Time to See that Small Business is too big to fail
Let’s remind policy makers that local Main Street businesses, and the community banks that support them, have too big of an impact to be allowed to fail. They need our support now. — Orv Kimbrough
Our nation has seen several rushes to bail out Wall Street businesses that were deemed “too big to fail.” Big business bailouts — from the auto industry to Wall Street banks to airlines — have totaled billions of dollars from American taxpayers.
Yet small businesses on the brink of extinction are treated as expendable, collateral damage during economic downturns. This reflects a failure to see how systemically important Main Street businesses are. When viewed collectively, America’s small businesses are too big to fail.
U.S. small businesses employ nearly 60 million people — nearly half the American workforce — and comprise 99% of all U.S. businesses. Most have fewer than five employees.
Together, they create and sustain a virtuous cycle. We know a local bank loan circulates an average of six times within the region’s economy. Likewise, successful small businesses create local jobs, generate local tax dollars, and support teachers and public services. Small business owners turn to local lawyers, accountants, marketers and other businesses for help. Their positive ripple effect strengthens neighborhoods and energizes communities.
Policymakers’ responses have often failed to match the scale of the problem for America’s smallest businesses. Yet there now exists a newfound understanding that small businesses are too big to fail and need direct public support to stabilize.
Since March 2020, the Paycheck Protection Program has become the largest small-business support program in American history. But of the $734 billion in forgivable loans made to struggling companies, more than half of U.S. Treasury funding in the first round of PPP went to just 5% of the recipients. An analysis showed that sole proprietorships and independent contractors, disproportionately owned by minorities and women, were largely locked out of the program.
Learning from this shortfall, the new administration is targeting support for our smallest businesses and nonprofits in the current round of PPP loans. It’s also applying a racial equity filter after only 2% of Black-owned businesses received first round PPP lending despite totaling 15% of the nation’s businesses. Recent rule changes for this round, which stops taking applications on May 31, promises to funnel more money toward small women- and minority-led businesses.
The new administration should also level the playing field for the nation’s 5,000 community banks, who are the economic engines of Main Street businesses. They facilitated 28% of all first round PPP loans ($148 billion) and funded about 60% of all small-business loans. Community banks are not insulated from the needs of local businesses. Main Street is their street too. Both are too impactful to fail.
Now is the time for government to stop turning a blind eye to the fintechs entering the bank products market without regulatory oversight. These pseudo-banks peel off the most profitable parts of banking without the consumer protections required of traditional banks. If Venmo, PayPal, Walmart and others want to operate like banks, they should meet similar bank rules and requirements.
As consumers, we play a vital part in the economic recovery mix. As stimulus checks arrive in mailboxes and bank accounts, think small. Resist the ease of internet shopping and reconnect with local shops to prop up local businesses. Spend money at your local florist and corner store. Get to know the owners and staff. Order carryout from a neighborhood restaurant or birthday gifts from the shop down the street.
We’ll build lasting treasure by boosting our sense of community in taking this approach. Small businesses need our support. Main Street is your street, my street and our street. Let’s remind policy makers that local Main Street businesses, and the community banks that support them, have too big of an impact to be allowed to fail. They need our support now.