Managing Editor
Small businesses, generally claimed to be the generators of most of the nation’s job growth, have struggled through the recession along with big business and consumers.
In addition to creating jobs in good times, they also stand to lose them in a recession.
The definition of a small business varies, depending on who is serving or measuring small businesses. The definition also can vary based on the type of industry.
The Research Brief blog from the Marcus & Millichap real estate investment services company analyzed the share of job losses by company size during the December 2007-June 2009 recession.
It found:
• 39 percent of the job losses came from employers with 500 or more employees.
• 24 percent came from employers of 1-19 employees.
• 20 percent came from employers of 20-99 employees.
• 10 percent came from employers of 100 to 249 employees.
• 7 percent came from employers of 250 to 499 employees.
That shows that 44 percent of the job losses came in firms with fewer than 100 employees.
That, said Marcus & Millichap, makes “the recovery of small businesses crucial to the onset of a self-perpetuating expansion.”
To assist small businesses, President Barack Obama recently signed a bill to boost credit availability to them.
Marcus & Millichap reported that the Small Business Jobs and Credit Act of 2010 will establish a $30 billion fund earmarked for small business lending.
It said the bill also provides $12 billion in tax breaks and incentives for small businesses to improve liquidity and increase capital spending, potentially boosting hiring.
In Jacksonville, Essential Capital Finance CEO and President Cleve Warren said the bill “opens the door even wider for small businesses to participate in an array of SBA loan programs.”
“The door has always been open, but banks and business alike have generally viewed SBA lending as a tool for the marginal borrower vs. a true facilitator of debt service capacity and risk mitigation,” said Warren.
According to its website, Essential Capital Finance is a Florida Certified Development Company, authorized by the U.S. Small Business Administration to make loans to businesses for capital improvements and fixed asset acquisitions under the SBA’s 504 loan program.
Essential Capital reports that it works with commercial lenders and business owners to arrange loans to bridge the gap between a business owner’s available equity and what can be reasonably borrowed through conventional financing.
Essential Capital was formerly known as the Jacksonville Economic Development Company, or JEDCO, not to be confused with the Jacksonville Economic Development Commission.
Warren said that the most significant challenges facing the small businesses he serves are working capital and debt restructuring.
“Many banks have tightened the rules governing the extension of lines of credit so critical for the cash flow needed by small and large businesses alike,” said Warren.
“Business activity is slow for most, balance sheets are leveraged, and equity cushions have been significantly diminished,” he said.
Warren said lenders, “already pained from the reflux attributable to their sizable portfolio problems, are fearful of adding new revolving lines of credit that could potentially accentuate their heartburn.”
He said that debt restructuring also is assisted by the new legislation, which “includes an aid to both bankers and borrowers which will allow, under certain circumstances, the refinancing of existing non-SBA debt.”
In other observations about the state of small businesses, Marcus & Millichap, based in California, said that an index measuring small business optimism stood at 88.8 at the end of August, up 0.7 points from July but even with the level a year earlier.
That optimism index is down 7.5 points from the start of the recession, indicating small businesses are still concerned about their prospects.
Marcus & Millichap said that tax incentives and increased lending to smaller companies should boost the economy over the short term and offer “the opportunity for a more natural and sustainable expansion cycle to take hold by mid-2011.”
Asked to describe the survival traits of his small business clients, Warren said they are “tenacious, resilient and determined.”
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