Small business is a critical component of local economies, especially in rural communities. In small states, with lower per capita income, small business matters even more. Local civic support is driven by owners and entrepreneurs of small enterprises, who not only donate a larger percentage of their income to charity—but also keep it very local.
For every dollar a small business gives to philanthropy, 90 cents goes to hometown causes.
According to the Small Business Administration (SBA), there are nearly 30 million small businesses—one for every 10 Americans—employing 58 million workers, which is nearly half of the U.S. work force.
Looking at national maps, the one that shows population density per county looks like a film negative to the one that shows small business employment by county. As population density goes down, the percentage of people working in small businesses goes up.
Arkansas is no exception to that rule. We’re not only a natural for small business, but we also outperform the national averages in some choice statistics, like percentage of veteran-owned companies.
The SBA reports nearly a quarter-million small businesses in Arkansas, which account for nearly 500,000 jobs.
Economic indicators are pointing upward for businesses of all sizes. Since the 2016 election, the Wall Street Journal Dow Industrial average has set more than 90 record highs. Unemployment is low, interest rates are low, optimism is high. In fact, when the National Federation of Independent Business (NFIB) released its index of small-business optimism this week for December, the headline was “All Time Record in 2017.”
That’s pretty impressive news for a quarterly survey that’s been taking the temperature of small-business attitudes for 45 years. Consumer confidence has been in lockstep with the NFIB’s reporting, riding 17-year highs of late and currently at levels more than six times higher than in 2009.
Importantly, the SBA chart comparing business startups to exits has flipped since 2009. Data from 2016 show a strong, positive gap: more than 230,000 startups against 200,000 exits, with a net employment retention of more than 100,000 jobs. In 2009, exits outpaced startups by 10 percent, with a net job loss of 150,000 employees.
The tax-reform bill also portends well for small businesses, with the blessing of the NFIB (which panned the earlier version) and other business organizations and publications. It offers particular benefits for pass-through entities, which many small businesses are, where business income flows through directly to be reported on an individual’s personal tax return.
Opportunities appear to abound for small-business states in general, and in particular for Arkansas in one critical area.
The SBA’s mission since its creation in 1953 is to “aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.”
With higher poverty and lower income levels among the states, a disproportionate tax burden, and a landscape dominated with rural and sparsely populated areas, Arkansas ought to be the poster child for an organization devoted to helping people “start, build and grow” small businesses. Yet by the SBA’s own reporting admissions, Arkansas lags.
From its state entrepreneurial data, we ranked 43rd in SBA loans per 100,000 people in 2015. That’s a linear disparity with our population rank (25th), and even more skewed considering our positive small-business environment considerations.
There is a slight silver lining: We were second in the nation in growth of loans per 100,000 people from 2012-2015. And we were ranked seventh in the size of average SBA loan.
But amid all the optimism and consumer confidence of 2017, Arkansas saw a slight dip in SBA activity. Arkansas businesses received 337 loans in the SBA’s popular 7(a) program in fiscal 2017 totalling $191 million. Not only is that a drop in the national bucket of 62,470 loans and $25 billion, but it’s a dramatically smaller one than our representation in both number of small businesses and their employee rolls.
Our state’s share of SBA loans, calculated proportionately just on numbers, should be at least 60 percent higher. Factored for population, more than that.
In addition, the SBA loans approved in 2017 are down slightly from 2016 (363 loans and $221 million), and across both years a large portion of loans are made in more populous areas of the state, rather than lower-density areas with higher small-business employment rates.
This spells opportunity within our state borders for small businesses serving small communities.
Self-employed entrepreneurs are the engines to job creation here and across the country. Technology continues to spur new thinking, new ideas and new ways of doing almost everything, and the barriers to small business functionality are constantly falling away.
Maybe you’ve heard ads for outsourcing live receptionists to “delight customers” (callruby.com) or using your cell phones to “look like a national company” (grasshopper.com)?
The competitive tools for small business are more powerful—and more numerous and affordable—than ever. Coupled with real tax reform with a decidedly pro-small-business tilt, and an underserved SBA population, that makes Arkansas entrepreneurs well-positioned for 2018.