The Economic Importance Of Small Businesses


A small business can have a large impact on the economy at large. Each time a person decides to start a company, it creates a financial ripple effect in the community. Let’s take a closer look at why small businesses are so important to economic health.

They Create Jobs

Most importantly, small businesses create jobs for those who would otherwise be unemployed or are currently underemployed. According to data from the SBA, during the heart of the last major recession in 2009, companies with 20-499 employees created almost two-thirds of all new jobs. As or more important than the fact that they create jobs, they create jobs locally, which results in a direct economic impact in the community that the business serves.

The Spur Development in the Local Community

As a business grows, it will need to buy land for factories or office space. It will also need to hire workers who will need to buy homes or rent apartments close to where they work. They will also need to eat, will need roads to travel on and will want fun things to do on their days off. This means that property values increase, infrastructure spending increases because of a larger tax base and owners of bars, restaurants and shopping malls will see an increase in sales.

They Need Capital to Grow

The creation of a small business can mean good things for investors and other lenders. Those who invest early in the startup phase could make millions of dollars when the business is sold or eventually goes public. Lenders may also make a lot of money from interest and other fees paid to provide loans to businesses. However, businesses don’t necessarily need loans or equity investment to fund operations. Government grants for small businesses may help defray research and development costs or make it easier to pay employees or independent contractors.

Small Businesses Allow New Ideas to Flourish

A small business has less bureaucracy and fewer people who need to approve a new idea. Therefore, what may have taken months or years to develop at a larger company could be approved and in the marketplace in a few weeks. As there are fewer people at a smaller company, it may provide an individual with the chance to come up with and be recognized for his or her ideas, which can lead to greater career success.

While smaller companies may not have the resources that larger ones do, they are equally important from a economic standpoint. They create most of the new jobs, allow for implementation of new technology or other business ideas and can help create stronger communities for everyone to enjoy.

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