Role of SMES in the US Economy Essay

Excerpt from Essay :

Small Business Act of 1958 and Contribution to Small-Scale Businesses to the U.S. Economy

Small-scale businesses have been accepted globally as instruments contributing to economic growth and development. Governments in many developing countries have adopted comprehensive efforts and policies aimed at improving the performance of small-scale businesses that have fallen short of expectations. Small-scale businesses face significant challenges that hinder their abilities to contribute to optimal economic growth and national development (Entrepreneurship 321). Therefore, this essay analyzes the Small Business Act of the year 1958. This will entail analyzing the historical perspective and implications of the act on the small businesses. The second section entails the analysis of the importance of small-scale businesses to the U.S. economy. This entails analysis of whether small-scale businesses contribute to the economy of the U.S.A.

The Small Business Act of the year 1958

The U.S. government enacted the Small Business Act of the year 1958 to provide support to the small-scale businesses. The U.S. Congress took significant steps to protect and promote the prosperity of the small-scale businesses. One of these steps was according to tax relief to the small-scale businesses, promoting their growth. Secondly, the act extended the permanent status to the administration of the small scale-businesses also known as the SBA. The establishment of the small-business administration ensured a continued provision of business loans and other forms of support to the small-scale businesses. Thirdly, the act established a more satisfactory method of achieving the needs of the small-scale businesses. The satisfaction of the needs of these businesses entailed ensuring equity in the provision of capital for the provision of support to the small-scale businesses and long-term loans to promote their success as compared to the past (Nathan 78).

Factors that led to the adoption of the Small Business Act of 1958.

Adoption of an act occurs because of the presence of a perceived and identified problem that faced the public, and its effect extended to the functioning and performance of the national economy. According to Zoltan, Carlsson, and Karlsson (125), the existing institutional gaps contributed to the adoption of the Small Business Act of the year 1958. The U.S. Congress realized the difficulties the small-scale business faced, hence, the need for the act. The small-scale businesses faced numerous challenges, including inadequate long-term financial support, absence of a union to support the businesses, and lack of optimal growth and development. The financial institutions lacked the capabilities to provide long-term financial support to the small-scale businesses. The sales associated with the small-scale businesses' issues of securities entailed prohibitive costs that crippled the performance and realization of the objectives of the small-scale businesses. The inability of the private placements to provide an effective solution to these problems compounded to the challenges facing the small-scale businesses. As such, the inability of the small-scale businesses to obtain long-term financial support from the government led to the term "institutional gap," a factor that contributed to the adoption of the act (Smets and Wouters 602).

A research done by the Federal Reserve System prior to the adoption on small-scale businesses showed that, these businesses faced numerous challenges that hindered the expected population growth. As such, it identified that; the gap could be filled by developing a program that could stimulate the flow of capital invested in the private sector. The study also showed that, the existing SBA loan program failed to meet the above needs due to its limited scope of operation. The adoption of the Act was the most effective option that could help in improving the performance of the small-scale businesses. Moreover, the SBA program at that time did not consider factors such as equity in the provision of capital to the small-scale businesses. As a result, it did not contribute to the long-term growth of the small-scale businesses. These factors necessitated the adoption of a government program that had qualities such as the broad scope of functioning and flexibility to meet the needs of the small-scale businesses. In addition, most of the European Countries had encountered similar problems as the U.S. And developed specific financial programs such as sustainable financial institutions to provide support to the small-scale businesses.

The existing ample domestic environment provided the necessary support required for the establishment of a strong financial system that for supporting the small-scale businesses (Entrepreneurship 105). Therefore, this study revealed the need for the Congress to develop a program embodied in the act. As such, the Congress stated that, the key purposes of the act included supplementing and stimulating the existing privately owned sources of capital in achieving the needs of the small-scale businesses. The act also aimed at ensuring equity in the provision of long-term capital to the small-scale businesses to ensure long-term productivity and sustainability (Robbins 299). Through the Act, the U.S. aimed at ensuring optimum contribution of the small-scale businesses to the overall economic growth and development.

To ensure the success of the act, the Congress developed requirements that SBI institution should meet to provide support to the small-scale businesses. Among the rules, set included beginning the financial lending services with at least $300,000 that was to be paid in surplus and capital by the SBA. In addition, a small business authority was to license the organizations involved in the provision of long-term financial support of the small-scale businesses. Similarly, small business the act provided directions to the small-scale businesses on obtaining the financial support from the federal government. The rules included ensuring that the small business paid in capital and surplus amount to $300,000. This amount could be used to obtain financial support from private organizations and other financial related entities.

Besides, the Investment Company Act of the year 1940, Securities Act of the year 1933, and Trust Indenture Act of the year 1939 are some of the exemptions provided by the act. Cumulatively, the adoption of the Act paved way for improving the growth and development of the small-scale businesses. The improvement translated to the enhanced economic growth of the U.S. And venture infusion of transforming business knowledge and skills on small-scale businesses management. As stated by Zoltan, Carlsson, and Karlsson (201), the act not only promoted U.S. economic growth but also enhanced its competitiveness in the global business sector.

Impact of small-scale businesses on the economy of the United States of America

Small-scale businesses contribute positively to the expansion and development of the U.S. economy. While the landscape of the U.S. cities is marked with massive offices and headquarters, the ideal backbone of the U.S. economy is not due to the influence of the huge companies. Rather, the businesses/companies that have a significant impact on the economy of the U.S. are, in fact, the small-scale businesses. Therefore, while the media and the investors focus to the large businesses on the Wall Street, the small-businesses on the Main Street are playing a quiet and momentous role in driving the economy of the U.S. Its contribution to the economy of the U.S. is in terms of private or non-farm gross domestic product and employment opportunities. As such, most of the financial analysts have shifted their focus from recruiting large enterprises to ensure maximum economic growth in the U.S. To supporting the growth of the small-scale business to achieve a competitive economic growth (Smets and Wouters 599).

Small-scale businesses contribute to the growth of the U.S. economy by providing employment opportunities to most of the U.S. citizens. The difference in size in the contribution to the economic between the large and small businesses is evidenced by the tight-fisted employer rates. A report released by the SBA in the year 2008 showed that, the mean employer for the small-businesses is 10 as compared to 62 for the large businesses. Despite the differences, the small-scale businesses employ approximately 68 million workers across the U.S. while the large companies employ nearly 25.6 million American citizens. In addition, the small-scale businesses have acted as the driving force behind the provision of new job opportunities in the U.S.

For example, financial statistics show that the small-scale business sectors contribute to approximately 60 to 80% of the new jobs created in the U.S. annually. While the high rates of layoff often contribute to the scenes witnessed in the media, the small-scale companies provide job opportunities for the displaced employees by the large businesses. As such, this not only provides them with new job opportunities but also a source of introduction of new expertise, skills, experience, and technology into the small-scale businesses. Moreover, the small-scale sector contributes to a significant proportion of the gross job flows in the U.S. Therefore, this implies that, the small-sector contributes significantly to the development of the U.S. economy (Smets and Wouters 589).

The demographic evidence shows the significant contribution of the small businesses to the growth of the U.S. economy. Financial reports for the year 2010 showed that the small-scale businesses contribute to approximately 44% of the total payroll from the U.S. private sectors. The value translates to about $2.1 trillion of the $4.8…

Sources Used in Document:

Works cited

Counsel, House, Office of the Law Revision. United States Code, 2006, V. 8, Title 15, Commerce and Trade, Sections 80a-1 to End. Government Printing Office. Print.

Engineering, National Academy of. Risk and Innovation: The Role and Importance of Small, High-Tech Companies in the U.S. Economy. National Academies Press, 1995. Print.

Entrepreneurship, United States Congress Senate Committee on Small Business and. Small Business Act andthe Small Businesss Investment Act of 1958 Compilation. U.S.G.P.O., 2006.


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