Small businesses constitute a big part of any economy. In the United States, almost half of the workforce is made of small businesses’ employees. With the financial crisis that hit the entire world in 2007, small businesses, in the U.S as well as in other places around the globe, have been the most affected by the crisis. These small businesses are affected on different levels, and it has been hard for many of them to recover from the recession. The effect of this recent recession and the slow economic recovery has led small-scale businesses to either lay off many employees or to freeze the hiring process as the profits of businesses have significantly declined. As a result, the unemployment rate is growing and economic growth is almost inexistent.
According to the 2012 Economic Report of the President, small businesses have a greater dependency on bank financing than larger businesses. The number of loans that banks make to small businesses has decreased by 31% causing small businesses to struggle through this economic hardship. Even if the economy is recovering, it is still yet not enough for small businesses to fully recover. Bank of America said that they made almost $11 billion in new loans to U.S. small businesses in 2013. The bank also plans to hire 200 small business bankers this year, many on the West Coast. Although banks are starting again to give out more loans to small businesses, unemployment rate is still as high. We ended the year 2013 with an unemployment rate of 6.7%, according to the US Department of Labor.
Even if Bank of America made a significant loan to small businesses last year, it doesn’t mean that all the other large institutions are doing the same thing. The problem with small businesses getting loans is that they are mostly sole proprietorships, which means companies with a single owner who controls all business decisions. Sole proprietors often use personal savings, gifts from friends and family, and small business loans to finance their companies. It makes it more difficult for large lenders to allocate them with the money they need to run their businesses successfully.
Because the economy depends on small-scales businesses, and nearly half of the population in the U.S is employed by small-scale businesses, it is important that these businesses have all the resources they need to turn over their losses into significant profits to enable them to be successful. With small businesses taking off again, it will result into the creation of many jobs and the expansion of these businesses, and therefore, an economic growth for the country and the reduction of the unemployment rate, which in my opinion, is still through the roof.