The Election That Misplaced Small Businesses

This week opened with Hector Barreto — the current Chair of the Latino Coalition and a former SBA Administrator from 2001-2008 – wondering what on Earth had happened to the economic message during this particular election season.

Barreto notes that despite the fact that jobs are shaping up to be a major concern during this election cycle (particularly among Hispanic voters, but among the voting population in general as well), small businesses aren’t getting much play in the primary conversation this year.

“Small businesses traditionally create two-thirds of the net new jobs in this country, an important fact for any group of voters who are worried about jobs,” Barreto noted.

It’s also important to note that small businesses may not be the growth engine that they used to be.

“Business startups in this country used to outpace business closures by about 100,000 businesses a year,” he said. “Starting in 2008, the opposite became true: The number of businesses opening each year plummeted, and business closures now outpace business openings.”

Baretto isn’t clear on the root of the cause, but as he states it, “the business owners I have talked to repeatedly raised one issue: The government fails to create an environment where entrepreneurs want to take a risk.”

That’s not too dissimilar to the storyline we’ve been hearing in state after state doing our research for the Store Front Business Index, which measures the health of the 3.8 million businesses that line the main streets and side streets of the local communities across the U.S.

Business owners want to grow, upgrade, expand and hire, but feel like they can’t — even when their business is doing well. The specifics of why that is has aired some (more on that in second), but the message came through loud and clear across more than 200 conversations: Entrepreneurs don’t necessarily feel that the government has their back.

Something made more worrisome given the lack of airtime their issues are getting in this election.

As Barreto noted: “All this is missing from the Presidential race. Why aren’t candidates competing to be the best small business advocate? And why aren’t any of them addressing the disturbing fact that fewer people want to start businesses than ever before?”

Now some have argued of course that the overriding problem with with this primary season in particular is that too little attention overall has been paid to any of the big issues.

In a rare moment of bi-partisan cooperation, commentators on the left and the right have finally found common ground: The election cycle has devolved into a reality show where the most important fact up for consideration is the personalities of the players in play. Something that the media, by the way, seems more than happy to perpetuate.

OK, it’s not that the economy isn’t important to the election — far from it. Trade has been a big topic of conversation on the campaign trail, as have debt, taxes, wages, immigration and monetary policy.

The problem — we hear from small business owners — isn’t that the election isn’t related to the economy so much as it is not speaking to them directly, and leaving merchants to do a lot of guesswork when it comes to how their future fits into various candidate’s plans.

Small business owners don’t expect to be the star of the show, but wherever we went — and we went to Vermont, New Hampshire, Massachusetts, Virginia, South Carolina and Georgia — we heard the same two things over and over again.

And while asking for the focus of the race to change may be a tad too much to ask, we thought it was at least useful to point out that there are literally millions of store front business owners in the United States — staffed and headed by people waiting to follow the candidate who can offer the answers to the following two questions in a coherent manner:

1. Can someone please make capital available?

In literally every state and in over 80 percent of conversations we had with store front merchants, the ability to borrow money or secure a line of credit was the first and most important thing owners mentioned as a primary headwind in recent memory.

With a caveat – also almost always offered – that capital and credit have never been easy issues. And for good reason. Even under great conditions, many small businesses fail, it’s always a risky investment and super-risky investment in some verticals like restaurants.

But difficult was something small business owners can handle — the situation we heard described on the road over and over again wasn’t difficult, it was just impossible. Either businesses were simply unable to get certain types of financing (particularly around expansion), or the process was so slow they were unable to see it through and complete whatever project they were attempting to undertake. Many noted that banks they’d had long-term relationships with had either disappeared or significantly changed their underwriting processes.

Most merchants we spoke to noted that when a need for funds was absolutely non-negotiable, their general move was to their private savings or credit accounts. A handful — particularly in the Northeast — had worked with online lenders, and while most reviewed the experience as positive and very efficient, they also noted that the interest was high and they would not use it again unless they faced a critical need.

When the want for funds was non-critical, the funds usually just weren’t spent, the second location never opened, extra staff wasn’t hired or a renovation wasn’t done.

Apart from being the most repeated, it seems worth noting this was the issue where the feelings were surprisingly the strongest and the hardest. Businesses were not only unhappy to be facing the problem, but many owners across regions and political affiliations also noted marked discontent with the invisibility of the issue.

2) Can taxes be made comprehensible?

There is the answer we thought we would get when we asked store front businesses about taxes — and then there is the answer we did get.

We thought we were going to hear lower — and we did hear lower a fair amount, particularly from hospitality and entertainment businesses in popular tourist cities Charleston. The litany of taxes on their receipts did border on slightly comical, or at least they might have if they hadn’t added up to quite so much money.

But what we heard far more often than lower, was less complicated. Some businesses we talked to — usually the very smallest store fronts on those main streets with just two or three employees — did their own books. Almost everyone else had an accountant — and absolutely no idea how much in taxes they were paying, why they were paying it, who they were paying it to and what the bill was going to be quarter-by-quarter. This is not a case of ignorance being bliss, by the way; most of the owners we spoke to would desperately like to understand their taxes somewhat better.

Most had also resigned themselves to the idea that their taxes would always be somewhat mysterious to them – and would probably go up and not down.

Their other worry, in regards to political invisibility, is the casualness with which politicians refer to small tax increases, particularly when they are unclear which segments will and won’t be hit by them.

More than one entrepreneur noted that when margins are extremely tight, even a thousand dollar uptick in the tax bill can be a make or break difference — a thing that tends to get lost in the mix of elections.

And for the most part, store front business owners would like to stop getting lost in this election.

We expected to hear a lot of political opinions while we were in towns with primaries, but, by and large, we didn’t. Most merchants declined to share their political leanings at all, and even fewer opted to name a candidate. Many identified as independents and a few were proud to identify as non-votes on principle.

They don’t expect to be central, but they are wondering how they got so invisible — particularly when they employ so many.