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Economic Incentives for Small Businesses

by Kelley Rendziperis, on Feb 23, 2016 2:26:27 PM

There are many critics of economic incentives and one major reason cited is the lack of support for small businesses. Much of our economy is driven by small business. In fact, the U.S. Small Business Administration reported the following statistics:

  • 28 million small businesses in America account for 54 percent of all U.S. sales;
  • Small businesses provide 55 percent of all jobs and have provided 66 percent of all net new jobs since the 1970s;
  • The 600,000-plus franchised small businesses in the U.S. account for 40 percent of all retail sales and provide jobs for approximately 8 million people; and
  • The small business sector in America occupies 30 to 50 percent of all commercial space, an estimated 20 to 34 billion square feet.

Additionally, the Small Business Administration reported that the number of small EconomicIncentives_webinar.jpgbusinesses in the U.S. has increased 49 percent since 1982, while since 1990, big business eliminated 4 million jobs. Perhaps it is reasonable that there are many critics of governmental bodies continuing to disproportionately incent big business, rather than encouraging small, private-sector growth.

 

Site Selection Group compiled a summary of the economic incentive opportunities that exist primarily for small businesses among the various states. The main programs are centered on loans, angel investor credits and certified capital companies (CAPCO). All of these programs serve as sources of capital (i.e., seed money) and are crucial to a small business getting off the ground.

 

Loans are called various names throughout the states and can be structured in a multitude of ways, including low interest loans, unsecured loans, revolving, refundable, etc. In certain circumstances, the main benefit these loans can provide is the necessary funding for riskier investments that a more traditional investor (e.g., financial institution/bank) may not consider.

 

Angel investor programs are generally state income tax credits meant to encourage investment in small businesses located primarily within the state and in certain targeted industries. The investor must be certified by the state before making their investment and in turn benefits from the credit, which is usually wholly or partially refundable.

CAPCO programs are economic development tools designed to provide investments in small growth companies in various industries, thereby creating jobs. Approximately 10 jurisdictions offer CAPCO programs, which are generally debt lending-based programs that use future state tax credits as a subsidy.

 

The following chart depicts the majority of programs targeted to small businesses in each state:

 

 

The programs listed above are generally granted at a state level and do not consider local programs or funding available from the federal government. While the chart above shows an overview of the many programs aimed at aiding small businesses, Good Jobs First conducted a study that showed between 80 and 96 percent of incentives aimed at small businesses actually were captured by large businesses. Thus, even if one argued there were a multitude of programs for small businesses, they still aren’t being realized by the type of organizations that they are intended to serve.

 

Awareness could be another hurdle. There are several facets to opening and maintaining a new business, and without the assistance from outside providers, it may be difficult or too time-consuming for a small business to research and investigate what economic incentive opportunities exist at a federal, state and local level. However, identifying all available incentives in a particular jurisdiction early in the process could help offset the cost of capital.

 

For additional information, please contact Site Selection Group.

 

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Topics:Economic Incentives

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