Boom or Bust?
Entrepreneurs in the US Post-Recession Economy
Renee Horne – Washington DC 11 April 2011
The streets of DC are awash with policy pundits and think tankers in their gentlemen's attire. Around the corner you are bound to see the food and clothing giants doing their business, but every now and then you will stop to find something unique. A man peddling old cameras and watches and one will ask him, “Is business good post-recession?” The man who preferred not to be named said “Well, we get by.” But after the recession, is the US entrepreneur getting a buy in? Take the frenzy of US websites indicating opposing views of how well entrepreneurs are doing in a country that is still facing economic pain. As part of the “View from Washington Series”, the World Entrepreneur Society (WES) takes a look at “Doing business in the US - Entrepreneurs in the US Post- Recession Economy”.
Fact or Fiction
“Nowhere in the world is there so much entrepreneurship than in the US; entrepreneurship keeps the country moving”. One is hesitant to take this quote from a US website to heart, when you see the big chain stores such as Macy’s and Bloomingdales bustling with shoppers. Dr J Peter Pham, former Chief Adviser on Africa to Senator McCain, a Senior Vice President of the National Committee on American Foreign Policy, and a business consultant, provides his observations, “I come from a relatively small community from the town of Peoria in the state of Illinois. It is the home of Caterpillar and everyone knows Caterpillar, the big yellow tractors used around the world. What people don’t realise is that there are any number of smaller tractor manufacturers, who have captured niche markets literally within sight of Caterpillars enterprises because you draw on the same human capital, designers etc. They have succeeded very well. It is possible and it happens regularly”. Indeed small firms represent close to one hundred per cent of all employer firms. They pay about half of the total US private payroll and have generated close to two-thirds of new jobs in almost two decades, and half of these firms are home-based with 2% of them franchises. Small business employs more than large companies - 68.2 million workers or close to 60% of the total employed US workforce. There have been 552,600 new employer firms who opened businesses in 2009, however 660,900 firms closed. Indeed 2,346 small businesses are established each business day, but 2,106 also fall by the wayside each day. Seven out of ten new firms are projected to have a lifetime for two years, half survive at least for five years, a third will celebrate a decade in existence, while a quarter will stay in businesses well over fifteen years.
Positive or Negative Credit Spin
Statistics from the Kauffman Foundation argues that individual entrepreneurs are still on a rocky credit path similar to the US’s economic path. The Kauffman study which tracks about five thousand small businesses which were founded in 2004, showed that 89% of firms were denied loans in 2009. These businesses felt that banks heightened their requirements which were the drawback for their approval. Approximately one quarter of the firms had chosen not to apply for fear of being declined and about 5% also refrained from seeking external equity financing for this reason. But the US Small Business Administration, which provides loans to small businesses, has placed a positive credit spin on proceedings, “Credit conditions are improving. In mid-2010, commercial banks began to ease tight lending conditions on small businesses that had begun in early 2007. Also credit has continued to flow as loans under one million US$ totalled $695 billion in 2009. After declining over the past few years, venture capital investment increased in mid-2010. Small businesses rely heavily upon owner investment and bank credit averaging about $80,000 a year for young firms”. Start-ups rely heavily on the owners’ cash injection into the business and bank credit, and young firms receive three quarters of their funds from banks via loans, credit cards and other lines of credit. Pham argues “I do a bit of private consulting on the side. I would say that it would not be difficult to raise capital for a business”.
Policy and Learning Support
Across the globe entrepreneurs complain and question: Who do I speak to? How do I start up? Why won’t the politicians listen? It appears that help is on hand for entrepreneurs in the land of opportunity and the 'American Dream'. Federal state and local laws all encourage the development of business and a great many books have been written on the subject and many courses are available in US learning institutions. According to Pham, whether you are a young entrepreneur, a top businessman, or just an ordinary Joe in America, they all affect policy and that also means that the politicians want your vote; supporting the entrepreneurs is one way of getting that vote. “They affect policy and there is more mass participation in policy. They have an involvement - it can be for good or for ill, but it is positive in a democracy to get people to buy into policy as a general rule. Regarding support for entrepreneurs; sometimes you want to deal with specialists and not people who view the whole world in black and white, so whilst we are trained to do so, there are drawbacks to it obviously, as the classic realpolitik does not sell well on the American streets”. It appears that the ‘American Dream’- freedom, the promise of prosperity and success is alive with prospects of entrepreneur success. However, amid all the newsflashes of the US being bust for a few years, the leaders on opposite sides of the coin - business and government - realise that a booming economy which creates jobs means supporting those small businesses no matter what the larger economic picture. Join us next week for another instalment from the “The View from Washington”.