Financing Small Business in America: Debt Capital in a Global Economy

Financing Small Business in America: Debt Capital in a Global Economy

Financing Small Business in America: Debt Capital in a Global Economy

Financing Small Business in America: Debt Capital in a Global Economy


Examining the role of the public sector in small-business debt-capital formation, this book describes current approaches, conceptually and pragmatically, and evaluates their advantages and disadvantages from a variety of perspectives. It also suggests a model for improving our approach to small business capital formation in the United States.

Financing small business creation and expansion has always been difficult. Private debt capital providers tend to avoid small business because the latter are preceived to be too risky. Yet because of the importance of small businesses to national economic growth, stability, and innovation, ensuring that these businesses can obtain and effectively use appropriate levels of debt capital is vital to national well-being. How, and to what extent, should the public sector intervene in the debt capital markets to ensure that sufficient capital flows to small businesses? This book is an attempt to answer that question.


This book concerns itself with a form of public/private partnership—the provision of debt capital to small businesses. This topic is important because of the consequential role that such businesses have played, and continue to play, in the viability of the U.S. economy. Unlike larger companies, small businesses often lack the financial capital they need to sustain their growth and development. This is exacerbated by the vicissitudes of economic globalization. Most policy makers view this latter fact, coupled with the economic importance of these small firms, to warrant public intervention in the capital market.

Yet, how much thought is given to the challenges presented to small business by the global economy, and what those challenges imply, both for small firms and for public efforts to assist them? This chapter explores this question by first establishing a working definition of [small business] and by examining the roles, past and present, that small companies play in the U.S. economy. It then enumerates the major challenges afforded by economic globalization and discusses what they mean for enterprise development in America. Finally, it brings the discussion back to the focus of this book—the public role in small business debt capital assistance.

In Chapter 2, small business capital formation is discussed in regard to enterprise development, with an emphasis on small business's place in the larger financial intermediary system. Types, styles, sources, and risk levels of debt capital are explored. In particular, the theoretical foundation for government's role in small business, debt capital formation, is considered.

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