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National Small Business Week: A Chance for Bipartisan Reforms

We’re in the middle of National Small Business Week – but small businesses are scared.

They are increasingly “cautious” according to the latest Small Business Index (SBI) produced by MetLife and the U.S. Chamber of Commerce. They are “more pessimistic” than just a few months ago in the most recent Goldman Sachs 10,000 Small Businesses Voices survey findings. In just the past month, a growing share of small businesses reported weekly declines in revenues and employment—and four in 10 say they expect recovery to take more than six months. That’s the least optimistic outlook since March in the Census Bureau’s Small Business Pulse Survey.

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Delta, Inflation, and Supply Chains

The reasons for the dimming outlook are not hard to discern. The Delta variant’s surge has led to re-imposition of some restrictions and a dip in consumer confidence. Inflation is now more reality than specter: three-quarters of SBI respondents said rising prices have had a “significant impact” on them this year. A higher share, 84%, cite operating cost increases in the Goldman Sachs 10KSB Voices survey.

Higher inflation is partly a consequence of supply chain disruptions and delays. Anyone who might be contemplating a home renovation in the near future knows that shipping estimates for many supplies have slid from 4-6 weeks to 8-12 weeks. The same goes for Americans considering a new car purchase. The Census Pulse survey, too, has tracked a steady rise in the percentage of small businesses experiencing domestic supplier delays.

Compounding these squeezes are workforce challenges. Every single small business survey released in the past two months is consistent in finding that small businesses want to hire but are encountering difficulty in finding workers. A local restaurant near me recently halted its mobile-ordering service and reduced its hours, citing staff shortages for both.

What Role for Public Policy?

The more difficult task is in determining what the Federal government could or should do to address continuing small business challenges. House Democrats, in their proposed provisions for the Build Back Better Act, have outlined several new actions. The most prominent is probably the creation of a new direct loan product, to the tune of $4.5 billion, under the current 7(a) lending support program. Additional money would also be appropriated to new direct lending under the 504/CDC program and for a new Small Business Investment Company (SBIC) program, both with a focus on small businesses in “underserved markets.”

If adopted by Congress, these ideas would seem to have support from small businesses. In the 10KSB Voices survey, nine out of ten small business respondents endorse further action by government to expand access to capital. State and local governments are permitted to use American Rescue Plan funds for addressing “economic harms” to small businesses. The Nowak Metro Finance Lab has been at the fore of outlining ways that state and local governments can design such efforts.

In a report released two months ago, BPC pointed to a dozen pieces of bipartisan legislation that have been introduced in the 117th Congress aimed at helping expand small business access to capital. The report also called on policymakers to consider additional actions, including expanding the participation base in government lending guarantees, strengthening the Community Advantage program, and making changes to the Economic Injury Disaster Loan (EIDL) program. Last week, the Small Business Administration announced several EIDL changes aimed at broadening its utility and streamlining processes.

Leveraging Procurement for Competition

Another avenue policymakers should strongly consider for supporting small and young companies is in federal procurement. In July, President Biden issued an executive order on promoting higher levels of economic competition. With antitrust concerns growing in recent years on the right and left, the executive order caught a lot of attention.

An important part of the order was its inclusion of procurement as a potential pathway for enhancing competitiveness. The 10KSB Voices survey found strong support for reforms to federal contracting that would level the playing field for small and young companies.

In a June report, BPC outlined several ways that might be done. There’s been a worrying decline over the last decade in overall small business participation in the federal procurement marketplace and, in particular, a narrowing pipeline of small businesses newly entering that marketplace. The competition angle clearly applies to the relationship between larger companies and smaller businesses in accessing contracts. Just as important is the dynamic among small business contractors and potential contractors. As noted in the report, entrenchment can set in when a small business wins the “golden ticket” of a federal contract, increasing their likelihood of additional winning bids. A larger small business (with, say, 250 employees) can be just as anti-competitive in federal procurement as a gigantic corporation.

One Week, All-Year Support

National Small Business Week provides an opportunity to reflect on the experience of the past year: the struggles of small businesses, the remarkable adaptations many have instituted, the pandemic-borne entrepreneurial revival, the tireless work of the SBA and others in government to support small and young companies.

Yet we should also seize the chance to identify and implement bipartisan public policy reforms that, drawing on the lessons of this experience, do more to support small business owners and entrepreneurs. Trying to move forward with a backward-looking policy framework would be a wasted opportunity.