Policy Studies Banking

Freeing investor capital for small business

Something has gone wrong with small business in America. For the first time since statistics were kept, the rate of business failure now exceeds the rate of business creation. It isn’t that businesses are failing more often than usual; rather, new business creation has slowed markedly and the rate continues to slow further. At a time when the labor-force participation rate is at multi-decade lows, the moribund state of small business is alarming.

As with any large problem, there are many contributing factors. A critical one has been the shortage of capital for business investment, particularly for small businesses. Without sources of capital, new businesses with irregular cash flow (or none at all) often are unable to meet payroll, invest in research or product development or seek out new customers. Enabling small businesses to access the capital they need is an urgent priority of public policy. Yet small businesses are having a harder time getting capital through the traditional financial system.

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