Government action needs to target microbusinesses
By Claudia Viek,
Everyone says they want to help small businesses. President Obama took a major step toward that goal last month by adding the Small Business Administration (SBA) chief to his cabinet, and he also proposed merging the SBA with other agencies. But the president needs to go further. What very small and small businesses need most is access to capital and business assistance.
My organization, the California Association of Micro Enterprise Opportunity (CAMEO), works with small businesses in California and is a partner in the American Sustainable Business Council, which promotes sustainable economic development nationwide.
We promote entrepreneurship training programs (think mini-MBAs) and micro-lenders (lenders who provide business loans of less than $50,000 each) that serve 21,000 of the smallest businesses of California, which we call microenterprises. The business owners of microenterprises range from the home-based consultant to the food truck owner to the early-stage tech start-up; from recent college graduates to boomers to disabled veterans; they include the underserved minorities, women and immigrants, as well as former white collar corporate staff.
Will the new cabinet position and proposed merger help these businesses? Perhaps. But, in all likelihood, they won’t. SBA is too focused on helping larger businesses, possibly a reflection of Ms. Mills’s background in venture capital. Moreover, the other agencies with which it would be merged, according to Obama’s proposal, will pull it even further in the direction of supporting large businesses.
We believe the SBA has largely ignored the needs of micro-businesses in America — despite the importance of such business in creating good local jobs.
Access to capital is a place for the SBA to begin.
The SBA provides a 90 percent guarantee to financial institutions that provide loans and other credit to small businesses. When the SBA increased the limit on the size of the loans they would guarantee, the banks responded by making loans to businesses on the larger end of the spectrum — almost exclusively.
In addition, micro-businesses depend more on lines of credit than large loans. Lines of credit help medium and small businesses spend only what is needed for payroll and inventory. Owners can pay down the line of credit as money is earned. Yet banks are not extending lines of credit and, one major bank (Bank of America) is canceling these lines, even for solid businesses with steady financial performance. The banks claim the risk is too high, even though the SBA holds most of it.
The SBA should address this and make lines of credit more available to small and micro-businesses so they can grow. In addition, if banks won’t lend to small businesses, then the SBA and others should support non-bank lenders like credit unions and community development finance institutions that do help micro-businesses.
Yet even if access to capital is improved, another crucial piece of the puzzle needs to be put in place. In my 25 years of experience, the first step to success for these locally grown and start-up micro-businesses is business assistance: training and mentoring for new entrepreneurs. Then the businesses are ready to get a loan and grow. We need to fund the programs that provide business assistance so that the business owners can put together a credit-worthy loan application. That means they need a business plan, cash flow projections, a viable business model and a marketing plan. When the businesses receive this assistance and have done the necessary preparation, they have an 80 percent chance of success — which means eight of 10 of these start-ups will hire at least two other employees.
Micro-business training programs have fought for crumbs in appropriations, compared with the programs that assist larger businesses. Last year, the small business community fought hard to keep funding for these programs from being slashed to zero.
America has more than 25 million microbusinesses in operation today. If one out of three of these hired just one incremental person, our unemployment problem would be solved! The SBA and Ms. Mills should focus on all small businesses, not just the biggest of the small. If they do, then America truly will be built to last.
Claudia Viek is chief executive officer of San Francisco-based CAMEO — California Association for Micro Enterprise Opportunity, a statewide network of organizations that promotes economic opportunity through entrepreneurial training and microloans.