Small Businesses Are the Backbone of the Economy

Small Businesses Are the Backbone of the Economy

Small businesses don’t get a whole lot of attention in the business world. Business reporters seem to only give press to big businesses—their profit and loss data, their newest product, a corporate scandal. Yet, 99 percent of all businesses in the United States are small businesses. Small businesses are the lifeblood that keeps the American economy functioning.  

Innovation and job creation are the foundation of a healthy economy. In the United States, we rely on the small-business community for both of these precious resources. Owning a business, like owning a home, is part of the national fabric. Entrepreneurs embody the strength and character that help make our country great.

Goods, services, and technology produced by U.S. small businesses make up the world’s third-largest economy, after the United States overall and Japan. The small-business community has sustained our economy when it has slowed and is helping put us back on track for growth. 

Nominal small business GDP measured $5.9 trillion in 2014, the most recent year for which small business GDP data are available. The three largest small business sectors contributing to it were (1) the real estate and rental and leasing industry; (2) wholesale and retail trade; and (3) the manufacturing and mining sectors.

The 2008 recession played a small part in the lower small business share, but structural changes may have played a part as well. These factors include long-run declines in business dynamism, the rise of big-box stores, the changing regulatory environment, and the critical role of credit availability.

Small Businesses Are Job Creators

SBA Office of Advocacy-funded data and research shows that small businesses create more than half of the new private non-farm gross domestic product, and they create 60 to 80 percent of the net new jobs.

Small Business

Census Bureau data shows that in 2010, American small businesses accounted for:

99.7% of U.S. employer firms;

64% of net new private-sector jobs;

49.2% of private-sector employment; and

42.9% of private-sector payroll


According to the U.S. Small Business Administration, small businesses create over 66% of net new jobs. A new report also shows that small businesses account for 44% of total U.S. economic activity. Although this number has declined gradually in recent years, it still remains a significant portion of the overall GDP contribution.

Small Business

The drop in GDP share small businesses contribute to while maintaining the majority of net new job sourcing is of particular importance. According to the USSBA, from 1998 to 2014, the small business share of GDP has fallen from 48% to 43.5%. Yet, over the same period, the amount of small business GDP has grown about 25%, at a rate of about 1.4% annually. They add that real GDP for large businesses has grown faster, however, at 2.5% annually.

With all the good that comes from small businesses, it’s a wonder we as a nation aren’t doing more to support them. About 70 percent of businesses are founded with less than $20,000 in the capital, and most of this money comes from bank loans and credit cards.

The U.S. Small Business Administration (SBA) helps a bit. Through partnerships with banks, credit unions, and other establishments, the SBA can help entrepreneurs gain access to business-specific loans. Select entrepreneurs, such as those with low incomes, may be eligible for grants to help kick off their businesses.
More help should be available for the private small business sector, as it truly is America’s backbone. They are good for the environment, local communities, and the world as a whole. 

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