Despite what you hear in the news about congressional gridlock and fears of a possible recession, nearly one-quarter of small businesses believe this is a good time to expand.
That’s according to the National Federation of Independent Business (NFIB) latest Small Business Economic Trends survey. And while last month’s reading may be down from the record 34 percent posted in August, it’s still better than it was four years ago. Then, only eight percent of those surveyed thought the time was right to grow their businesses.
What’s striking about this is that small business owners don’t like taking risks. They’re not going to replace old equipment, open a second location, or add jobs unless they think the economy is strong and likely to stay that way. That’s worth remembering as the Arkansas General Assembly begins its 2019 session.
State legislators are in a position to help maintain that optimism and create an environment where small businesses – and big corporations – have the confidence to grow and create jobs.
One way they can do that is by passing tax reform.
Gov. Hutchinson and the Arkansas General Assembly reduced income taxes among the middle class by $102 million in 2015, which is the largest tax cut in state history. That was followed by the second largest tax cut in Arkansas history, which was a $50 million income tax reduction that removed 120,000 low income Arkansans from the tax rolls in 2017.
This session, the General Assembly will take up a series of tax reforms recommended by its Tax Reform and Relief Legislative Task Force. These include a further reduction of the income tax and the elimination of certain tax exemptions that only benefit special interest groups.
Legislators can also help small businesses by continuing to repeal unnecessary and outdated rules and regulations. Two years ago, the General Assembly passed Act 781 of 2017 by Rep. Jim Dotson, R-Bentonville, which established sunset dates for state rules and resulted in the removal of more than 800 old regulations. Regulatory reform has long been a key issue for small businesses. Rep. Dotson’s leadership on this key issue reduced state regulations by 24 percent and deleted more than 15,000 pages of needless regulations.
Another key area small business hopes is addressed in 2019 is in the availability of financing for its aspiring entrepreneurs.
According to the U.S. Small Business Administration, the average cost of starting a micro-business (company with 5 employees or less) is $3,000 to $5,000. Microbusinesses and the ideas kindled by sole practitioner business owners can literally set the world aflame.
Banks do not traditionally make so called micro-loans, because the cost associated with establishing and servicing a $3,000 loan are the same as those to make a $300,000 loan. Banks need to make money, so investing time in a small loan is not usually a good move for banks.
Arkansas can and must do more to fan the flames of entrepreneurism by creating public-private partnerships that help mitigate the risk lenders face when working with start-ups. The state closed out fiscal year 2018 with $42 million in surplus revenue. One million of these dollars should be set aside to create a micro-lending program for small business owners.
As we move into 2019 there are several new challenges facing small business owners that cannot be ignored.
Arkansas recently passed a well-intended but aggressive minimum wage increase. This program has already raised the wages of our lowest earners from $8.50 an hour to $9.25. The state minimum wage is scheduled to reach $11 an hour by 2021.
The increase puts an unnecessary burden on small businesses. In order to pay for this government-mandated pay raise, employers are going to have to either raise prices across the board or get by with fewer workers. Our members are urging lawmakers to exempt the smallest businesses from paying the state’s minimum wage.
Arkansas is a great state. We have clean air, little traffic congestion and friendly hard-working citizens. We truly are “A Natural for Business.”
Arkansas policy makers from both political parties have for too long focused their attention – and the state’s money – competing with other states for the next large-scale economic development project. We are the home of Walmart, Tyson Foods, Dillard’s and Stephens. Our greatest export isn’t rice or chicken. We build great companies and export them to the world.
Policy makers must remember our great history of entrepreneurism and shift their focus inward, so they may invest in the next great generation of Arkansas entrepreneurs. If we support our people with our tax dollars, the state of Arkansas small businesses will be second to none.
Editor’s note: Sylvester Smith, the author of this guest commentary, is Arkansas state director of the National Federation of Independent Business, which represents more than 4,100 small businesses in Arkansas. This commentary first appeared in Talk Business & Politics State of the State 2019 magazine, which you can access here.