The Latest Data on Small Business Access to Capital

By at 29 June, 2018, 8:55 am

Small Business Insider

by Raymond J. Keating-

On June 26, I had the opportunity to testify before the U.S. Senate Committee on Banking, Housing, and Urban Affairs regarding legislative proposals to increase access to capital.

The hearing focused on a collection of common-sense legislative measures that would help boost access to capital by reeling in or fixing various measures that unduly raise costs and place excessive burdens on small businesses.  (Click here to view the proceedings of the hearing.)

As noted in the testimony, SBE Council declared support for S. 588, Helping Angels Lead Our Startups Act or the HALOS Act; S. 2126, Fostering Innovation Act of 2017; S. 2347, Encouraging Public Offerings Act of 2018; S. 3004, Small Business Audit Correction Act of 2018; and S. 2765, RBIC Advisers Relief Act of 2018.

In this congressional testimony, SBE Council also was able to update the latest data and trends regarding areas of funding critical to entrepreneurship, innovation and economic growth, i.e., small business lending, angel investment, venture capital, and online lending and crowdfunding.

Consider key points on each:

Small business loan value: “[T]he value of small business loans outstanding hit a high of $711.5 billion in 2008, and subsequently fell for five straight years. Growth resumed in 2014, and has continued since. But recovery to the 2008 high is yet to occur, never mind factoring in any additional growth. In fact, the 2017 level of $623.1 billion came in at less than the 2006 level. So, small business loan value has experienced no growth for more than a decade, and consider that these numbers are nominal, so inflation is not even factored in, which would make the picture bleaker.”

Data Source: Federal Deposit Insurance Corporation, Quarterly Banking Profile


Number of small business loans: “[T]hese rose steadily up to 2008 (hitting 27.1 million in 2008 compared to 6.3 million in 1995), and subsequently declined into early 2011 (coming in at 21.3 million) and then working to recover, climbing back to 26.4 million in mid-2017.However, there was a falloff in the second half of 2017, retreating to just below 26 million. Again, the level at the end of 2017 remained below the 2008 level.”

Data Source: Federal Deposit Insurance Corporation, Quarterly Banking Profile


Angel investment: “According to numbers from the Center for Venture Research at the University of New Hampshire…, moving past a big drop in angel investment in 2002, coinciding with the aftermath of the 2001 recession (as well as the post ‘tech bubble’), growth resumed from 2003 through 2007, with angel investments increasing from $15.7 billion in 2002 to $26 billion in 2007. Subsequently, though, there was a large decline in 2008 and 2009 during the recession. Post-recession growth was underwhelming, growing from $17.6 billion in 2009 to $24.8 billion in 2013. Since then, however, angel investment has stagnated – in fact, actually declining some, coming in at $23.9 billion in 2017.

Source: Center for Venture Research at the University of New Hampshire


Venture capital: “The trend on the venture capital front after the Great Recession tends to show more robust growth, even with a decline from the second quarter of 2015 to the fourth quarter of 2016. Since then venture capital investment has bounced back nicely, and over the longer run, growth has been solid since the end of the recession – moving from $4.8 billion in the second quarter of 2009 to $21.2 billion in the first quarter of 2018.”

Data Source: PwC/CBInsights MoneyTree™ data explorer,


Online lending and crowdfunding: SBE Council President & CEO Karen Kerrigan noted the key data on this front in her recent testimony (June 21, 2018) before the U.S. House of Representative’s Committee on Financial Services:

● “A May 31, 2018 study, “The Economic Benefits of Online Lending to Small Businesses and the U.S. Economy” reported that just five of the largest lending platforms funded nearly $10 billion in online loans from 2015 to 2017, generating $37.7 billion in gross output, creating 358,911 jobs and $12.6 billion in wages in U.S. communities. The study found that 24 percent of these borrowers are microbusinesses with less than $100,000 in annual sales and two-thirds have less than $500,000 in annual sales. So online lenders are definitely filling an important niche, and small business borrowers are becoming better educated about this type of financing.”

● “The Jumpstart Our Businesses Startup Act (JOBS Act) included solid reforms that have helped boost Initial Public Offerings (IPOs) and deliver many startups the funding they need through regulated crowdfunding (Title III crowdfunding)… To date, there are nearly 1,000 active campaigns (about 600 of those are fully funded), where $132 million has been committed from 133,883 backers (investors). The average raise is $247,456. A wide array of sectors are represented, with application software companies leading the pack followed by beverages (alcoholic), computer hardware, entertainment and the auto industry.”

Given this mixed bag – some good news and some underwhelming data – the continuing challenges regarding the economy (for example, according to the latest revision from the U.S. Bureau of Economic Analysis, real GDP growth in the first quarter of 2018 was a woeful 2.0 percent, which followed on a less-than-impressive 2.9 percent in the fourth quarter of 2017), and the realities on the tax and regulatory fronts, further pro-small business policy changes are needed.

In addition to the legislation SBE Council supported at this Senate Banking Committee hearing and a list of other measures geared directly at the access to capital issue – such as on the regulated (Title III) crowdfunding front, raising the amount that can be raised (which is currently $1 million), allowing issuers to “test the waters,” allowing for special (or single) purpose vehicles, providing simplified rules for advertising, legal clarity for platforms, and removing the caps for accredited investors – other broad institutional regulatory relief and reforms are needed to spur entrepreneurship, lending and investment. These include, for example, congressional approval of rules and regulations, sunsetting rules and regulations, establishing independent congressional regulatory analysis that includes rigorous cost-benefit analysis, setting up a substantive regulatory budget, and requiring a supermajority vote (such as 60 percent in each chamber of Congress) to pass bills imposing major regulations on businesses, entrepreneurs and investors.

On the tax front, additional measures are needed to incentivize entrepreneurship and investment. That includes more substantial reductions in personal income tax rates than were part of the tax reform measure signed into law in December 2017.

In addition, as noted in SBE Council’s access to capital testimony, “capital gains tax relief is needed to boost access to capital for the entrepreneurial sector of our economy, and further enhance economic, income and employment growth. One key measure would be reducing the capital gains tax rate – such as from the current rate on individuals of 23.8 percent to 10 percent or 15 percent – while also indexing gains for inflation so that the real capital gains tax rate does not climb higher than the stated nominal rate. In the end, the capital gains tax diminishes the returns on and disincentivizes investment and entrepreneurship. Reduce the capital gains tax substantially, and that would be good news for the risk taking that drives the economy forward.”

If we’re serious about the desire for increased entrepreneurship, investment, economic, income and productivity growth, then Congress needs to continue to advance substantial, permanent tax and regulatory relief.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


News and Media Releases