Herald-Tribune (Sarasota, FL)
May 10, 2021
By: Frank Knapp Jr.
I recently had the great pleasure of visiting Sarasota as I drove around Florida talking to the media.
In addition to the wonderful weather, the core of the city was vibrant; coffee shops and restaurants
were bustling with customers. These and other locally owned small businesses give our communities
the life that residents and visitors love.
Unfortunately, not every community in this country enjoys this small business vitality. Today the
nation is at a 40-year low in new business startups. The concern is great.
In the fall of 2019, before the pandemic, Congress introduced bipartisan legislation that called for
research to be done to determine what barriers existed for entrepreneurs seeking to start small
businesses. That's vital to know because economists tell us that all net new jobs in America are
created by businesses that are less than 5 years old and have four or fewer employees.
The startup problem is particularly a crisis in rural and underserved communities with much higher
rates of unemployment than Sarasota County’s 4.1%. All of us want our distressed areas to do better
economically. It lifts the living standards in these communities and also makes them better
contributors to the economic health of America as a whole.
Unfortunately, however, government efforts are often overly focused on trying to recruit big
businesses to locate in distressed areas – and those efforts have too often resulted in failure. If we
really want to grow our rural and underserved communities, the answer is to help them grow from
the bottom up through entrepreneurship.
We do not need to wait for research to confirm one of the most significant barriers
for entrepreneurs: a lack of access to capital. The traditional way for entrepreneurs to seek startup
capital is to go to their local banks and ask for loans. But while that method might have worked
years ago, it is simply not getting the job done today.
There are 68% fewer banks in the United States today compared to 1980 due to consolidation and
failures – in fact, entrepreneurs in many rural and underserved communities don't even have a local
bank that they can walk into. But the issue goes beyond the number of banks.
With the average capital needed for a small business startup loan being about $10,000 – and a micro
business only needing about $3,000 on average to start – these loans simply do not offer good
returns on investment for many banks.
In addition many banks and credit unions view small business startup loans as too risky. Even if the
lender takes advantage of the Small Business Administration’s 7(a) loan guarantee program, getting
back 80% to 90% of a failed small loan is still a loss for the lender in terms of administrative time
and money. That in turn often leads lenders to focus on making larger loans to established
businesses that are viewed as less risky.
In short, it has become a vicious cycle for many entrepreneurs: Small business startup loans are
viewed as too small for some traditional lenders – and too risky for others.
But the fact is there are alternative lenders for small businesses.
America has more than 570 nonprofit community development financial institutions with revolving
loan funds to help underserved-community businesses. However, only slightly more than 200 of
these community development financial institutions do startup loans.
There are also 175 Small Business Administration-certified nonprofit micro lenders across the
country. Unfortunately, last year they made on average only 33 loans from their revolving loan
funds – and not all of them were made as startup capital.
And because both community development financial institutions and micro lenders use revolving
loan funds, they also tend to be risk averse since failed loans reduce the funds they need to make
Small business organizations have launched a campaign to tackle the crisis of the 40-year low in new
business startups. One of our recommendations addresses the “too small, too risky” issue for
We recommend that the Small Business Administration make direct loans of less than $20,000 for
startups and micro businesses from a fund set up by Congress specifically for this purpose. These
loans should be largely targeted to rural and underserved communities – and particularly to
entrepreneurs of color and women.
The Small Business Administration should contract with community development financial
institutions and micro lenders for the management of these loans. It should also be instructed to
take much more risk on these small loans and dramatically increase startups where America needs
them the most – in our rural and underserved communities.
Our national campaign – “Reform the SBA: BIGGER Mission, Authority and Resources” – has the
support of the American Sustainable Business Council, the American Independent Business
Alliance, the U.S. Green Chamber of Commerce and state and local business organizations.
Sarasota is blessed with a vibrant small business community. Our goal must be to foster similar
entrepreneurial growth in our county’s neediest areas.
Frank Knapp Jr. is the CEO of the South Carolina Small Business Chamber of Commerce and a board member of
the American Sustainable Business Council. Knapp is also the campaign coordinator of the “Reform the SBA:
BIGGER Mission, Authority and Resources” initiative.