American small businesses create 65 percent of all net new jobs and employ roughly half of all workers in the private sector. According to the Kauffman Foundation, businesses founded between 1970 and 2000 (some of which grew into large businesses during those years) provided all net private sector job growth during that timeframe.
During recovery phases in particular, these new jobs prove essential to American economic growth and prosperity. Increased hiring is the first sure sign of an economic recovery. Given that increased hiring must include hiring by small businesses, any public policy that impedes small businesses’ ability to grow and hire can be considered a problem for the economy as a whole. To create jobs small businesses need dependable access to credit. They often can’t get it.
This paper reviews challenges smaller enterprises face in obtaining credit, and outlines potential benefits that one proposal—a modest change in the regulations governing credit unions—could have in providing much needed access to small business credit. It describes how this proposed legislation would free up $13 billion in capital and create 140,000 jobs at no cost to taxpayers, and then reviews its likely consequences.