By Vincent F. Orza Jr.
Dean, Meinders School of Business at OCU
Reading the stories about General Motors, Bank of America, Microsoft, Sears, Wal-Mart and all the other behemoth companies would lead one to believe we are a nation of giant corporations. In reality, it is just the opposite. Both the U.S. and Oklahoma economies are driven by small business – companies with fewer than 500 employees. However, most small businesses are run by one person and operate with fewer than 20 employees.
Based on what you see on the news, you’d think Wall Street was the economic driving force in America, when in fact it is old school main street America: mom and pop shoe stores, hardware stores, plumbers, hairdressers, dry cleaners, groceries, cafés and others. There are roughly 27 million businesses in the U.S., and only about 100,000 of them employ more than 100 people.
Small businesses employ 99.7 percent of Americans and, in Oklahoma, our 328,000 small businesses account for about 98 percent of our labor force.
An argument could be made that more of the economic stimulus package could have been targeted toward small business. There are about 20 million owner-operated companies in the U.S., millions of which are just one-person businesses … essentially, someone working alone. About seven million home businesses generate at least 50 percent of the owner’s household income. What is even more impressive is that 35 percent of home businesses generate more than $125,000 in revenue, and eight percent of these generate more than $500,000!
Think about this – if even 20 or 30 percent of these businesses were able to hire one extra person, the nation’s unemployment problem would have been solved. Additionally, many of these businesses would need more equipment and workspace, resulting in more capital investment, which would spur additional economic growth and employment. Some of those new employees would likely become eligible for health insurance under their employer’s plan, which would help solve the health insurance problem now being debated in Washington.
Access to capital is one of the biggest obstacles to starting and expanding a business. Believe it or not, thousands of new businesses are financed using credit cards. Recent surveys by the National Small Business Association show loan demand for small businesses has declined, but credit card usage by start-up and even established small businesses is increasing. About a third of small businesses carry a credit card balance rather than paying their bills on time. Sadly, credit card debt is about the most expensive way to finance anything, and certainly hinders small business expansion. Credit card companies are fully aware of this, and the Mercator Advisory Group, an industry research organization, says 12 percent of the six billion credit card offers each year go to small businesses.
Mark Zandi is the chief economist at Moody’s. He notes that the Small Business Administration guarantees bank loans for small businesses, but many banks are not lending because their loan rates are capped at about six percent, which isn’t enough to justify the risk. If the SBA increased the maximum size of the loans they guarantee and allowed banks to earn more on those loans, the small business community might enjoy even greater growth.
Tim Kane, an economist and senior fellow at the Kaufman Foundation – and big supporter of entrepreneurship – had a suggestion on how to enhance small business expansion and job growth.
Kane asked, “Guess how much it would cost to have a one-year payroll tax holiday? Keep in mind that every American worker pays essentially 15 percent of each paycheck in payroll taxes on the first $100,000 of income. Answer? $800 billion. This would result in every employee having more take-home pay and every employer having smaller payrolls, which might result in a simultaneous increase in hiring.
There are many instances in Oklahoma of small business explosion. Sonic, Chesapeake, Devon, Continental Resources, SandRidge, Mazzio’s, Ditch Witch, Midwest Trophy, Bama … the list goes on. However, drive through Woodward, Stillwater, Altus, Enid, Clinton, or any other Oklahoma town and the backbone of their local economy will be the small business owners that live and work there, support the local chamber of commerce, Rotary Club, high school year book, and countless other essential elements of small town success.
Now is the time to help other entrepreneurs fulfill their dreams of becoming another Oklahoma and American success story by opening their own business. Management guru Peter Drucker said it best: “The best way to predict the future is to create it.”