Too many Americans have been denied the opportunity to turn their ideas into businesses because they lacked the funding required to do so. Between 90% and 95% of entrepreneurs who hire employees require some amount of financing to start their businesses, making capital a critical requirement for new business creation. However, many government programs meant to provide capital to entrepreneurs are biased in favor of established businesses instead of newer businesses. To address the significant and persistent gaps in access to capital, the president should announce a public-private partnership to close such gaps for entrepreneurs everywhere by 2030. In doing so, the president should:
- Instruct the U.S. Department of the Treasury, Small Business Administration (SBA), and other relevant departments and agencies to make concrete recommendations for how existing capital access programs can be improved to reflect the fact that the age of a business, not its size, is the key factor in job creation, and to direct more support to entrepreneurs launching new businesses.
- Request that Congress make substantial funding available to states for strengthening the private financing of new businesses by expanding capital access through patient capital, innovative investment models and technologies, financing guarantees, user-centered service design, community banking, and other means.
- Establish clear goals for all federal capital access programs, including the number of new entrepreneurs who access capital (disaggregated by race, gender, socioeconomic class, and geography), revenues generated, new jobs created and sustained, and customer experience feedback.
- Incentivize financial innovation that addresses gaps in capital access by spurring the creation of new funding models and technologies that serve all types of new businesses, especially those currently underserved by the capital marketplace.
- Incorporate lessons learned from past and current government programs, including the State Small Business Credit Initiative,SBA loan guaranty programs, and Small Business Investment Company.
- Ask governors and mayors to examine how their state and local ecosystems can be improved to increase access to capital for all entrepreneurs.
State Small Business Credit Initiative
The State Small Business Credit Initiative (SSBCI) provided $1.5 billion from the U.S. Department of the Treasury to state programs that promoted private financing for small businesses. Its flexibility allowed states to design programs that addressed their specific needs in a variety of ways. The SSBCI addressed gaps for all types of businesses through both debt and equity financing where traditional forms of capital were too often nonexistent. Between 2011 and 2015, SSBCI programs led to $8.4 billion in new lending, and almost half of the recipients were young businesses (under 5 years old). In addition, 42% of financing went to low- and moderate-income areas. Furthermore, the median capital access program loan size was just $14,800, helping to fill funding gaps in regard to small to midsize loans.