ELECTION DAY 2018: The Stakes are Big for Small Business

By at 4 November, 2018, 2:53 pm

Small Business Insider

Will the Good Times Get Better for Entrepreneurs and Small Business?

By Karen Kerrigan-

The outcome of Election Day 2018 will determine whether policy momentum from Washington continues on its productive pro-growth, pro-entrepreneur path or comes to a screeching halt. The marked shift in the direction of policy over the past 21 months or so has dramatically altered the economic climate and created powerful tailwinds for entrepreneurs and small businesses. This policy path must continue to ensure that robust economic growth – like recent GDP growth of 3.5 percent (Q3) and 4.2 percent (Q2) – remains the norm for the long-term. It must, in order to alter the outlook, opportunities and incomes for the many Americans “left behind” over the past decade or more.

The growth of entrepreneurship and healthy small businesses is central to fostering the economic dynamism that will broaden and extend opportunity for many more Americans. Our nation needs more small businesses and more people pursuing their entrepreneurial dreams.  Healthy entrepreneurship is not only a driver of wealth creation for individuals starting or investing in a small business, it helps to make communities – from small towns to urban communities, rural areas to suburban commercial zones – more vibrant and prosperous.

The dearth in entrepreneurship over the past 15 years or more has been a big piece of the reason why incomes, quality jobs, and hope – particularly outside of America’s high-density regions – have eroded.  But a dramatic shift in federal policy, led by President Trump and Congress, has boosted investment and business confidence, which is now driving our economy forward and producing higher wages, strong consumer confidence and plentiful job options for America’s workers.

So, the climate has vastly improved for our small businesses and those considering starting an enterprise. We all see the data on a regular basis that tracks this dynamic strength in the economy – for example, job creation, wage growth, GDP growth, industrial production, consumer confidence and small business optimism, to name a few – but I’d like to call attention to the important trends that are signaling strength and hope for our small business sector and entrepreneurship in America.  Again, there is nothing more critical we can do for our nation’s economy and strength than to support our entrepreneurs and their enterprises, or those who have startup dreams.

Employer Identification Number (EIN) Applications Surge

As noted by Kevin Hassett, Chairman of the Council of Economic Advisors, in a September 10 report on the economy, new businesses as measured by applications for an employer identification number (EIN) have steadily increased on a quarterly basis with a surge in new activity, particularly in 2018.

For example, EIN applications increased from 704,961 in 2015 Q1, to 725,012 in 2016 Q1, to 771,445 in 2017 Q1, and to 852,991 in 2018 Q1.  Obtaining an EIN demonstrates strong intention for starting a business, or moving forward with an enterprise. These strong numbers showing new business and startup activity mean more people are willing to take risks, which comes from confidence and hope in the direction of the nation’s economy and opportunities in the marketplace.

Community Banks Healthier: Small Business Lending Increases

The Federal Deposit Insurance Corporation’s (FDIC’s) latest quarterly banking profile (released on August 23) shows that Community Banks are performing well, which is good news for small business lending. In fact, according to the FDIC report, small business lending has been on the rise with small commercial and industrial, and nonfarm nonresidential (properties) loan balances at $632.5 billion in the second quarter. That was up from the end of 2017 ($623 billion), and compared to $618.7 billion a year earlier.

According to the report, “more than seven out of ten community banks (73 percent) reported higher net income compared with a year earlier. Reports from 5,111 insured community banks reflected net income of $6.5 billion – up $1.1 billion (21.1 percent) from second quarter 2017.” Again, these are resources that can be plowed back into funding new and growing businesses

Small Business Selling Prices Reach Ten-year High

According to the BizBuySell Q3 2018 Insight Report, sale prices of businesses sold in the third quarter of 2018 reached new highs. The quarterly report observed that “the record sale prices are directly related to stronger business financials which also hit new levels in Q3.”

This dynamic churn, where more businesses are changing hands than ever before, creates winners on both ends of these transactions as small business sellers are successfully completing exit plans (perhaps to start a new business?), and entrepreneurial buyers are purchasing healthier businesses. According to the Insight report, “more businesses are changing hands than ever before,” with a total of 2,685 closed transactions reported in the third quarter of 2018 (a 3.7 percent increase from the same time last year.) This puts 2018 on a record-breaking pace for the number of businesses sold.

“The fact that small businesses are selling for the highest price to date and demand hasn’t slowed shows how much confidence both sides have in today’s market,” said Bob House, president of

Related content: Sales of Small Businesses are Going Through the Roof, CBS News.

Solid Consumer Spending

The latest data (released on October 29) from the Bureau of Economic Analysis shows that consumer spending increased by 4 percent in September. This has been the seventh consecutive month of growth in consumer spending, which accounts for two-thirds of U.S. economic activity.

Obviously, strong consumer spending is critical to small business profitably and the ability of these firms to invest and grow.  For too long a time, small business owners cited the “weak economy” and “low sales” as their top concern.  In 2018, their financials are stronger and so are sales.

Venture Capital Investment is Robust

According to the 3Q 2018 Pitchbook-Venture Monitor, venture capital (VC) invested as of the third quarter in 2018 has already hit record levels since 2006, with one quarter remaining. Robust capital flow and investment is critical to economic dynamism and innovation, which are drivers of entrepreneurship and innovation.  Third quarter 2018 capital investment “topped $27.9 billion, pushing YTD 2018 deal value to $84.3 billion – a record amount of capital raised with a quarter remaining,” according to the report. Total VC invested in 2018 is expected to exceed $100 billion. Early stage investments could also set a record for 2018.

The Policy Environment in 2019?

The currently strong environment consisting of robust business investment, solid consumer confidence, increased startup activity, improved sales for small businesses, an uptick in wages and small business lending can be sustained with policies that generate stability. Policy has been moving in a very positive direction for close to two years, which has helped to fuel business confidence and growth. Still, more progress needs to made in key areas like comprehensive regulatory reform, improving capital markets and access to capital, lowering health care costs, expanding global opportunities through trade, access to broadband, and refinements to our tax system.  Entrepreneurs and small businesses – and our economy – will be ill served by a break in the direction of policy or efforts to modernize and improve policies.

In order to maintain economic momentum and growing opportunity in the United States, it is vital that all American voters consider the policies that help small businesses and entrepreneurship succeed. Our entrepreneurs are the spark that fuel dynamism in our economy and create the opportunities and innovations that keep the U.S. competitive. American entrepreneurs are a symbol of hope that positively impact millions of others throughout the world who dream big and can ultimately shape the destiny of poorer nations that desperately need the spark of entrepreneurial dynamism.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.

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