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The US economy is going through one of the most difficult times I’ve seen in my 40-year career. Inflation, labor shortages, supply chain disruptions – all of these are hitting big companies hard and small companies even harder.
And so this week at Goldman Sachs’ 10,000 Small Businesses Summit in Washington, DC, I join leaders from across the country in calling to action. The pandemic has presented a number of new challenges for small businesses, but the federal programs they rely on are not well-equipped to help. It’s time to give these programs an upgrade so small businesses have the tools they need to weather the turmoil ahead.
And instead of passing these reforms individually, Congress should consolidate them into a single piece of legislation: the Small Business Administration’s (SBA) first reauthorization in over 20 years.
Now it’s true that small businesses received a lot of help in the early days of the pandemic. Just last year, Congress passed the American Rescue Plan, 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 heating up, the recovery is in jeopardy. According to a recent survey of 1,533 Goldman Sachs business education graduates and 10,000 small businesses, 93 percent fear the United States will enter a recession within the next year. 89% of small business owners say economic trends such as inflation, supply chain issues, and workforce issues are having a negative impact on their business. 80 percent say inflationary pressures have increased over the past three months, and 75 percent say inflation is hurting their companies’ financial health.
Goldman Sachs & Co. Chief Executive Officer David Solomon speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S. on Monday, April 29, 2019.
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We already have a wide range of federal programs designed to help, but they need to be reformed to address the challenges ahead. Congress can help by taking action on the following four issues.
First, small businesses struggle to find and retain 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 capital needs, it has also exposed gaps in credit markets, particularly for black-owned small businesses. According to Goldman Sachs survey data, 48 percent of black small business owners say they expect to get a loan or line of credit for their business in 2022 — yet only 19 percent are “very confident” their businesses will have access to capital. Therefore, Congress should strengthen the capacity of Community Development Financial Institutions (CDFIs) to extend more lending to small businesses in underserved communities.
Third, childcare is one of the most significant economic vulnerabilities highlighted by the pandemic. According to Goldman Sachs survey data, 80 percent of small business owners support Congress to improve access to affordable childcare. Congress could help by expanding and improving programs aimed at reducing childcare costs and increasing access to so-called “childcare deserts” across the country.
Fourth, the barriers to entry are too high for small businesses seeking federal government contracts. From 2010 to 2019, the number of small businesses offering joint products and services to the federal government shrank by 38 percent. Even more alarmingly, the number of new small businesses entering the federal procurement market has fallen by 79 percent.
The federal government already has targets for the proportion of contracts awarded to different types of small businesses, including those owned by women and those located in historically underutilized business zones (HUBZones). But the federal goal for women-owned small businesses has only been met twice since its inception in 1994, and HUBZone’s goal has never been met.
A modernized SBA could help. Congress should create a level playing field by streamlining processes and expanding the scope of sourcing opportunities, particularly for minority and women-owned small businesses.
All of these reforms would go a long way in making small businesses as resilient and resilient as ever. Despite the challenges they face, 65% of small business owners remain upbeat about their company’s financial performance this year. With a modernized SBA and other efforts by policymakers, Congress can help ensure small businesses remain the pillars of our economy and local communities.
The road ahead will no doubt be bumpy, but if I know one thing, it’s that you should never bet against America. It is our entrepreneurial spirit that fuels the most resilient economy on earth. And when the public and private sectors work together, we can ensure small business owners have the tools they need to keep the economy on track.
—By David Solomon, CEO of Goldman Sachs