Kauffman Foundation Stresses the Importance of “Main Street” Entrepreneurs

The Ewing Marion Kauffman Foundation shared some information today from its report on what it calls “Main Street” entrepreneurs, owners and founders of companies more than five years old and with 50 or fewer employees—companies that account for 63 percent of all businesses in America.

Such businesses, the Foundation says, have deep roots in their local communities and provide benefits that include creating jobs, inspiring further entrepreneurship, adding to community cohesion, and possibly even contributing to the community’s physical health.

They also however, “encounter distinct policy challenges.” Among them:

Decreased Bank Lending: About 40 percent of new-business startup capital originates from banks. Historically, such businesses have relied on small banks which—along with larger banks— have dramatically reduced their small-business lending since the Great Recession.

Costly Capital Alternatives: Marketplace lenders provide another capital option, but the terms of such loans can be difficult to understand, and interest rates can be high.

Regulatory Burdens: Main Street entrepreneurs often must satisfy the same regulations as larger businesses, but have fewer resources and feel the cost of them greatly.

Among the solutions recommended by Kauffman:

Expand Access to Capital: Since Main Street entrepreneurs are struggling to get capital from traditional sources, the Foundation recommends encouraging new funding options, such as debt-based crowdfunding, which allows entrepreneurs to engage customers as investors, generate capital from new sources and maintain entrepreneur-control of the business.

Simplify Regulatory Processes: Complex regulations and tax requirements, even the most well-intended, can stifle entrepreneurship. Make compliance as simple as possible and consistently review regulations, eliminating those that are unnecessary.

Zone for Main Street: Local policymakers have the authority to regularly review land-use rules and regulations to facilitate flexible and diverse areas in which Main Street entrepreneurs can grow their businesses. Identify policies that entrench incumbent-business power, and look for opportunities to for creative, small businesses.

Such actions, the Foundation says, can be key to creating growth for both individuals and the economy.