Small Biz Watch: Is the SBA A-OK?
In this week's U.S. News & World Report, I write about budget cuts at the Small Business Administration. I recently chatted about the SBA via E-mail with Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University in Nashville and author of the popular blog, The Entrepreneurial Mind.
USNews: What is the current state of small business and could you put that into an historical context?
Cornwall: The last great period when entrepreneurs transformed the American economy was in the late 1800s. In fact, most of the 1997 Fortune 200 were already among the largest corporations by 1917. These businesses helped to shape the American economy, society and culture for the next century. The 1970s was the beginning of the end of this economic era. The large corporations formed in the last great entrepreneurial era in America were no longer creating new jobs in significant numbers. Total employment by the Fortune 500 companies has dropped from 20 percent of the U.S. workforce in 1980, to about 7 percent in the late 1990s. Over the past decade or so, the emergence of a new entrepreneurial economy in America has begun. There has been significant growth in entrepreneurial start-ups and small businesses now are the engine of this economy. New business formation has grown from about 200,000 per year in mid 1900s to over 3.5 million per year in the early21st century.
USNews: How much does the Small Business Administration matter to American entrepreneurs?
Cornwall: The SBA matters if it can have an impact on what really matters for small businesses in the 21st century. We know from studies conducted around the world that there are three factors that have the most impact on new business formation. 1) Reducing regulation on small business. The SBA Office of Advocacy has been at the forefront of efforts to cut needless government red tape that inhibits small business formation and growth; 2) Reducing and simplifying taxation; 3) Education of nascent entrepreneurs. Some studies suggest that the success rates of small businesses can as much as double when the entrepreneur has received education on key entrepreneurial and small business skills. To the extent that the SBA can provide education to entrepreneurs who can find this knowledge nowhere else, it matters.
USNews: There have been budgets cuts at the SBA. If the SBA disappeared tomorrow, would that negatively impact small business?
Cornwall: It would have an impact to the extent that small business owners would lose an important source of knowledge and information. Also, SBA loans have proven to be important in stimulating the formation and growth of small business ... [And] although loans are important, almost 80 percent of initial funding for small business comes from the entrepreneurs, and from their friends and family.