Entrepreneurship &

Creating Small Business Jobs

Brookings Institution

November 15, 2011

Small Businesses Drive the Economy

~28 million in U.S.

Account for about half of U.S. private sector payroll

Created ~65% of net new jobs over the past 15 years

Source: SBA; Census; BLS

Small Businesses Hit Harder, Still Recovering

(2,000)

(1,500)

(1,000)

(500)

0

500

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Small Businesses

Medium / Large Businesses Employment by firm size (quarterly)

62% of net job losses since March 2007 have come from small businesses

2007 2008 2009 2010

Source: SBA

32% of net job loss from smallest businesses

Source: Bureau of Labor Statistics; Nonfarm payroll.

Net Job Losses by Firm Size (millions)

137

130

-2.5

-2.0

-0.3

-2.9

2007 1 to 19 Employees

20 to 249 Employees

250 to 499 Employees

500+ Employees 2010

7.7 million jobs

Gap: Business Failures Exceeds Births

Source: Bureau of Labor Statistics; Quarterly Data

125

145

165

185

205

225

245

1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10

Business Births

Business Deaths

Recession

Establishment births and deaths (thousands)

1993 1995 1997 1999 2001 2001 2003 2005 2007 2009

New Business Starts Down 100,000

Establishments less than 1 year old (thousands)

* McKinsey Analysis

Source: McKinsey & Company, Bureau of Labor Statistics.

The decline caused by 2007

Recession led to 1.8 million

jobs that were not created*

550

584 588 615 610 610

634 631 612 609 603

633

667 656 627

548

505

400

450

500

550

600

650

700

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1994-2009

Avg. 611K

SBA: Putting capital in the hands of small businesses

$90 billion in outstanding SBA Loans with 5,000 of 7,000 banks using SBA supported loans

$11 billion in outstanding growth capital through ~150 Small Business Investment Companies

Source: SBA

600

620

640

660

680

700

720

2005 2006 2007 2008 2009 2010 2011

Small Business Loans Decreased $105 billion

Note:

Source:

Refers to outstanding small business loans (e.g., on balance sheet) of <$1 million

FDIC Call Report Data

Small Business Loans (billions)

-$105 B /

-15%

Credit Standards Tightened Starting in 2007

-5.3% -1.9%

-7.7% -9.6%

-30.4%

-51.8%

-65.3%

-74.5%

-69.2%

-42.3%

-33.9%

-16.1%

-4.0%

0.0%

9.0% 7.1%

1.9%

13.5%

7.8%

-80.0%

-70.0%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

Source: Federal Reserve Board of Governors Survey of Senior Loan Officers

Net Loosening of Small Business Credit Standards by Bank Loan Officers

2008 2009 2010 2011 2007

Net

Tig

hte

nin

g o

f

Cre

dit

Sta

nd

ard

s

Net

Lo

os

en

ing

of

Cre

dit

Sta

nd

ard

s

$30 B: All-time record in SBA Lending (FY 2011)

FY08 Avg. $1.50 B

FY09 Avg. $1.09 B

FY10 Avg. $1.40 B

FY11 Avg. 2.01 B

$0 B

$1 B

$1 B

$2 B

$2 B

$3 B

$3 B

$4 B

10

/07

12

/07

2/0

8

4/0

8

6/0

8

8/0

8

10

/08

12

/08

2/0

9

4/0

9

6/0

9

8/0

9

10

/09

12

/09

2/1

0

4/1

0

6/1

0

8/1

0

10

/10

12

/10

2/1

1

4/1

1

6/1

1

8/1

1

$6 B

SBA Monthly loan volume (gross dollars)

Source: SBA; Includes 7(a) and 504 Loans

Decline in VC Fundraising, Startup Investment

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

0

5

10

15

20

25

30

35

2007 2008 2009 2010

Number of Financings

Dollars (Billions)

Source:

National Venture Capital Association

Total Venture Capital Investments

Number and Dollar of Investment

(# VC financings)

-31% ($billion)

$2.6 B: All-time record in SBIC Commitments

Loans to Small Businesses (billions)

Over 1,000 businesses financed; 22 new funds licensed

$0.8 $1.2

$1.8 $0.5

$0.4

$0.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Avg. 06-09 2010 2011

Private Commitment SBA Commitment

Licensing Time (months)

14.6

5.8 5.5

0

2

4

6

8

10

12

14

16

Avg. 06-09 2010 2011

$1.3

$1.6

$2.6

Source: SBA

Where Will New Jobs Come From?

Main Street Small Businesses 1

High Growth Businesses 2

Small Businesses in Supply Chains 3

Main Street gap: small-dollar, underserved

…How can we increase points of access to capital for Main Street, especially underserved communities?

1

Small Dollar Loans of less than $250,000 (billions)

240

250

260

270

280

290

300

Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11

Small Dollar loans have

decreased $53 B since 2008

-18%

Source:

FDIC Call Report Data

Provide “More Doors, More Dollars”

Streamlined paperwork on small loans

Community Advantage

CDFIs / CDCs

Microloans

Allow high-touch, community-based institutions into SBA lending for the first time

Strengthen network of microlender intermediaries

13 top U.S. banks – $20 B in incremental small business lending commitments over next 3 years

Big Bank Commitments

1

Access to Capital Partnerships

Equity Microlenders CDFIs CDCs Credit Unions

Community Banks

Big Banks

SBIC SBA Microloans

Intermediary Lending

Pilot

Community Advantage

SSBCI

504 Loans

1,000+ New Lenders

$20bn Commitment

USDA Rural

Filling the Gap by Leveraging Existing Programs

1

High-growth firms create nearly all net new jobs. What can we do under existing authority, budget constraints?

Entrepreneurship rates are down

2

Nascent Entrepreneurship Rate

Percent of 18-64 year old population

Source:

Global Entrepreneurship Monitor

Startup America, “We Can’t Wait”

$1 billion committed (Michigan first fund)

$1 billion committed (Starts 2012) Capital

Counseling

Coordinate Regional Accelerators; Startup America

Innovation

Centralized web site for 11 agencies ($2.5 B in annual grants/contracts)

SBIC Impact Fund

SBIC Early Stage Fund

Entrepreneurial Mentor Corps

SBIR 2.0

Loan Deferment (Income Based Repayment) Young Entrepreneurship Series

Youth Entrepreneurship

12-month fast-track option, reducing backlog Patent Reform

Presidential memo: 5-year plans to speed commercialization, streamline grant process

Federal Lab Commercialization

More flexibility on IPOs, crowd-funding from SEC Crowd-Funding

2

…How can we strengthen small manufacturing businesses?

Support and Strengthen Small Businesses in Supply Chains 3

Net Change in Manufacturing Employment (Thousands)

-800

-700

-600

-500

-400

-300

-200

-100

0

100

2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1

From 2006-10

manufacturing lost 2.7

million jobs net;

manufacturing began

adding jobs in the second

quarter of 2010

Economic Multiplier by Industry (Intermediate Demand)

$1 in manufacturing

output creates $2.41 in

total economic output in

the economy

Source:

Bureau of Labor Statistics; Department of Commerce

Better Tools: Working Capital, Counseling

Low cost working capital tools for small contractors, sub-contractors Capital

Counseling

Match-making portal that links top U.S. firms with innovative small suppliers

Partnership includes IBM, Citigroup, Pfizer, Bank of America and others

Revenue Generation

Supporting development and training to fill skills gap in advanced manufacturing

Partnership with National Association of Manufacturers

SBA CAPLines

Supplier Connection

Skills for America’s Future

3

Presidential call for agencies to pay small business contractors in 15 days (down from 30)

Puts billions of dollars in the hands of small businesses quicker

Federal Quick-Pay

$30 M State Trade Export Promotion Grant Program Strengthened SBA International Trade Loan programs

Small Business Exports

Closing Thoughts

Leveraging public-private partnerships is key

Maximizing existing resources to support America’s Entrepreneurs

-1000

-800

-600

-400

-200

0

200

400

600

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11

Monthly Net Employment Change

Thousands

There has been net new

job creation for 13

consecutive months

Source:

Bureau of Labor Statistics