Published April 23, 2012
Having grown up on a family farm, I am all too familiar with the effects a drought can have on a crop. Today’s small business owners are facing a drought of a different type – a dearth of capital.
Just as water is a key ingredient to growth on the farm, capital is required for businesses to thrive. Because access to capital continues to be a significant challenge for entrepreneurs and small firms, the American economy is currently suffering without the help it needs from its most prolific job producers.
This headline recently in Forbes, “Lending to Small Businesses Stalls in February, Pointing to Slower Growth in Economy” is a troubling depiction of the capital crisis crippling our small business owners. Small companies need capital to invest, expand and create jobs. And the economy needs a healthy small business community to bolster and sustain its recovery.
Last month, the House Small Business Committee held a hearing to examine how America's entrepreneurs can lead our economic recovery, and the challenges they are facing. A recurring theme throughout the hearing was the lack of capital, the lifeblood of any start-up.
Among our witnesses was Heath Hall, founder of Pork Barrel BBQ in Washington, DC. He and his business partner believed they had a better chance of getting funding from a reality TV show than from a bank, and they were right.
Hall went before a panel of venture capitalists on the hit reality show “Shark Tank” and secured an investment that allowed Pork Barrel BBQ to grow into the nationally recognized company it is today.
Recognizing the hurdle that the lack of capital places before our nation’s leading job creators, the House of Representatives recently passed the Jumpstart our Business Startups (JOBS) Act. Thankfully, the president briefly put aside politics and signed it into law on April 5.
The JOBS Act will allow entrepreneurs to utilize “crowdfunding,” which permits them to raise equity capital from a large pool of small investors.
Prior to the JOBS Act being signed into law, SEC restrictions on crowdfunding stood in the way of small businesses using this innovative finance tool. These SEC regulations are just one example of anti-growth policies that are harming small businesses.
Uncertainties caused by existing and looming federal policies and regulations, such as those found in the Dodd-Frank Act, have made banks fearful of lending money. Unable to obtain a loan, the innovators who take ideas and turn them into companies are forced to seek alternative sources of funding. Many of them are not as lucky as Heath Hall and are starving for capital to meet their demands of growth and new business.
Seth Goldman, President of a company called Honest Tea, vividly remembers the 12-year struggle for startup capital and had some advice for the Committee during last month’s hearing: “In terms of supporting the development of more companies like ours, I would say the best policy is to let entrepreneurs and investors continue to take well-informed risks.”
Now is the time to unleash the power of small business, not tie their hands with regulations that cut off their access to capital.
The Small Business Committee asks small business owners to communicate with us on a daily basis through our interactive website, Small Biz Open Mic. We recently asked one simple question: “What burdens does your small business face?” The consistent feedback we heard is that access to capital is one of the biggest challenges for today’s entrepreneur.
“One of the major handicaps that keep my business from growing is not having adequate working capital to expand my workforce. Last year, I tried to purchase a new building… not one bank was willing to make the loan even with an SBA guarantee. Provide small businesses with un-restricted capital and watch how fast I can start hiring new employees and putting them to work,” said Louis Collins, owner of Engage IST in Sacramento, CA, in his Open Mic submission.
Small business owners like Collins are suffering the effects of a credit drought that is not only challenging their livelihood, but also slowing the growth of our economy as a whole.
In order for small businesses to continue their historical role as the engine of our economy, they must have the fuel they need to run: capital.
It’s time for Washington to stop creating regulatory hurdles that block the path to financing and simply stand to the side and let the American entrepreneur lead the path to recovery.
Rep. Sam Graves (R-Mo.) is chairman of the House Committee on Small Business.