Introduction & Background
Barriers to Growth of Small Businesses
DART-6, Emory Impact Investing Group
- People who start businesses struggle to grow their businesses due to different factors
- Many small businesses are started by minorities or women, who are already disadvantaged
- Bigger firms tend to dominate markets, giving firms less access to funding and financing
- Our research looks to uncover the most prominent impacts that access to financing has on small businesses.
- Three primary datasets: the Federal Reserve Survey Report on Small Business Firms, The Economic Freedom of North America Dataset, and the University of Michigan Panel Study of Entrepreneurial Dynamics
- Information on business performance, financing needs and choices, and borrowing experiences of businesses with fewer than 500 employees was obtained
- Examines the economic freedom index of several states among three main factors: Government spending, taxes, and labor market regulations
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- Figure 1: Business Challenges – The top contributor was generating cash flow from the business. The second most cited reason with an estimate of about 20% was hiring or retaining qualified staff.
- Figure 2: Not Applying –The third most cited reason for not applying for financing for non-applicants was being discouraged.
- Figure 3: Pandemic Related Financial Assistance – The most cited reason for minorities to not seek financial assistance was credit cost.
- Figure 4: The greatest predictor for determining if the individual did take an action for their business venture in the last 12 months was their income (r=.092). The second greatest predictor was the sex of the individual (r=.068). The one-way ANOVA indicates a significance level of less than .001 indicating statistical significance.
- Figure 5: Economic Freedom – Rates have remained quite consistently high in comparison to other states as seen with Georgia being ranked 9 among other US states; however, there has been a decline in economic entrepreneurial freedom since 2017
- Through these five figures, it is clear that access to financing is a major to growth for small firms
- The Federal Reserve Bank of Atlanta indicates that 53 percent of small firms did not apply for loans and around 57 percent of new firms lacked the loans that they desired and were constrained by their inability to be externally financed.
- Drop from 45% to 10% of firms that
- 3 other significant barriers: inability to hire employees, difficulties faced by lower income entrepreneurs, high level of business regulation made by Georgia
- Can help EIIG fund financing more efficiently