SMEs are the Lifeblood of our Economy

Big business dominates the financial headlines every day, as journalists, investors and politicians seemingly track every single movement of the stock and bond markets. Yet when it comes to the U.S. economy, big business is only part of the story. One rarely hears about businesses with less than 500 employees, yet in the U.S. they represent 99.9 percent of employer firms [SBA, 2019], account for 64 percent of jobs created in the U.S. [Fundera, 2019], and account for ~44% of U.S. GDP [SBA, 2019]. These smaller businesses, or Small and Medium-Sized Enterprises (“SMEs”) are the lifeblood of the American economy, offering job opportunities, providing stable and growing incomes, driving local production of quality goods and services, and fostering innovation. They have been a major driver of economic growth in the U.S., and most advanced economies.

The effect of SMEs is far greater than just the national impact though – each business has a myriad of effects on its local economy. The employment dynamic is central, as economic stability starts first and foremost with a steady household income. Unlike larger businesses with vast global networks of suppliers, SMEs tend to purchase inputs and supplies from other local businesses, which allows for the recycling of capital through the local economy. SMEs also tend to serve the domestic market; as they grow and are able to reach economies of scale, they can achieve cost savings that they can pass on to consumers. In short, SMEs employ local workers, buy from local companies and serve local customers. Beyond that, they often support local organizations as well, including schools and culture groups.

In developing economies, the story is somewhat different. Historically, a lack of investment capital and poor economic policies have suppressed the growth of these SMEs. They are less likely to be able to obtain bank loans than large companies and the lack of an established capital markets system limits the flow of alternative financing. Yes, these business owners are just like business owners in the United States – willing to work hard to expand their businesses, create real value for their economies, accept accountability for results and ultimately help contribute toward a better future for their families and communities.

– Gloria Nelund, CEO of TriLinc Global

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