Creating Jobs By Investing In Small Business
Published: January 18, 2017
Updated: January 18, 2017
As Washington prepares for inauguration, a study released today conducted by the Library of Congress’ Federal Research Division provides insight into a topic that interests every Administration – private sector job creation.
Everyone seems to know that our economy benefits when big businesses keep jobs in the U.S. But what many do not appreciate is that U.S. small businesses are even more important for job growth. Two out of three net new jobs in the U.S. are created by small businesses.
And even less understood is that a significant portion of those jobs in small businesses were created with the help of three groups that are not always popular in the public eye – private investors, banks, and government employees.
Imagine a future scenario in which the U.S. government partners with private investors and banks to help small businesses create and sustain more than 1,300 jobs a day, more than 40,000 jobs a month, and nearly 480,000 jobs a year –all without the need for a government subsidy in a program that pays for itself.
In fact, it’s the successful past track record of the Small Business Investment Company (SBIC) program over the last 20 years. The study that was issued today shows that the U.S. government, working with investors from the private sector, helped small businesses to create and sustain 9.5 million jobs.
Using data from the Small Business Administration’s (SBA’s) SBIC program, the report finds that from 1995-2014 nearly 3 million new jobs were created by small businesses, with an average investment by SBICs of $14,500 per job. In addition, 6.5 million jobs were sustained by small businesses with an average investment by SBICs of $4,500 per job – jobs that might otherwise have been lost by those companies for lack of access to capital. Equity investments were especially effective in creating jobs in the small businesses financed by SBICs.
Created in 1958 by President Eisenhower, every president since can take credit for the achievements of the SBIC program over the subsequent 58 years. SBICs have deployed $80.5 billion in capital (two-thirds from the private sector) into approximately 120,000 small businesses. The program uses private capital combined with credit backed by the U.S. government and operates at zero-subsidy to the taxpayer.
Previously, the job creation impact of the program was an estimate based on a report from 1999. SBA’s Office of Investment and Innovation saw the value in sponsoring an external assessment of the SBIC program’s job creation data and commissioned respected academics under the auspices of the Library of Congress’ Federal Research Division to conduct the study. Today, with the release of Measuring the Role of the SBIC Program in Small Business Job Creation by Dr. John Paglia of Pepperdine Graziadio School of Business and Management and Dr. David Robinson of Duke University Fuqua School of Business, working with the Federal Research Division of the Library of Congress, an externally-validated methodology is provided alongside an analysis of job creation from 1995-2014.
Given the significant contribution of SBIC-financed small businesses to job creation nationwide and as the new Administration looks for ways to create private sector jobs, SBICs not only offer a proven model but room to grow. Congress has generously authorized the program at a $4 billion credit ceiling. But existing SBICs have only tapped about $2.6 billion for the last two years, leaving $1.4 billion per year in credit that could have been used to finance small businesses. If future and existing SBICs take full advantage of the additional funding available, more than 85,000 additional jobs could be created each year.
What’s holding us back? Primarily it’s the need to attract additional qualified private investors to the program. With the impressive findings delivered by the Library of Congress’s study, the Office of Investment and Innovation and SBA have the opportunity to draw greater attention to the valuable SBIC program and to celebrate the significant contribution of small businesses and private investors in creating and sustaining much-needed private sector jobs.
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About the Author:
Michele Schimpp is the Deputy Associate Administrator for SBA’s Office of Investment and Innovation.