of the small businesses surveyed in a recent report by the Bipartisan Policy Center plan to invest in digital tools within the next year.

However, many continue to suffer from a COVID hangover with damaged balance sheets and potentially lower credit ratings. Some 40,000 small businesses also remain in a state of purgatory, begging the SBA to respond to their Economic Damage Disaster Loan (EIDL) applications that were submitted before the May 2022 deadline but are stuck in bureaucratic limbo. Congress could require the SBA to clear this EIDL backlog.

The SBA has also worked to expand access to capital, from allowing higher interest rates on small loans in its 7(a) loan guarantee program to proposing changes to underwriting criteria for federally guaranteed loans. Lawmakers can help by urging the SBA to address regulatory oversight and capacity issues to ensure the changes work for both small businesses and lenders. Also helpful would be incentives to encourage lenders to work closely with small businesses to repair balance sheets so that credit is not inadvertently constrained.

Improve workers’ skills

Finding workers — and providing benefits — isn’t the only work-related challenge plaguing small businesses. 86 percent of companies that are actively hiring in the 10,000 Small Business Voices survey say it is difficult to recruit qualified candidates. In the NFIB survey, job quality has increased in relative importance among small employer firms. On this front, Congress has two major avenues to improve the education of the workforce and ensure the needs of small businesses are met.

Two major labor laws are up for re-approval by Congress in the next few years: the Workforce Innovation and Opportunity Act (WIOA) and the Perkins Career and Technical Education Act (Perkins Act). The former provides federal funding for staff training programs and public-private partnerships; The latter supports vocational and technical education programs at secondary and post-secondary level. While small business participation in these efforts is always encouraged, it is difficult to apply for and benefit from these programs. Streamlining and ensuring small employers are involved in the design can help ensure workers develop the skills they need.

The legislature should start with these top issues. Small businesses can continue to be engines of growth – they just need a little spark.


Leave a Reply

Your email address will not be published. Required fields are marked *