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The US economy is going through one of the toughest times I’ve seen in my 40-year career. Inflation, labor shortages, supply chain disruptions – all hit big business hard and small business even harder.
And so this week, at the Goldman Sachs 10,000 Small Business Summit in Washington, DC, I will join leaders across the country in calling for action. The pandemic has created a slew of new challenges for small businesses, but the federal programs they rely on aren’t well equipped to help. It’s time to upgrade these programs so that small businesses have the tools they need to navigate the turmoil ahead.
And rather than pass these reforms one by one, Congress should consolidate them into a single legislative package: the first reauthorization of the Small Business Administration (SBA) in more than 20 years.
Now, it’s true that small businesses got a lot of help at the start of the pandemic. It was only last year that Congress passed the US bailout, which provided grants and loans to millions of small businesses so they could keep their doors open and their employees on their payrolls. .
But now that the economy is running at full speed, the recovery is in jeopardy. According to a recent survey of 1,533 graduates of Goldman Sachs’ business education program, 10,000 small businesses, 93% fear that the United States will enter a recession in the next year. Eighty-nine percent of small business owners say economic trends such as inflation, supply chain issues, and labor issues have a negative effect on their business. 80% say inflationary pressures have increased over the past three months and 75% say inflation is hurting the financial health of their business.
David Solomon, CEO of Goldman Sachs & Co., speaks at the Milken Institute Global Conference in Beverly Hills, California, U.S., Monday, April 29, 2019.
Kyle Grillot | Bloomberg | Getty Images
We already have a wide range of federal programs designed to help, but they need to be reformed to meet the challenges ahead. Congress can lend a hand by taking action on the following four issues.
First, small businesses struggle to find and keep good workers. Lawmakers should consider new programs to help small businesses compete with big companies to retain and develop talent. For example, Congress could improve paid vacation programs and create new tax credits to support small business hiring and retention efforts.
Second, the pandemic has not only increased the need for capital, but has also exposed shortcomings in credit markets, especially for black-owned small businesses. According to Goldman Sachs survey data, 48% of Black small business owners say they plan to take out a loan or line of credit for their business in 2022, but only 19% are ‘very confident’ in their company’s ability to access capital. And so Congress should build the capacity of community development financial institutions (CDFIs) to provide more credit to small businesses in underserved communities.
Third, child care is one of the most significant economic vulnerabilities highlighted by the pandemic. According to Goldman Sachs survey data, 80% of small business owners support Congress increasing access to affordable child care. Congress could help by expanding and improving programs designed to lower the cost of child care and increasing access in so-called “child care deserts” across the country.
Fourth, the barriers to entry for small businesses seeking federal government contracts are too high. From 2010 to 2019, the number of small businesses providing common products and services to the federal government decreased by 38%. Even more alarmingly, the number of new small businesses entering the federal government procurement market has dropped by 79%.
The federal government already has targets for the share of contracts awarded to various types of small businesses, including those owned by women and those located in historically underutilized business areas (HUBZones). Yet the federal goal of contracting small women-owned businesses has only been met twice since its inception in 1994, and the HUBZone goal has never been met.
A modernized SBA could help fix things. Congress should level the playing field by streamlining processes and expanding the scope of procurement opportunities, especially for minority and women-owned small businesses.
All of these reforms would go a long way toward making small businesses as resilient and tenacious as ever. Despite the challenges they face, 65% of small business owners remain optimistic about the financial trajectory of their business this year. With a modernized SBA and other efforts by policymakers, Congress can help ensure that small businesses remain the mainstays of our economy and local communities.
The road ahead will be bumpy, no doubt, but if there’s one thing I know, it’s never to bet against America. It is our entrepreneurial spirit that drives the world’s most resilient economy. And if the public and private sectors work together, we can ensure that small business owners have the tools they need to keep the economy on track.
—By David Solomon, CEO of Goldman Sachs