Capital Limits: The State of Small Business Finance

It is very difficult to track capital for small businesses in any rigorous fashion. The Census Bureau and the Kauffman Foundation partnered to conduct the Annual Survey of Entrepreneurs (ASE), with the first survey covering 2014. Additional surveys covered 2015 and 2016. These surveys provide a nationwide baseline for investment data for small businesses and entrepreneurs, but the data is only available by state and for the fifty largest metropolitan areas.

The most common sources of business financing for young firms are the personal assets of the owner and the owner’s family. The reliances on these sources limits entrepreneurship to the wealthy. Since we do not know which opportunities will create value, it is important to increase the pool of risk capital beyond the small amount that the market provides, which can create opportunities for those without family resources.

Sources of Capital for Startups (less than 2 years old)

Source: Annual Survey of Entrepreneurs, 2014

A small percentage of firms are able to tap resources beyond their personal assets. For startups less than two years only, only 12 percent (120 out of 1,000) are able to access traditional bank financing and seven percent establish a credit account for their business. Five out of 100 firms are able to get a loan or investment from family or friends. State and local governments operate a number of business loan programs, but these are often out of reach for startup businesses where their only collateral is intellectual property. As a result, for firms less than two years old, 17 out of 1,000 access a government guaranteed business loan and only four out of 1,000 businesses are able to access a direct government loan. This leaves a lot of businesses out of the capital markets.

The Small Business Administration (SBA) publishes information on the lending activity they support through their programs. The SBA 7(a) Program provides loans for small businesses of up to $5 million to fund startup costs, buy equipment and more. Here’s what else you can do with 7(a) funds:

  • Purchase new land (including construction costs)
  • Repair existing capital
  • Purchase or expand an existing business
  • Refine existing debt
  • Purchase machinery, furniture, fixtures, supplies or materials

The Geography of Small Business Finance in Pennsylvania

Using the SBA data, we can dive deeper into what businesses are accessing these loans, where they are located, and what banks are involved. As an example, Fourth Economy created an interactive workbook that presents the SBA 7a loans in the state of Pennsylvania from 2010 through April of 2018. You can explore the maps and data by county.

Fourth Economy’s Rich Overmoyer and Chris Ellis Co-Author Impact Investing Article

Fourth Economy’s President and CEO, Rich Overmoyer, and Social Innovation Strategist, Chris Ellis, recently co-authored an article for Green Building Alliance’s annual publication, Viride. The article, titled Social Change: Refinanced, discusses the origin and recent growth of impact investing. Communities around the country have begun to prioritize triple bottom line benefits and partner across sectors to achieve a greater social impact for their citizens. This new focus has resulted in an impact investment market that currently stands at $74 billion* with projections of $2 trillion in growth over the next decade. The article discusses the origin of this field, highlights how impact investing was used to expand access to high-quality early childhood education, and considers how this financing tool can be utilized to support communities throughout Western Pennsylvania. Click here to read the article.

Have thoughts about impact investing? Let’s talk. Send a note to chris.ellis@fourtheconomy.com.

Global Impact Investing Network. Annual Impact Investor Survey

5 Lessons From the MLB All-Star Game for Economic Opportunity Pursuits

Overmoyer-MLBIt’s All About the Distance. Or is It?

Sure, power contributes to your ability to hit a home run, but it’s also the mechanics of how you swing that can take the ball farther. Many community and economic development initiatives throw a lot of money (power) at an issue without an understanding of the underlying issues and opportunities. A better approach is to use community input combined with real-time data to better understand the current local mechanics and what forms of investment (money and time) it will take to support change. Continue reading “5 Lessons From the MLB All-Star Game for Economic Opportunity Pursuits”

Embedding Equity Into Economic Development

Guest Blog by Sarah Treuhaft, Director of Equitable Growth Initiatives, PolicyLink

Treuhaft-Inequit-BlogIt is another summer in which America’s deep racial fault lines are being painfully exposed. Following the horrific violence in Baton Rouge, Falcon Heights, and Dallas, in a July 8 poll seven in ten Americans said race relations are “generally bad.” A National League of cities analysis of one hundred “state of the city” speeches from 2016 found that mayors increasingly view racism and inequities as major threats to progress in their cities.
Continue reading “Embedding Equity Into Economic Development”

The Challenge of Creating Actionable Plans

Burket-Blog-Web-05-2016As part of our work in our hometown of Pittsburgh, we have been digging into all of the plans that have been created over the past five years or so. So far, we’ve found around two-dozen plans, reports, or studies on all manner of community, workforce, and economic development topics. Of those, about five have well-articulated goals, actions, responsible parties, though the form and detail of those components varies from plan to plan. And even with detailed actions, the degree to which those plans are being implemented varies a great deal. Our experience in Pittsburgh is not unique – we see the same trend in the other places that we work. So why is it, that despite our best wishes and intentions, it is so hard to create actionable plans? Continue reading “The Challenge of Creating Actionable Plans”

How the Private Sector is Paying for Public Innovation

Evans-Blog-20160405City governments have experienced increasing financial strain over the past several decades – pension payments are coming due, infrastructure needs replacing, and the cost of providing social services is increasing. This leaves little room for local governments to get on the social finance innovation train that has been sweeping the private sector for the past few decades, where bright minds have been exploring social enterprise, low-profit limited liability companies, impact investment, and more. However, many have recognized the importance of bridging the gap between private sector innovation and government, leading to organizations across the sectors investing time and money devising ideas that may fill this void. Continue reading “How the Private Sector is Paying for Public Innovation”

NIST Announces NMII Competition

Paytas-Blog-20160405Recently, The National Institute of Standards and Technology (NIST) announced the competition to award its first National Manufacturing Innovation Institute (NMII).  Proposers may focus on any advanced manufacturing technology area not already addressed by another institute or open competition. Seven institutes have been funded to date with two currently moving through the review and negotiation process. After attending the Proposer Day session on March 8, 2016, it is clear that many proposal teams have already been formed. Continue reading “NIST Announces NMII Competition”

48 Hours in Pittsburgh with the Consulate General of Canada

Bernard-Blog-20160405To many Americans, Canada is our friendly neighbor to the north, known for an affable attitude, a passion for pucks and a penchant for strong beer.  What is perhaps less known is how critical trade with Canada is to the economy of the United States.  Consider:

  • Nearly 9 million U.S. jobs depend on trade and investment with Canada
  • Canada is the top export destination for 35 states
  • Canada is the number one supplier of crude oil, refined petroleum products, natural gas,
    and electricity to the U.S. as well as a
    leading supplier of uranium
  • 400,000 people cross the Canada–U.S. border daily

Source: http://can-am.gc.ca/can-am/index.aspx?lang=eng

Continue reading “48 Hours in Pittsburgh with the Consulate General of Canada”

Which Trend is Your Community Experiencing?

Number-Five

Fourth Economy Consulting has turned five and has topped over 200 client engagements in that short period.  And by engagements, I mean that we have had the great fortune to partner with community leaders all over the country as they work to strengthen their organizations and communities. This experience has provided me with yes you guessed it, five notable trends that I wanted to share with you.  Continue reading “Which Trend is Your Community Experiencing?”

Ready, Set, Survey…

Survey-Tailgate

As summer BBQs turn to fall tailgates, how often do you find that neighborly backyard burger flipping leads to discussions on how great your town is or how much better it could be.  Sure there is always room for improvement, but ever wonder how those opinions and impressions sync-up with the facts.  Sometimes we are too hard on our own community when it may really be doing quite well, while other times it is heading for a cliff that nobody seems to notice or care.  In either case, gaining a better understanding of how impressions align with the facts is a good starting point for long-term strategic planning. Continue reading “Ready, Set, Survey…”