How Does the Government Assist Small Businesses?

The federal government has always taken part in helping small businesses. In recent years, fiscal stimulus programs, like tax breaks and incentives, were implemented to help entrepreneurs get out of hard economic times. At present, business owners need attention for another reason.

Bankruptcy and closure rates have been higher than ever since the global pandemic. Also, keeping up with technological advancements is a full-time job. So, how does the government assist business owners? It supports entrepreneurs through grants, financing programs, and other government assistance. Keep reading to learn more!

Why should the government help small businesses?

The small business sector is an essential part of economic growth, and the government must help these businesses succeed. Aside from that, small businesses employ about 47% of employees in the private sector, according to the 2017 Small Business Administration’s economic profile.

The SBA also stated that in 2019, small businesses contributed about 44% of the GDP. These small companies were also responsible for creating more than 1 million jobs yearly, which accounted for 64% of new jobs in the U.S from 1993 to 2011.

Here are some other reasons why the government needs to help small businesses:

1. They are the backbone of the economy

Small business owners hire people from the community, pay taxes, and are a vital part of the local economy. This translates into more money spent at local stores and restaurants. Every dollar spent at a small business stays in circulation within your community.

However, sometimes, it’s hard for them to stay afloat. The local government can help by providing loans, tax incentive programs, and other financial aid that make it easier for them to grow or resume their operations.

2. They are a source of innovation

Most small business owners start a business to develop a new product or service and bring about market expansion, not just to make money or get rich, which means new ideas and innovation drive the American economy forward.

3. They encourage market competition

Small businesses can compete with large companies by providing lower prices and innovative products and services, such as customizing products or creating niche markets.

The free market can powerfully drive economic growth and opportunity only if there is enough competition to keep prices low and innovation high. Small businesses ensure this balance by providing alternatives to large companies that can become monopolies or oligopolies.

4. The government can give them access to capital

Banks are often reluctant to lend money to small business owners because they are too risky for loans. Hence, most small businesses rely on personal savings when they need capital for expansion or equipment purchases. The Small Business Administration helps fill their financing gap by guaranteeing loans up to $5 million from participating lenders with variable interest rates through Lender Match.

Another program in 1958 was the Small Business Investment Company, where the SBA licensed and provided funds for privately owned investment firms through its Investment Division. These institutions specialize in providing long-term debt and equity investments for high-risk small businesses.

Ways to get government help for small businesses

Small business owners are often overwhelmed by the challenges of running a business. It can be tough to get a break from the daily grind from finding funding to managing employees. Fortunately, there are plenty of government programs to help small businesses succeed and grow.

1. Find a niche market for your services or products

If you can find a niche market not currently served, it will be easier for you to get government contracts and avoid market competition. For example, if there is no law firm specializing in immigration law in the city, you can get obtain contracts related to that area.

2. Get free advice

Private third-party services can cost a lot of money. Meanwhile, government officials aim to provide advice for business owners’ services and programs.

The U.S. Patent and Trademark Office and Canadian Intellectual Property Office are industry experts protecting intellectual property. Their administrators can also give information on export regulations, research and development grants, tax incentive programs, and more.

3. Build your online and public presence

Social media is essential for sharing information with the public and interacting with others online. By posting on your page, you can increase traffic to your website and help promote yourself as an expert in the field.

However, take note that dealing with government officials won’t be easy. They won’t endorse your business against others and give grants to everybody with a business idea.

How does the government assist small businesses?

The federal government offers grants, contracts, and small business loans to help small businesses get started. Grants are financial aid that doesn’t need to be returned, while loans require repayment with interest.

Many grants are available through different federal agencies, including the Small Business Administration (SBA). The SBA has various programs aimed at helping small businesses.

1. Government grants

Several federal agencies help small businesses, and looking for the right grant can go a long way. Entrepreneurs might constantly question where they can apply or the application guidelines. Here are some gov websites they can start with:

1. United States Department of Agriculture – provides grants through its rural development division to help rural communities grow and prosper through job creation, infrastructure improvements, and business development projects.

2. Grants.gov – this is a website where you can search for grant opportunities from several federal agencies. It also has information on awards, past recipients, and frequently asked questions about grants.

3. SBA Small Business Innovation Research Program (SBIR) and Small Business Technology Transfer (SBTT) are research grant programs that spur small businesses to engage in the National Science Foundation-funded research and development with commercialization potential. It’s open to all small businesses and not limited to those owned by women or minorities.

2. Contracts

Federal contracting is a rigorous process that requires extensive planning and preparation. Contractors must be careful when bidding on government contracts because they often have higher standards than private sector contracts. Business owners will usually need an attorney to participate in the bidding process. 

They can know more about the policies and procedures through the Federal Acquisition Regulation. It’s a good source of information followed by government agencies during contract negotiations.

There are also set-aside government contracts for small businesses. To be considered a small business, they should employ 50 employees or less. In the case of larger contracts, they may have up to 1000 employees and still be considered a small business.

3. Programs

During the COVID-19 pandemic, the government took a number of steps. They created more government assistance programs as many individuals and businesses needed access to them. Here are some of the programs aimed at affected companies:

Paycheck protection program

The Paycheck Protection Program (PPP) was started by The Coronavirus Aid, Relief, and Economic Security (CARES) Act.

• It was implemented by the SBA and backed by the treasury department.
• It was initially started to provide U.S. small businesses with 8-week cash flow assistance through 100% federally guaranteed loans back by the SBA.
• It provides funding to small businesses to reimburse up to 8 weeks’ worth of payroll costs with benefits.

The received funds can also be used for utilities, mortgage, and rent payments. The eligible organizations are the small businesses, non profits, tribal businesses recognized by the Small Business Act, Veterans, self-employed individuals, and independent contractors.

Lost Wages Assistance program

The Lost Wages Assistance program is a temporary federal FEMA program that dispenses additional payments besides the weekly unemployment benefits to those who are qualified. It provided up to $400 weekly compensation for up to six weeks. It was authorized by the Presidential Memorandum that ran from Aug 2020 to December 2020.

Economic development programs

The government can use economic development programs to encourage growth in the state or region. It may provide tax incentive programs, grants, loans, and subsidies to companies interested in setting up a new business in the area to promote a business-friendly environment. This can be done in ways such as:

• Free land
• Zoning charges
• Fast-tracking permitting and licensing
• Infrastructure improvements
• Low-interest loans

Education and training programs

The government grants primary and secondary students free education for higher education and worker training programs. It partners with universities, community colleges, and other schools to make it possible.

For example, suppose a company plans on opening up a factory in Idaho but is having trouble finding workers with the right skills. In that case, the government can offer training programs to people living in the area. This will help equip people with skills to qualify for jobs at the new factory and make it easier for the company to hire them.

4. Loans

Government loans help business owners who have trouble qualifying for traditional bank loans. These are available at the state and federal levels and can be used by entrepreneurs with good credit. However, they may require some additional paperwork and verification of income.

Here are good resources of government loan programs for those who can qualify for traditional bank loans:

1. Govloans.gov

This is an online source for business owners looking for government loans they may be qualified for. It collaborates between federal agencies and the U.S. labor department as the managing partner. Also, it complies with government regulations to give U.S. citizens better access to loan program details.

2. Small Business Lending Fund

Another option is the U.S. treasury department’s SBLF. It was created in part of the American Recovery and Reinvestment Act. The SBLF makes it easier for the community banks to lend to small businesses by providing capital support through government-sponsored programs like the Community Development Financial Institutions (CDFI).

In total, it has provided over $4 billion for 332 community banks. Also, the participating lenders and small businesses can partner to create more jobs and promote economic growth in the country’s local communities.

How did the government support small businesses during the COVID-19 pandemic?

The COVID-19 pandemic wreaked havoc on small businesses and other industries. In fact, 75% of small businesses went bankrupt in 60 days after failing to access credit. Also, the SBA struggled to grant requests for numerous economic disaster loans. The federal and state agencies did not stop exploring how to assist successfully.

The local government plays a role in supporting continued small business operations. Here are some of the ways:

1. Local relief fund with financing options

Many small businesses cannot get the loans to continue or expand their business activity. The local government can set up relief funds where business owners can access low-interest loans or grants.

• Jersey City announced on April 2 that it would redirect The Community Development Block Grant funds to match those awarded to non profits and small businesses by the state economic development agency, which amounted to $10,000 for every business.
• San Francisco announced on April 2 that there would be a $12 million loan fund with 0% interest.

2. Published online resources and information

The local government has provided online resources and information through guides and other materials available on their website. The information included are SBA loan applications, contracting lenders from the SBA, and other supporting organizations.

• Boston City created a guidebook and other resources on transitioning from street-side physical businesses to takeout and delivery.
• Birmingham City started a website to share resources and information beneficial for small businesses.

3. Ceasing financial challenges small businesses are facing

The government helped small businesses by halting and deferring their financial burdens. This included deferring payroll tax, which allowed employers to delay payment on their employer’s Social Security contribution payroll tax. It was to be paid on December 31, 2021, and January 2022 for the other half. For more information about the pandemic tax relief, visit the IRS page.

4. Strengthening support to small businesses applying for SBA loans

To make it easier for small businesses, cities assigned more staff to assist entrepreneurs applying for SBA loans, making it favorable to minority-owned firms that may face difficulties in completing applications.

The SBA’s primary mission is to aid, counsel, assist, and protect the interests of small business concerns by helping them understand, avail themselves of, and enforce their rights under federal laws and federal regulations.

This is particularly helpful for business owners whose native language is not English or without unlimited access to the internet or latest updates.