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Friday, October 8, 2010

Small Business: Access to Capital and Job Creation

Robert Jay Dilger
Senior Specialist in American National Government

Oscar R. Gonzales
Analyst in Economic Development Policy

The Small Business Administration’s (SBA) authorization is due to expire on January 31, 2011. The SBA administers several programs to support small businesses, including loan guarantees to help small businesses gain access to capital. This report addresses a core issue facing Congress during the SBA’s reauthorization process: what, if any, additional action should the federal government take to enhance small business access to capital?

Historically, small businesses (firms with less than 500 employees) have experienced greater job loss during economic recessions than larger businesses. Conversely, small businesses have led job creation during recent economic recoveries. As a result, many federal policymakers look to small businesses to lead the nation’s recovery from its current economic difficulties. Some, including the chairs of the House and Senate Committees on Small Business and President Obama, have argued that current economic conditions make it imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation.

This report examines the pros and cons of federal intervention in the marketplace to enhance small business access to capital. It assesses recent federal credit market interventions, including the creation of the Troubled Asset Relief Program (TARP) and the Term Asset-Backed Securities Loan Facility (TALF); modifications to the SBA’s loan guarantee programs and other small business provisions under P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA); modifications to the SBA’s loan guarantee programs and other small business provisions under P.L. 111-240, the Small Business Jobs Act of 2010, which include a $30 billion Small Business Lending Fund, a $1.5 billion State Small Business Credit Initiative, and about $12 billion in tax relief for small businesses; and empirical evidence concerning small business lending and borrowing, including the number and amount of small business loans guaranteed by the SBA.

Date of Report: October 1, 2010
Number of Pages: 38
Order Number: R40985
Price: $29.95

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