Small Business Research

Summary

Small businesses are defined as privately owned and operated companies employing a small number of workers. In the United States, the legal definition of a small business is determined by a set of criterion specified by the Small Business Administration. Generally, those criterion mean that a manufacturing business with fewer than 500 employees or a non-manufacturing business with less than $7.5 million in revenue will be considered a small business by the U.S.A. [1] Alternatively, the European Union defines a small business as a firm with fewer than 50 employees.[2] Small business are pervasive throughout the United States and other countries. Typical examples of small businesses include: freight truckers, residential builders, exterior contractors,and architectural contractors[3]. According to the SBA there are approximately 28 million small businesses in the United States that comprise 55% of all US jobs. Furthermore, the number of small businesses in the United States has increased by approximately 49% since 1982.

The Small Business Administration

Created in 1953 as an independent agency of the federal government, the Small Business Administration (SBA) has two strategic goals: first, growing businesses and creating jobs, and second, to serve as the voice for Small Business. SBA claims that the core of their entrepreneurial development is the foundation of targeted, effective advising, training, and mentoring services to drive business. Their entrepreneurial development performance goal focuses on driving greater participation in the resource partner advising and mentoring programs and training courses. The SBA primarily offers a range of financial assistance programs for small businesses that may have trouble qualifying for a traditional bank loan. The SBA guarantees $65 million in loans to small businesses through its two major loan programs, 7(a) and 504. Follow this link for a list of the major SBA Loans. SBA's programs also include financial and federal contract procurement assistance, management assistance, and specialized outreach to women, minorities and armed forces veterans. SBA also provides loans to victims of natural disasters and specialized advice and assistance in international trade. [4]

Agencies affiliated with the SBA include: Small Business Investment Company (SBIC), Small Business Innovation Research (SBIR), and Small Business Development Centers (SBDC).

Contact

Answer desk: answerdesk@sba.gov

Houston office: houston@sba.gov

Office of Chief Information Officer: (202-205-6708)

Office of Performance Management and the Chief Financial Officer: (202-205-6449)

FY 2016 Entrepreneurship Goals

• Broad goal: Strengthen entrepreneurial ecosystems through a variety of strategic partnerships to provide tailored training, mentoring, and advising services that support entrepreneurs during every phase of their business growth.
• Performance goal: reach 1.4 million clients with online and in-person training, mentoring, and advising in FY 2016.
• Programs offered: Small Business Development Centers, Women's Business Centers, SCORE, Learning Center, Boots to Business, Regional Innovation Clusters, Entrepreneurship Education, Emerging Leaders
• Strategies:

1. Harness SBA's nationwide network of resource partners
2. Improve entrepreneurial ecosystems through cross-agency and public-private partnerships
3. Offer tailored training through structured programs and online access

Budget

SBA's total budget request for FY 2016 (including Stafford Act Disaster funding) is $860 million. Of this amount, $3.3 million is for business loan subsidy, $19.9 million for the Office of the Inspector General and $9.1 million for the Office of Advocacy. This total is inclusive of $28 million for administering non-Stafford Act disasters. [5]

Some 2016 budget reforms include:

• Launch SBA One, a program designed to increase loan efficiency process
• Allocates $3 million towards "idea lab" which will help adopt private sector best practices

For further detail, see SBA Budget Graphs.

Criticisms

The most prevalent criticisms of the SBA include [6]:

1. Creates uneven playing field by aiding some businesses while denying aid to others, thus distorting markets;
2. Duplicating activities already provided in private markets;
3. Harms businesses and consumers;
4. Government intervention in deciding market trends can often bet on the wrong companies at taxpayer expense;
5. SBA fosters corruption.

Specifically,

• GAO released Report 10-108 which found that failing to hold firms accountable sent a message to the contracting community that there is no punishment or consequences for committing fraud. See the report for more information.
• The SBA has difficulty in SBA Lender and Loan Oversight.
• The CATO Institute argues that the very conception of the SBA was a bad idea, questioning the federal government's strategy in intervening in the credit market. They say that the United States grew to be an economic powerhouse with a small centralized federal government that largely left business development to the private sector. For more information about the CATO institute's criticism, see this article.

Survey Respondents on Small Business Issues

Survey	Date	Labor Markets	Capital	Sales	General Outlook	Data
SBET February 2016	February 2016	42% of businesses in the survey report few or no qualified applicants for a position that they were trying to fill	4% of small business owners surveyed reported that company borrowing needs were not met	11% cite weak sales as their principal business problem	Spending and hiring plans fell as expectations for growth in real sales volumes declined	(N=2194, Data was obtained from membership files of the NFIB)
Small Business Owner report	Fall 2015	67% planned to hire 12+ employees within 2015	46% of small businesses surveyed cite credit availability as their primary concern	28% of businesses say they will use recently acquired funding to develop a new product or service within the next year	56% say they expect the US economy to improve within the next 12 months 72% of small businesses expect their revenue to increase for the year	(N=1,001 small business owners in the US with annual revenue $100,000<x<$4,999,999 and employing between 2<x<99 employees)
WellsFargo survey	January 2016	26% of small businesses expect to hire in Q1 2016 66% of businesses expect the number of jobs to stay the same 11% of businesses say that hiring and retaining qualified staff is their most pressing problem	19% of businesses responded that obtaining credit was difficult 5% of say cash flow and financial stability as the company's biggest problem 4% of businesses surveyed speculate credit availability may be prohibiting company growth	14% experienced difficulty attracting customers in Q1 2016 38% of businesses surveyed stated a positive revenue increase in Q1 2016	67% of small businesses regard their financial situation as good or very good in Q1 2016 71% expect a positive financial future within the next 12 months 8% of small businesses say that the economy is the principal problem their business is facing	(N=600 small business owners in Q1 2016)
WSJ survey	January 2016	54% of businesses surveyed said they expect firm size to increase	40% of businesses reported that they expect their firm's fixed investment expenditures to increase during the next 12 mo.	73% report an expected sales increase within the year 54% of firms expect their profitability to improve	Investments in new plant and equipment have fallen to their lowest level in more than two years 20% of firms expect the economy to worsen in the year ahead—the highest level in more than two years.
NY Fed Survey	2014	27% of businesses reported an increase in their full time staff 15% reported a decrease in their full time staff 58% of respondents reported no change in their employee base	23% of businesses reported 10-25K of debt 62% of businesses had applied for <100K of financing 41% responded they'd sought financing from a large regional bank	35% of respondents reported increasing revenues and positive profitability 23% of businesses said they'd experienced difficulty in attracting customers	29% of businesses reported personal savings as their primary financing source 29% of businesses operated at a loss 13% of respondents said the increasing costs of running their business was their principal concern	10 states of coverage: Alabama, Connecticut, Florida, Georgia, Louisiana, New Jersey, New York, Ohio, Pennsylvania, and Tennessee with businesses <500.

Issues Facing Small Businesses

Health Care

The Patient Protection and Affordable Care Act was passed by Congress and signed into law by President Obama on March 23, 2010. Together with the Health Care and Education Reconciliation Act of 2010, the law completely replaced the existing health care system in the United States, by expanding Medicaid and Medicare, and mandating all individuals to sign up for health insurance coverage through a Qualified Health Plan (QHP's must be offer affordable and comprehensive coverage - either privately or publicly funded). Here is a link to the complete text of the PPACA and the Health Care and Education Reconciliation Act.

One concern with the Patient Protection and Affordable Care Act is that “Obamacare” will kill Small Business [7]. Obamacare's effect on small businesses is not necessarily seen in the abandonment of plans to grow businesses or death of businesses themselves, but rather, in a slowing or halting in hiring, as well as a cut in employees hours. According to a Gallup and Wells Fargo survey of 600 small business owners conducted in 2012, 48% of small business owners point toward "potential healthcare costs" as a reason for not hiring more employees [8].

Still, while the ACA may have caused a slowing or ceasing in small business hiring practices, the exact harm of Obamacare regulations and mandates to small businesses depends heavily on small business size because the effects vary so greatly between firms of different compositions and sizes in their workforces (i.e. number of full time employees, average wages, state of operation).

The SBA has established a summary of size guidelines for small businesses to qualify "as a small business concern for SBA and most other federal programs" [9] (500 employees for mining and manufacturing businesses or an annual receipt of $7.5 million in average annual receipts for non-manufacturing firms), but these small business standards vary between industries. The United States has almost 6 million small businesses that fall under small business size classifications; however, 90% of small businesses employ fewer than 20 people [10]. More precisely, 61% of firms have between 3 and 9 employees, while 98% of firms employ between 3 and 199 employees. [11]

According to the ACA, small businesses with fewer than fifty full-time equivalent employees are exempt from the employer mandate. At the time of the ACA'S enactment in 2012, only 200,000 small businesses would have been affected by the employer mandate, as 96% of the small businesses employed fewer than 50 employees [12].

Furthermore, while the cost of insurance premiums and plans have assuredly risen post-ACA, health insurance premiums have been increasing due to rising health care costs for many years (prior to the act's enactment) [13] [14].

Access to Capital

Since the Great Recession of the late 2000’s, small business owners have encountered difficulties in getting access to capital. This difficulty has a pervasive effect on small business owners’ ability to not only start, but grow. Small business owners have, when surveyed, indicated that sparse access to capital is the primary threat to their operation. Slimming credit availability, rising student debt, and changing landscape in the loaning market have significantly contributed to an industry-wide decline in access to capital for small business.

Student Debt

Rising student debt[15] may be stifling small business growth[16].

• Researchers at the University of Pennsylvania have discovered that start-ups and small businesses account for approximately 60% of net employment activity in the United States.
• According to a Gallup poll conducted in February 2015, one of the biggest hurdles these companies and new entrepreneurs face, is identifying and accessing the capital to finance their ventures.
• Following the financial crisis of 2008, it's no surprise that the top funding source for new business remains the personal savings accounts of founders.[17]

Personal debt therefore, becomes an integral component of the financing equation in starting a small business. The strong negative correlation found in the Pennsylvania study cites student debt as a possible contributor to declining small business growth[18].

Patent Reform

Patent reform has recently emerged as an important issue in the small business space.The current patent system in the United States is facing a fair amount criticism on multiple fronts. Skeptics have argued that the current system is broken as it allows the presence of entities called 'patent trolls'. Trolls manipulate small businesses and extort money through patent litigation. Metrics regarding the prevalence of patent trolls are unclear. Several important pieces of legislation have been proposed to combat these reported patent trolls, as well as a "Prize System for Invention", which rewards innovative companies with monetary prizes instead of patents.

Small Business Data Sets

Name	Link	Description	Data Summary
Dynamic Small Business Search	http://dsbs.sba.gov/dsbs/search/dsp_dsbs.cfm	The Small Business Administration maintains the Dynamic Small Business Search (DSBS) database. As a small business registers in the System for Award Management, there is an opportunity to fill out the small business profile. The information provided populates DSBS. DSBS is another tool contracting officers use to identify potential small business contractors for upcoming contracting opportunities. Small businesses can also use DSBS to identify other small businesses for teaming and joint venturing.
Office of Advocacy News	https://www.sba.gov/advocacy	The News Update File is an xml news update file to inform the public about recent regulatory alerts, Advocacy small business statistics reports, Advocacy small business research reports, and Advocacy regulatory comment letters.
State Licenses & Permits		Identifies the specific licenses or permits a business may need depending on the type of business, its location, and applicable government rules.
FDIC	https://www5.fdic.gov/qbp/index.asp	Private sector loans to small businesses
World Bank	http://www.doingbusiness.org	The World Bank’s Doing Business series, dating to 2001, is an annual compendium and international ranking of regulatory measures impacting small business, such as the number of days it takes to legally register a business. Different aspects appear each year.	Doing Business offers economic data from 2003 to the present. The data is presented in a variety of ways useful to researchers, policy makers, journalists and others
Kauffman Foundation	http://www.kauffman.org/section.aspx?id=research_and_policy	Studies and data on small business and entrepreneurship
Warrington College of Business	https://site.warrington.ufl.edu/ritter/ipo-data/	IPO data	Up to date information on IPO's including: Underpricing, tech stocks, age, price revisions, sales, underwriting, foreign, long run returns, VC-backed IPOs from late 1900s - 2015
Bureau of Labor Statistics	http://www.bls.gov/bdm/	Highlights from data series produced by BLS Business Employment Dynamics (BED) program provide some insights on the contribution of new and small businesses to the number of businesses and jobs in the economy.	Set of statistics generated from the Quarterly Census of Employment and Wages program. These quarterly data series consist of gross job gains and gross job losses statistics from 1992 forward.
Federal Procurement Data System	https://www.fpds.gov/fpdsng_cms/index.php/en/reports	A Department level report that displays Small Business data for a specified date range by Funding/Contracting Agency.	This report displays the dollars, actions, and percentages for small business contracts in FY 2016 and goes back all the way to FY 1981
PayNet small Business Lending Index	http://www.paynetonline.com/issues-and-solutions/all-paynet-products/small-business-lending-index-sbli/	PayNet specializes in loan data and has a database which includes information on more than 20 million loans and leases. For these indexes, PayNet uses the data from US companies which have less than $1 million in total outstanding loans.	The Small Business Lending Index (SBLI) measure the volume of small business loans issued over the past 30 days and are based on the most recent data from the largest commercial and industrial lenders in PayNet's U.S. database, including both loans and leases.
Paychex	http://www.paychex.com/jobs-index/index.aspx	Paychex tracks changes in the employment levels of 350K small businesses with <50 employees	The data for the jobs index comes from a subset of the Paychex client base, approximately 350,000 businesses with less than 50 workers in the U.S
ADP small business report	http://www.adpemploymentreport.com/2015/March/SBS/SBS-NER-March-2015.aspx	The ADP Small Business Report provides the number of jobs created or lost by company size (1-19 employees, 20-49) and sector (goods or services). A seperate report details job gains and losses for national franchises.	The ADP National Employment Report® is published monthly by the ADP Research Institute® in close collaboration with Moody’s Analytics and its experienced team of labor market researchers. The ADP National Employment Report provides a monthly snapshot of U.S. nonfarm private sector employment based on actual transactional payroll data.
Intuit Small Business Index	http://www.intuit.com/company/press-room/press-releases/2015/Small-Business-Employment-Remained-Stagnant-in-October1/	The index measures compensation, hours worked, and revenue for companies with <20 employees	The Employment Index is based on anonymized, non-identifiable aggregated data from 271,750 small business employers, a subset of users of Intuit Online Payroll and QuickBooks Online. The Revenue Index is based on anonymized, non-identifiable aggregated data from 240,000 small businesses, a subset of users of Intuit’s QuickBooks Online with industry identification from Dun & Bradstreet.
Statistic Brain	http://www.statisticbrain.com/startup-failure-by-industry/	Startup Business Failure rates by industry
The National Venture Capital Association Yearbook	http://nvca.org/research/stats-studies/	Details the state of the venture capital market in a given year	Primary data sources included:SEC filings that are regularly monitored by Thomson Reuters’ research staff, Surveys of the industry routinely conducted by Thomson Reuters, and Verified industry press and press releases from venture firms.
NFIB Small Business Report	http://www.nfib.com/surveys/small-business-economic-trends/	Measures economic trends in small businesses	The NFIB Research Foundation has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in March 2016.
Medical Expenditure Panel Survey	http://meps.ahrq.gov/mepsweb/	A set of large-scale surveys of families and individuals, their medical providers, and employers across the United States. MEPS is the most complete source of data on the cost and use of health care and health insurance coverage	The Household Component data are based on questionnaires fielded to individual household members and their medical providers. The Insurance Component estimates come from a survey of employers conducted to collect health insurance plan information
SBA Lenders	https://www.sba.gov/lenders-top-100	SBA lending data	Table displaying the 100 most active SBA 7a lenders in the US by lending volume in FY 2016 through Q2
Kaiser Family Foundation	http://kff.org/health-costs/report/2015-employer-health-benefits-survey/	Annual Survey of employers providing a detailed look at trends in employer-sponsored health coverage	The 2015 survey included almost 2,000 interviews with non-federal public and private firms.
Federal Reserve	http://www.federalreserve.gov/communitydev/small-businesses-data-analysis.htm	Many Reserve Banks monitor trends and credit market conditions for small and new businesses. The polling efforts of the Federal Reserve Banks of New York and Atlanta are two examples of System work to better understand small business trends	The SBCS captures the perspectives of businesses with fewer than 500 employees in New York, New Jersey, Connecticut, and Pennsylvania. There were 835 responses to the survey fielded from April 3, 2014 to June 20, 2014. The Atlanta Fed conducted the first-quarter 2014 survey during the first four weeks of April. The survey was completed by 562 respondents
Entrepeneur.com report	https://www.entrepreneur.com/page/216022	Comprehensive statistics on small business trends in the United States for various years
United States Census Bureau	https://www.census.gov/econ/sbo/getdata.html	Statistics for Owner's of Small businesses in 2012	1.75 million businesses were selected for the survey. Survey included are all nonfarm businesses filing Internal Revenue Service tax forms as individual proprietorships, partnerships, or any type of corporation, and with receipts of $1,000 or more.
Small Business Dashboard	http://smallbusiness.data.gov/	Information on small business contracting activities	ncludes procurement contract transactions reported directly through the contract writing systems of approximately 65 U.S. Government, Executive Branch, departments, bureaus, agencies, and commissions Data spans contract transactions from FY 2000 onwards SmallBusinessDashboard.gov is updated with FPDS-NG data on a daily basis
411 Small Business Facts	http://www.411sbfacts.com/	Sortable database of over 60 separate small business surveys	411SmallBusinessFacts.com is a searchable data base of approximately 2,000 facts about American small businesses and their owners (or managers) produced by the NFIB Research Foundation. The Foundation developed this information from telephone surveys of small employers – those employing from one person in addition to the owner(s) to 250. Data collection began in 2001 and continues through the present.
Survey of Minority Owned Businesses	http://www.mbda.gov/sites/default/files/2012SBO_MBEFactSheet020216.pdf	Data set attempting to give a comprehensive outlook to the state of minority business enterprises in the US	Minority owned business fact sheet created in January 2016
NASE	http://www.nase.org/	A trade association that provides day-to-day support for micro-businesses, including direct access to experts, benefits, and consolidated buying power that is traditionally only available to large corporations. The association is the largest nonprofit, nonpartisan association of its kind in the United States.	Presents statistics and facts on self employed members of the US economy from the 1990's to the late 2000s
Federal Reserve board	https://www.federalreserve.gov/pubs/oss/oss3/nssbftoc.htm	Federal reserve board survey of small business finances	Balance sheets of the firm are some examples of the types of information collected. Working papers and methodology reports, codebooks and other related documentation, and the full public data sets are available here for the 2003, 1998, 1993, and 1987 SSBFs

Helpful Websites

• The Small Business Administration: https://www.sba.gov/
• The Federal Reserve Board Survey of Small Business Finances: http://www.federalreserve.gov/pubs/oss/oss3/nssbftoc.htm
• Trends in Small Business: http://smallbiztrends.com/
• Growthology (Kauffman) : http://www.kauffman.org/blogs/growthology

Blog Post

References

1. http://www.gallup.com/businessjournal/186179/student-loan-debt-major-barrier-entrepreneurship.aspx

2. http://www.entrepreneur.com/article/237926

3. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2417676

4. http://www.gallup.com/businessjournal/181592/potential-entrepreneurs-aren-taking-plunge.aspx

5. http://www.forbes.com/sites/kauffman/2014/09/15/student-debt-and-the-millennial-entrepreneurship-paradox/#286763962f70

6. http://obamacarefacts.com/obamacare-small-business/

7. https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/summary-size-standards-industry-sector

8. http://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition/index_en.htm

SBIC

• GAO report on SBIC
  • GAO recommended that SBA provide guidance to SBIC on how to collect and report data on their investments in minority, women, and veteran owned businesses.
• Description of the SBIC Debenture Program

SBIR

• GAO report finds SBIR data reporting inadequate

McNair Center Internal

McNair Center-specific courses of further action regarding SBA

Articles

SBA and Data Reporting