As per the reports of the Bureau of Labor Statistics, there has been a gradual decline in the registration and formation of new businesses. The report further reveals that it has fallen to its lowest level and the recovery pace has been the slowest in the last two decades. The experts opine that the Small Business Administration(SBA), the U.S. agency, that offers loans and counseling to mom-and-pop shops as well as the startups has to be revamped and reformed to create a positive business upward curve in the coming years.
The Census Bureau stats further reveal that the total employment growth generated by the small businesses in the present business scenario is only 31 percent. That is only 2.8 million jobs were created during the period after the recession during the years 2008- 2009.
In the meanwhile, it has been noted that Small Business Administration has moved away from its primary mission and goal. Though more than half of the startups get their loans sanctioned under the SBA’s 7(a) loan-guaranty programs today, as it did before the economy slow down, these loans are able to support only two-thirds of the employment. This was reported by the SBA’s Annual Performance Reporting. Here are a few valid reasons for shrinking support for small businesses.
- One of the reasons is that SBA agency is offering close to a third of its annual lending more towards loans above $2 million.
- The processing fees on smaller loans have been eliminated recently. But that’s not enough to create employment in the small business segment.
- Smaller banks have been curtailed from participating in the loan-guarantee programs by the SBA.
- There are far too many rules and regulations that govern the loans. Apart from these, SBA frequently introduces new policies and these are bound to create a lot of hurdles before the loan is sanctioned.
- Since 2012, there has been a 13 percent decrease in the bank participation. That is approximately 324 banks are unwilling to participate in the SBA loan programs for small businesses.
- As per the Federal Reserve Estimates, Non-bank lending institutions that are not regulated have been offering loans to the small businesses since mid- 2000’s. These banks offer online help with a promise of speedy turnarounds. However, the lending rates would be more than the traditional banks.
- The virtual money lenders use web apps to convert the real-world entrepreneurs into online profiles. What the SBA needs to understand is that a Web App can never understand the pulse of a local business the same way a person from the same community or town does.
It’s a fact that the community banks understand the volatility of what bad credits can do to the economy of a town or city. However, if the community banks can come forward to offer help to the budding small businesses, it can also create new jobs. Also the politicians should seriously consider reforming the SBA to fuel the economic growth, instead of just praising the small businesses. They should also ensure that the Small Business Administration does not compromise on its core mission.