A significant share of locally owned businesses are struggling to secure the financing they need to grow. Our 2014 Independent Business Survey found that 42 percent of local businesses that needed a loan in the previous two years had been unable to obtain one.
One consequence of this credit shortage is that many small businesses are either not adequately capitalized or have been forced to rely on high-cost alternatives to conventional bank loans, such as credit cards. Both scenarios make them far more vulnerable to failing.
Lack of sufficient small business capital is a major concern for the economy. Historically, about two-thirds of net new job creation has come from small business growth and studies show locally owned businesses contribute significantly to the economic well-being of communities.
To help inform its member organizations, AIB has produced a Backgrounder on the Small Business Credit Crunch. These are some of the key take-aways:
- About three-quarters of small business credit comes from traditional financial institutions. At the beginning of 2014, banks and credit unions had about $630 billion in small business loans on their books
- Since 2000, the volume of business lending per capita at banks has grown by 26 percent, but this expansion has entirely benefited large businesses. Small business loan volume at banks is down 14 percent and micro business loan volume (business loans under $100,000) is down 33 percent.
- Local community banks provide a disproportionate share of small business loans. Indeed, it is their declining market share that is largely to blame for the constriction in small business lending. As they lose ground to big banks, there are fewer financial institutions focusing on small business lending and fewer resources devoted to it. The top 4 banks now control 43 percent of all banking assets, but account for only 16 percent of small business loans.
- Credit unions have expanded their role in small business lending, from $14 billion in business loans ten years ago to over $44 billion today. However, only about one-third of credit unions currently participate in this market.
- The U.S. Small Business Administration’s loan guarantee programs have historically played an important role in expanding credit to small businesses that don’t quite meet conventional lending requirements. However, over the last few years the SBA has reduced its support for very small businesses and shifted more of its loan guarantees to larger businesses. Since the mid 2000s, the number of business loans under $150,000 guaranteed by the SBA each year has fallen from about 80,000 to 24,000. Meanwhile, the SBA’s average loan size has more than doubled to $362,000.
The Backgrounder outlines several broad policy solutions, with a focus on strengthening and expanding community banks, increasing credit union business lending, and reorienting the SBA’s loan guarantee programs to once again cater to the needs of businesses that are truly small.
FOR IMMEDIATE RELEASE
March 11, 2014
WASHINGTON D.C. – The Advocates for Independent Business, a coalition of 11 national organization representing over 100,000 small businesses, issued the following statement regarding tomorrow’s House Judiciary Committee hearing on “Alternative Solutions to the Internet Sales Tax Issue”:
“This is a critically urgent issue for the nation’s small businesses. Current tax policy distorts free market competition by requiring local brick-and-mortar retailers to collect sales taxes while exempting many of their online competitors. In our recent poll of over 1,200 small independent retailers, more than 75 percent said that this disparity was negatively impacting their sales.”
“We appreciate the leadership of Representative Goodlatte and the committee’s thoughtful examination of this issue. It’s been more than 21 years since the U.S. Supreme Court issued its Quill ruling inviting Congress to address the question of sales tax and remote sellers. We hope this hearing will lead to swift legislative action in the House. Our small business members believe now is the time for Congress to finally resolve this issue and give small businesses an opportunity to compete on a fair and level playing field.” Continue reading
Today the Advocates for Independent Business and the Institute for Local Self-Reliance released the results of a national survey of 2,602 independent business owners. The survey found that the Buy Local message is boosting customer traffic and improving the outlook on Main Street, but policymakers need to do more to create a level playing field and ensure that small local businesses have an equal opportunity to compete.
Among the survey’s key findings:
Sales Growth — Independent businesses reported revenue growth of 5.3% on average in 2013. The retailers surveyed experienced a 1.4% increase in same-store holiday sales, comparable to many competing chains.
Buy Local — Over 75% of businesses located in cities with active Local First campaigns reported increased customer traffic or other benefits from these initiatives. Continue reading
On Tuesday, AIB’s member organizations participated in a collaborative webinar to share strategies for creating dynamic consumer events and campaigns that build support for independent businesses.
- Eric Levin of the Alliance for Independent Media Stores provided details about Record Store Day, which has become a global phenomenon that brings tens of thousands of people into independent record stores. “One way we’re measuring success is the volume of sales at record stores and the resurgence of vinyl sales,” Levin noted. He added that on Back to Black Friday, a spin-off of Record Store Day, many stores saw double-digit sales increases.
- Kathleen McHugh, president of the American Specialty Toy Retailing Association, discussed ASTRA’s approach to Neighborhood Toy Store Day, which is held in mid-November. “The key for us is to keep it simple, allowing each store to do Neighborhood Toy Store Day in their own way,” she said. This year, dozens of popular “mommy bloggers” blogged about the event and the value of local toy stores, propelling increased traffic and sales. ASTRA helped its members capitalize on the online visibility with a suite of social media graphics. Continue reading
Rob Stott, writing in Associations Now, a magazine published by the American Society of Association Executives, covers the AIB’s founding:
Seven trade associations representing a variety of industries are launching a new coalition aimed at “bringing the conversation back to issues that matter” to small businesses.
When Advocates for Independent Business (AIB) was officially announced last month, it was essentially a formality, a logical next step for the group of seven small-business associations.
“A group of us execs have been meeting for a number of years, talking about issues that all of our members share,” said Kathleen McHugh, president of the American Specialty Toy Retailing Association (ASTRA), one of the founding organizations. “We all banded together one year and went to Washington as an unofficial coalition of independent trade organizations. That worked out so well that we decided to formalize it and give ourselves an identity, so that when we talk to other organizations like ourselves, we would be able to explain who were are and what we’re trying to do.”
AIB—whose founding members, in addition to ASTRA, include the American Booksellers Association, American Independent Business Alliance, the Independent Running Retailers Association, National Bike Dealers Association, Professional Association of Innkeepers International, and Record Store Day—plans to focus on creating a “level playing field” for retailers of all sizes. Specifically, McHugh said, the group will push for passage of the Marketplace Fairness Act—which would require online and catalog retailers to collect sales tax—and state-by-state online sales tax laws. AIB will support better access to capital for small businesses…. Read more
In a commentary published today in Business Week, AIB co-founders Kathleen McHugh (American Specialty Toy Retailing Association) and Oren Teicher (American Booksellers Association) outline why passing internet sales tax fairness legislation is of critical importance to the nation’s small businesses. They urge the U.S. House to make this the last holiday season in which Main Street retailers have to compete with one hand tied behind their backs:
Yes, Small Business Wants Online Giants to Collect Sales Tax
by Kathleen McHugh and Oren Teicher
Business Week, Nov. 22, 2013
Main Street brick-and-mortar shops are once again heading into the crucial holiday season with one hand tied behind their backs. They’re competing with online sellers such as Amazon.com (AMZN), which doesn’t collect sales tax in more than 30 states, according to the Institute for Local Self-Reliance. Combined state and local sales tax rates range from 6 percent to 10 percent in most states and can top 12 percent in some cities, according to the Tax Foundation. It’s hard to compete if you have to impose this cost on customers while your online rivals do not.
In May, the Senate passed the Marketplace Fairness Act, which gives states the ability to require large out-of-state Internet retailers to collect sales tax, just as local brick-and-mortar stores must. Why hasn’t the House acted? The hesitation may be due in part to confusion about how this bill would affect small businesses. In a remarkable feat of inversion, opponents have argued in one op-ed after another that it would harm small businesses.
Seven independent business organizations have joined together to launch the Advocates for Independent Business (AIB), a new coalition dedicated to ensuring that locally owned, independent businesses succeed and thrive.
The coalition was founded by the American Booksellers Association (ABA), American Independent Business Alliance (AMIBA), American Specialty Toy Retailing Association (ASTRA), Independent Running Retailers Association (IRRA), National Bicycle Dealers Association (NBDA), Professional Association of Innkeepers International (PAII), and Record Store Day (RSD).
AIB will provide a structure for its member organizations to exchange information about successful programs that deliver value for their members, generate new ideas to support independent businesses, and work together to advocate for shared public policy goals. Continue reading