During a presidential election year, it is impossible to avoid statements on whose political strategy for economic vitality is best. Differing opinions on matters such as taxes, healthcare and education abound. A common theme shared by all is the desire to improve the country, grow the economy and support job creation—and small businesses are an essential part of that equation. This is especially important, as small businesses provide an array of services and goods to their communities and they account for 55 percent of all jobs, according to the U.S. Small Business Administration (SBA). While many entrepreneurs have creative ideas and sought-after skills, they lack access to the capital required to start, maintain and grow their businesses. Even with access to capital, many people still do not know where to start when it comes to creating a business plan, managing finances and staff—knowledge that is essential to building a solid foundation for their business. The SBA Microloan Program addresses those barriers, providing access to capital and technical assistance.
The SBA Microloan program works through nonprofit intermediaries that provide small-dollar loans and technical assistance to very small businesses and sole-proprietorships, especially women, low-income, veteran and minority entrepreneurs. The average SBA Microloan is just $13,000. Despite intermediaries serving what traditional banks would consider “at risk” small businesses, the Microloan program has an exceptionally low loss rate of just 2.36 percent. One of the reasons for this exceptional success is the holistic approach taken by the Microloan intermediaries.
{mosads}Technical Assistance, including pre-loan and post-loan, is a key element of the Microloan program and it is a primary reason the program has such positive results. A survey our firm conducted of SBA microlenders found that pre-loan services typically include one-on-one consultations, connecting the borrower with a mentor in the same industry and group training and classes, depending on the needs of the borrower. Microlenders also provide information on tax services, accounting and human resources management. Borrowers are also provided valuable assistance post-loan to ensure the business stays on track, including advanced training on accounting systems and management, long-term planning, and one-on-one marketing support, financial reviews or even advice on business expansion.
The SBA Microloan Program, first established as a pilot program in 1991, was permanently authorized in 1997. Since then, SBA microlenders loaned more than $722 million to small businesses, creating or retaining some 212,000 jobs nationwide. In April 2016, Sen. Deb Fischer (R-Neb.) introduced a bill that would update and improve the program, as well as create greater flexibility for microlenders to provide technical assistance to businesses “upfront”, which is especially important for startups. The bill, The Microloan Program Modernization Act of 2016 (S. 2850), was marked up by the Senate Small Business Committee in June and is currently awaiting a floor vote. The senator’s interest and support is a result of her seeing firsthand the great outcomes achieved by intermediaries in Nebraska, like Rural Enterprise Assistance Project (REAP), which has made loans to nearly 1,200 small, rural businesses in the state.
It is also imperative that federal government provide robust investments for the Microloan Program to continue supporting our small businesses entrepreneurs and, accordingly, our communities. In March, Sen. Maria Cantwell (D-Wash.) led a congressional letter in support of Fiscal Year 2017 appropriations for the program, which was signed by 21 senators. In the House, Reps. Ander Crenshaw (R-Fla.) and José Serrano (D-N.Y.), respectively chairman and ranking member of the Financial Services Appropriations Subcommittee, included in their appropriations bill the highest funding level in the history of the program, which was marked up by the full Appropriations Committee chaired by Rep. Hal Rogers (R-Ky.) and passed the House on July 8. The House floor vote is the first in several years and reflects the strong bipartisan support of programs like the SBA Microloan Program.
As our presidential candidates solidify their roles as their parties’ nominees and flesh out their economic policies, I encourage them to support programs that engage entrepreneurs and prepare them with the tools and knowledge necessary to translate their business aspirations into success. Entrepreneurialism is the essence of the American Dream. The SBA Microloan Program is turning those dreams into a reality.
Bob Rapoza is Founder and President of Rapoza Associates.