If there was a way to reach full employment in America, wouldn’t we all know about it? Wouldn’t we all be doing everything we can to make it happen? You may be surprised to find out that if one small business out of every three hired an additional employee, the country would be at full employment.
Small firms employ half of the private sector and create two out of three net new jobs. Yet despite the promise entrepreneurship holds to revitalize communities, many individuals face barriers to accessing the capital and opportunities they need to start or grow thriving businesses. In an effort to change that, every year since 1993, the U.S. Small Business Administration (SBA) and partners like Accion have recognized the impact of small businesses on economic growth during Small Business Week.
Barriers to opportunity
One in five U.S. households is underbanked, meaning they have a bank account but also use alternative or informal finance services outside the traditional banking system. Minority small business owners are disproportionately denied credit compared to their nonminority counterparts, even after controlling for other variables such as business credit score, personal wealth, and revenue. Both minority and women entrepreneurs are more likely to report that they did not apply for credit at some point because they feared their loan application would be denied.
The role of community development financial institutions
Nonprofit lending organizations like Accion in the U.S. have played an increasingly important role in supporting small businesses in times of weak economic growth. In the wake of the 2008 recession, Community Development Financial Institution (CDFI) lending increased slightly even as traditional financial institutions experienced significant decreases in outstanding loans.
Accion provides access to capital and business resources to U.S. communities that are currently underserved by traditional financial institutions. In 2015, Accion helped create or sustain approximately 8,500 new jobs across the country. More than two-thirds of Accion’s loans finance minority-owned businesses, and nearly half finance women-owned businesses. In comparison, the proportion of conventional small business loans going to minority-owned and women-owned businesses is 9.9 percent and 16 percent, respectively.
Impact on employees and communities
According to a study by the Aspen Institute, microbusinesses (defined as firms with five of fewer employees), provide opportunity and connections for employees who traditionally face barriers to securing high-quality jobs. In addition, they found that microenterprises offer unique benefits to their employees:
- 80 percent of microenterprise employees surveyed reported having stable schedules, and 87% said their schedules are flexible.
- 67 percent reported seeing definite opportunities for growth at their employer.
- 94 percent said they understand how their job directly contributes to the success of the business.
We Jus’ Wanna Klean, a Chicago business owned by Accion client Tequila Jarrett, exemplifies the impact that entrepreneurs can have on their employees and communities. Jarrett explained in a recent interview for the Atlantic that one of her main goals is to employ people who deserve a second chance, such as those with criminal records. “I feel like me giving them an opportunity – they work that much harder to be able to prove themselves,” she said. “Success is not always determined by the dollar you have in your pocket. It can be determined by how many lives you’ve changed.”
Celebrating the small business
Learn more about the impact of U.S. small businesses by visiting the Small Business Week website. Join the conversation by sharing what small businesses mean to you using the hashtag #DreamSmallBiz on social media.