The June jobs report confirms what many economists and financial experts have been saying for quite some time — until small businesses feel some sense of certainty and stability in the proposed regulations being discussed in Washington, and until bank credit becomes more accessible, the economy will continue to lose jobs.
Due to weak private-sector job growth, Americans continue to suffer through the pain of sustained high unemployment as the nation struggles to recover from the recession.
We are in the midst of a crisis of risk, not liquidity. Banks and banking regulators are overreacting to economic signals and minimizing exposure to risk.
The most constructive policy response would be to make sure that the federal government’s much greater tolerance for risk is put to work leveraging bank capital through existing programs like the Small Business Administration’s 7(a) and 504 loan programs.
The government has spent trillions of dollars in stimulus efforts with only a fraction targeted toward small businesses.
In order to leverage fully the power of small and franchise businesses to lead the economic recovery, simple changes to the Small Business Administration loan programs could have huge economic payoffs.
Before the economic crisis, the conventional loan markets ensured that small businesses could find financing, and most borrowers did not think twice about the SBA.
Today, however, even thriving businesses can find it difficult to arrange a loan. Existing loan limits do not reflect the current credit crunch, and they deny SBA backing to the small-business borrowers who are most likely to be able to create the most jobs.
For instance, according to an analysis by the International Franchise Association, increasing the SBA maximum loan limit from $2 million to $5 million could create between 450,000 to 650,000 new direct and indirect jobs within the next 12 to 18 months.
Needed changes to other SBA loan programs would be positive news for small businesses and the economy alike.
After the recession of 2000-01, the franchise industry created 140,000 new businesses and 1.2 million jobs through 2008. In 2010, despite the fact that bank credit remains elusive for the majority of entrepreneurs, franchise owners are projected to create 36,000 jobs.
When you consider that for every $1 billion in bank lending to franchised businesses, an estimated 40,000 jobs are created and $4.2 billion in economic activity is generated, without question, the link between credit access and job creation is crystal clear.
While this historical perspective sheds light on part of the formula needed to jump-start the economic recovery, it continues to be a mystery that when opinion research shows that Americans view small business — not government — as the main engine of economic growth and job creation, Congress continues to feed big government spending programs and miss opportunity after opportunity to enact sensible solutions to increase capital access to thousands of small and franchise businesses.
If the economy is to rebound, then Congress needs to act before its next break in August to increase the current SBA loan limits — anything short of enacting this important step will further enable the erosion of an already challenging and increasingly weakening economic climate.
Isn’t it time for Congress to stop vacillating and enact measures that will help put Americans back to work? We think so, and so do the nearly 15 million people who don’t have a job.
Stephen J. Caldeira is the president and chief executive officer of the International Franchise Association in Washington.
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