President Obama gets it. He understands that small businesses hold the key to the American economy. But the president has a demand problem. His latest proposals, such as making TARP money available for community banks to lend, and tax deductions and incentives for more hiring and better wages, will only work if the nation’s small businesses are achieving growth. At the moment, they are not.
That does not mean the economy is completely lacking demand for government small business expansion programs. It just means policy makers have yet to embrace where the demand does exist. The current demand for government incentives to create jobs is coming from the unemployed and underemployed who have decided to take matters into their own hands and become entrepreneurs.
These people are taking what they know best – their own skills and ideas – and selling them in local markets to earn incomes that used to come from jobs. Simply put, more and more Americans are launching their own micro businesses as result of frustration with the traditional job market.
Micro businesses, firms launched for less than $35,000 and employing five or fewer people, are so attractive to people out of work because they are often supported by small loans from local community development organizations that also provide ongoing business training and assistance to ensure success.
This is where the demand for government assistance comes in. This population of entrepreneurs is not made up of the small businesses with property, equipment and payrolls, considered small merely because they aren’t corporations. They are individual former wage earners eager for help to sell their products or services as means to make a living.
That help traditionally flows through local Community Development Financial Institutions (CDFIs), organizations specifically charged with assisting entrepreneurs unable to get help from banks or credit unions. Unfortunately, very little CDFI Funds (under the Treasury Dept.) go to small business lending. Over the past 18 months less than $4 million in CDFI awards went to nonprofit small and micro business lenders in California.
Of course, micro businesses aren’t the solution to turning around the national or global economy. But they are solutions for millions of Americans whose incomes disappeared when their jobs did. When politicians speak of ‘pocketbook issues,’ earning an income and providing for a family is at the top of the list. Right now, helping people become self-employed needs to be a pocketbook issue.
If just $1 billion in TARP funding were channeled through the CDFI Fund to nonprofit lenders, about 50,000 businesses would benefit with small amounts of capital. For just $150 million in grants, an estimated 60,000 businesses could get the management assistance they need to be successful and eventually create new jobs. 80% of businesses that receive assistance through a Micro or Small Business Center make it through the start up phase and, on average, create another two jobs in addition to the owner.
There are 24 million micro businesses and self employed people in the US. The potential for new job creation, with just a little bit of assistance, could go a long way of reaching President Obama’s vision for job growth in our economy.