US News & World Report
February 28, 2013
Sequestration is the Wrong Kind of Certainty for Small Business
Limiting job creators’ access to capital at this critical point in the life of our nation’s economy is a profoundly bad idea.
By Beth Solomon
Beth Solomon is the president and CEO of the National Association of Development Companies, the trade association of Certified Development Companies.
You’ve heard the S-word. In Washington, this week, it is “sequester”—the threat of sweeping, indiscriminate federal budget cuts that could furlough federal employees, airport workers, and first responders, and impact the national defense and medical research. But what about the sequester’s impact on the engine of the U.S. economy: small business? Drastic uncertainty for small business owners and reductions in available capital could put a jackboot on the neck of the U.S. economy, just as it struggles for momentum.
According to the Office of Management and Budget, the sequester could mean a reduction of nearly $1 billion in small business loans. In addition, loan processors could be furloughed, which would mean even more delays to ongoing small business lending. The long-term damage to small businesses could be acute.
With over 12 million people unemployed, small business is critical to accelerating the economic recovery and creating the jobs America needs. According to the Bureau of Labor Statistics, small businesses have created about two out of every three jobs gained over the past 35 months and have added jobs in every quarter since early 2010.
But since the recession began, U.S. commercial banks’ small business loan portfolios are down 17 percent. And loans under $100,000 have declined even more steeply, over 19 percent. During that same period, the Small Business Administration supported over $100 billion in new lending to over 218,000 small businesses. In better times considered the lender of last resort, the Small Business Administration, for many small businesses, has become the only option. The agency’s loans have become a lifeline for the franchise industry and other segments that weathered the recession better than most.
In 2012, nearly 10,000 businesses—many of whom couldn’t find adequate financing from banks, accessed over $6 billion through Small Business Administration’s 504 loans, financing real estate, construction, and equipment.
For Warner Bodies, a manufacturer of utility truck cabs, fire and rescue trucks in Noblesville, Ind., access to capital came the form of a Small Business Administration 504 loan which allowed them to get game-changing rates on a loan for expanding their plant and purchasing more equipment. This created 15 jobs. In the midst of a recession, this company not only retained all of their employees, they hired more.
In Michigan, Fiber By-Products, a wood fiber recycling company, accessed the agency’s 504 financing to purchase 43,500 additional square feet of workspace, creating 28 new jobs as a result.
There are countless stories like these about real jobs in communities all across the country, created because these growing small businesses could access the capital and economic certainty they need to invest in their business, from property, equipment to the most important resource of all: people.
This kind of public-private partnership that the Small Business Administration’s loan programs represent are precisely the kind of smart government initiatives that we need.
The reality is that business growth is not a switch that policymakers in Washington or business leaders anywhere can turn on or off, and any economic progress takes multiple business cycles of learning to navigate regulations, securing funding, and laying out a strategic plan. To delay loans for the growing small businesses, or worse, eliminate them altogether, would cripple our economy. For many of these small businesses, they may not get a second chance at growth.
Limiting job creators’ access to capital at this critical point in the life of our nation’s economy is a profoundly bad idea. We are depending on our small businesses to grow and put our communities back to work. They are depending on Small Business Administration loans to finance their physical growth: real estate and machinery. And we are all depending on our elected leaders to put aside their risky, partisan gamesmanship and come together to pass legislation and enact policy in a bipartisan, responsible way that reflects our national needs and priorities.
I’ve often heard that uncertainty is bad for business, but the Washington gridlock and its latest symptom, sequestration, is the wrong kind of certainty.