The federal government influences business owners and entrepreneurs in a wide variety of ways. Not all of these fall under the auspices of the Small Business Administration (SBA), which has become synonymous with federal policy toward small business and entrepreneurship. A few years ago, Andrew Reamer at the George Washington Institute of Public Policy (GWIPP) produced a “reference guide” on federal efforts to support entrepreneurship.
There are scores of programs, offices, and initiatives across nearly every federal agency that purport to help small businesses or support entrepreneurs. The reference guide is not an analysis of efficacy and offers no subjective comments—it’s purely an inventory.
Such an inventory is useful for putting into perspective what the SBA can, can’t, should, and shouldn’t do—and where the next Administrator should focus energy and resources.
It’s not an easy job (not that any job leading a federal agency is easy). The SBA found itself in the public spotlight more in 2020 than in probably any year in its nearly seven-decade existence. Pandemic response efforts like the Paycheck Protection Program (PPP) expanded by more than an order of magnitude the agency’s lending guarantees. The SBA was alternately celebrated and criticized throughout the year.
At the moment, then, stepping into the Administrator role is no small task. The next Administrator will need to prioritize. Over at the Bipartisan Policy Center, we posted 10 questions we thought should be asked of Isabel Guzman, President Biden’s nominee to lead the SBA, during her nomination hearing last week. Here are some of the key issues that the next Administrator, and the entire agency, ought to focus on.
From Relief to Recovery
The country is still in the depths of economic pain—and small business owners and their employees are bearing it more than most large companies. PPP and EIDL (Economic Injury Disaster Loans) were reopened recently after reauthorization by Congress at the end of December. They will help stave off further worsening, especially given the targeting for the hardest-hit businesses.
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At some point, SBA needs to help point the way toward recovery. Already, we’ve seen new business creation spike even as many existing small businesses continue to struggle. It’s too soon to tell whether that spike is a blip or a reversal of secular downward trends in entrepreneurship that existed prior to the pandemic. Clearly, though, the Administrator will need to find a balance between support for business survival and support for business growth. Congress can help on this front—something we’ll look at in a future column—but the SBA can bring frontline knowledge to bear.
Data on small businesses and entrepreneurship has always been an area where “room for improvement” is an understatement. (As it happens, GWIPP’s Reamer has also produced a compendium of federal data sources on entrepreneurship.) For sure, advances have been made. The Census Bureau’s Business Formation Statistics (created pre-pandemic) and Small Business Pulse Survey (created in response to the pandemic) have been enormously useful.
Yet the “global virus crisis” (what some have deemed our situation) has also highlighted many gaps in data on small businesses and entrepreneurs. In some cases, the best information on, for example, the demographics of business owners came from 2012 datasets. There are several good non-governmental sources of data, mostly surveys, which I’ve included in prior columns and that help fill gaps in knowledge. But they’re mostly supplemental. Better administrative data is what’s needed.
The SBA is limited in what it can do here, but that shouldn’t stop the next Administrator from spearheading a conversation, within government and with the public, on what is needed in terms of measurement and resources. The SBA’s Small Business Procurement Scorecards, which are well-regarded and widely-reviewed, could perhaps be a template for data influence. Better data will lead to better policy which should mean more effective support for small businesses.
The data conversation is only one of many that will need to occur with other federal agencies. As Reamer’s inventory demonstrates, practically every agency has a specific program or office or initiative for small businesses and entrepreneurs. It’s probably not a stretch to say that coordination across these could be improved.
Again, the SBA Administrator must play an hortatory role. For that to be effective, the White House will need to make clear that recovery for small businesses and growth for entrepreneurs is not only a priority but also a necessity for economic growth and job creation.
Widening Entrepreneurial Entry
The pandemic and resulting economic crisis destroyed any illusions that still lingered about access to entrepreneurial opportunity. In a report published a year ago, I looked at data on the demographics of business ownership and performance. Blacks and Latinos own businesses at a rate vastly disproportional to their population shares. Businesses owned by men are, on average, larger in revenue and employment than those owned by women.
These gaps have certainly not been overlooked and there are signs of traction. The targeting in the latest round of PPP was aimed, in part, at businesses owned by people of color. There have been some reports of increasing venture investments in Black-founded startups over the last several months. Yet some have indicated that money flowing into venture funds in 2020 went mostly to large firms and away from “emerging managers.” These smaller and earlier-stage funds—which are more likely to invest in companies started by women and people of color—suffered.
This is unquestionably a challenge for everyone concerned about small businesses and entrepreneurs, not just the SBA. By prioritizing this, the next Administrator can help lead a serious and substantive conversation about how to shift the landscape of entrepreneurial opportunity.