Tax reform, access to talent are key factors for the startup scene in 2018

Edward Haddock, director for the Arkansas District Office of the U.S. Small Business Administration, is optimistic about the state startup scene in 2018.

“We’ve had some good wins for this state. I think 2018 is going to be a year to continue that growth,” he said. “Looking forward, I think there is a lot of opportunity.”

Arkansas’ SBA office approved a record number of loans during the latest quarter that ended Dec. 31. The agency oversaw 99 loans worth $72.4 million, more than double the dollar amount approved during that time period in the previous year.

The loans, split close to 50/50 between new businesses and existing small businesses, generated 414 jobs, mostly in healthcare, social services and manufacturing, according to the agency. About half of the small businesses the SBA supports are in the agriculture industry.

Long-term, Haddock said the state’s low unemployment rate, reported as 3.7% in November, has created a “talent crunch” that will continue to tighten.

“I think you’re going to find that there’s going to be more churn in the workforce, which is going to hopefully raise real wages. Small businesses will be challenged to compete with that,” he said.

Entrepreneurship as a concept has become more popular in Arkansas during the past half-decade since he joined the district, indicating a cultural shift that Haddock said is beneficial, he said.

“We need the nimbleness of the small business to accelerate technology and innovation.”

Moving forward, one potential driver of change for small business is federal tax reform. Lonnie Beard, a University of Arkansas law professor who teaches and researches taxation, said he is still working to understand the details and broader impact of the Tax Cuts & Jobs Act, which passed in December.

“However, it is reasonable to assume that the likely reduction in tax liabilities for many businesses would be beneficial to small business startups. If an entrepreneur has more left after taxes, there is of course more available to invest in a startup.”

The corporate rate has been reduced, and at the same time smaller businesses have access to a new deduction intended to provide a similar tax break to non-corporate companies, Beard said. The new deduction is equal to 20% of “qualified business income.”

The new law also allows immediate write-off for the cost of most machinery and equipment, which means some small business will have smaller taxable incomes.

“Many of the owners of small businesses may also see personal tax reductions, which would also leave more money on the table to invest in startups,” Beard said.

In Arkansas, a concerted effort to increase the amount of startups has led to accelerator programs, networking events, training, seed funds, angel investment networks, mentorship opportunities and makers hubs throughout the state, supported by universities, government entities, nonprofits like the Arkansas Venture Center and private companies like Grit Studios in Bentonville and Startup Junkie Consulting in Fayetteville.

Startup Junkie, for example, has 200 startup ecosystem events planned for 2018, with aims to support entrepreneurs at all stages and in all industries, said Haley Allgood, executive director of the Startup Junkie Foundation, the company’s philanthropic arm.

“Availability of skilled technology talent continues to be a struggle for startups. This is something we especially see as we are gearing up to launch a 10X Cyber Accelerator,” said Jeff Amerine, principal at Startup Junkie. “It is encouraging to see programs like the Arkansas Coding Academy work to supplement local universities. Other initiatives like the Nowhere Developers Conference aim to build community between tech talent and in the long term, this community will help in recruiting skilled individuals to Arkansas.”

Allgood said members of the Walton family – descendants of Sam Walton, founder of Bentonville-based Walmart – have invested in a national fund called the Rise of the Rest. Allgood said such programs “will benefit regions like ours because they will give more exposure to startups and lead to further syndications.”

The Little Rock Tech Park in that city’s downtown area is also another big platform to promote startup success. The initial 38,000-square-foot facility, which opened in March, was built after Little Rock taxpayers in 2011 approved a $22.5 million sales tax referendum to finance the project.

The number of tenants in the newly renovated Little Rock Technology Park has nearly tripled since opening in early March and was expected to approach full occupancy by the end of 2017 or early 2018.

Tech Park Authority Executive Director Brent Birch said in August that the downtown tech village now has 32 tenants, up from the original 12 occupants that signed leases when the facility opened in March. Birch said then that there are now nearly 90 employees working at the city’s startup incubator.