2010 The SMALL BUSINESS

2010

The SMALL BUSINESS

ECONOMY

A REPORT TO THE PRESIDENT

2010

The SMALL BUSINESS

ECONOMY

A REPORT TO THE PRESIDENT

United States Government Printing Office Washington: 2010

Dear Mr. President:

It is a pleasure to present the U.S. Small Business Administration (SBA) Office of Advocacy's 2010 edition of The Small Business Economy: A Report to the President. This report details the challenging economic conditions small businesses faced in a difficult year for the economy in 2009. The good news is that by the end of the year, extraordinary actions taken by the federal government were beginning to be felt in the small business economy. Although many Americans were still being adversely affected by the difficult economic conditions, the 18-month-long recession ended in June 2009. According to the National Bureau of Economic Research, the U.S. economy began growing again in the third quarter.

In 2009, there were signs that entrepreneurs were again looking ahead toward new opportunities for small business growth. Surveys by private sector organizations began to find more optimism among entrepreneurs in late 2009.

During 2009, the Office of Advocacy conducted new research documenting the importance of entrepreneurship in the American economy and highlighted policy issues of relevance to small firms (see Appendix B for a summary of recent research).

Entrepreneurial innovation continues to play a significant role in the nation's economic competitiveness in a global marketplace, and several Advocacy studies published in 2009 touched on aspects of innovation and entrepreneurship. A study by C.J. Isom and David R. Jarczyk took a look at the patent activity of small businesses and widened the scope of this analysis by focusing on how employee headcount, sales, and R&D expenditures affect the drivers of innovation. A report update by David Hart, Zoltan Acs, and Spencer Tracy found that immigrants play an important role in founding high-impact, high-tech companies in the United States.

Various demographic groups continue to make important contributions to the American economy through self-employment

A Report to the President iii

and small business creation. A 2009 study published by the Office of Advocacy and written by Tami Gurley-Calvez, Katherine Harper, and Amelia Biehl looked at the time-use patterns of selfemployed women. The study found that these self-employment patterns differed substantially from those of men and of women employed in wage and salary jobs. The results suggest that policies that enhance work-life balance, offset racial disparities in self-employment, and increase human capital through education might encourage more women to enter self-employment.

Education continued to be an important factor in innovative entrepreneurial development. A study by Summit Consulting suggested that entrepreneurial education coursework might improve students' abilities to identify and take advantage of new entrepreneurial opportunities. A report by Chad Moutray on educational attainment and the problem of "brain drain" found that students with higher educational attainment are highly mobile and attracted to opportunities in high-growth areas.

All of the Office of Advocacy's research can be found online at , and regular updates on new research can be accessed on the Office of Advocacy's research listserv at .

We appreciate your interest in and support for entrepreneurship and small business. The Office of Advocacy will continue to provide timely and actionable data and research to document small business issues and their contributions to the economy.

Winslow Sargeant, Ph.D. Chief Counsel for Advocacy

Chad Moutray Director of Economic Research

iv The Small Business Economy

Acknowledgments

The Small Business Economy: A Report to the President was prepared by the U.S. Small Business Administration, Office of Advocacy, under Chief Counsel for Advocacy Winslow Sargeant and Economic Research Director Chad Moutray. The project was managed by Senior Editor Kathryn J. Tobias. Specific chapters were written or prepared by the following staff:

Chapter 1Chad Moutray with contributions from Jules Lichtenstein and Major Clark

Chapter 2Victoria Williams with contributions from Charles Ou and George Haynes

Appendix A Brian Headd Appendix B Chad Moutray The Office of Advocacy appreciates all who helped prepare the report. Thanks are also extended to the U.S. Government Printing Office for their assistance.

Acknowledgments v

Contents

EXECUTIVE SUMMARY

1

CHAPTER 1 The State of Small Business

5

Small Businesses in the

American Economy 2009

6

Macroeconomic Trends and Small Businesses

15

Small Business Health Insurance

and Retirement Benefits

32

Small Business and International Trade

37

Small Business Procurement Opportunities

46

CHAPTER 2 Small Business Financing in 2009 71

Economic and Credit Conditions in 2009

72

The Nonfinancial Sector's Use of

Funds in Capital Markets

78

Lending by Financial Institutions

to Small Businesses

84

Developments in Small Business

Financial Markets

94

Small Business Investment

98

APPENDIX A Small Business Data

113

APPENDIX B Research Published by the Office

of Economic Research, 2009

137

CONTENTS OF PREVIOUS EDITIONS

151

INDEX

163

Contents vii

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