Is Entrepreneurism in America Still a Revered Thing?

By Dean Prigelmeier, President of Proactive Technologies, Inc.^®

Just as the economy has bifurcated into two economies, as confirmed by the “income inequality gap,” so has the reverence and appreciation for local, small to mid-size businesses as compared to concentrated, behemoth multinational companies and Private Equity or Hedge Fund portfolios. It seems support to small businesses has become more of platitudes than substance and support for independent mid-size businesses is very selective. The large publicly traded and private equity funded corporations have access to exponentially growing capital sources. Mid-size companies rely on regional banks, which are few and far between. Small firms have access to, well, hardly anything unless acquired by a bigger firm.

The focus of most economic development organizations has been on attracting the largest of companies and employers to the region. Each locale competes to reel in the “whales,” offering tax breaks, expensive infrastructure improvements and monetary incentives to companies that can access many sources of private and public capital as well as bank financing on their own – socializing the risk and privatizing the profit in the hope that the benefits of doing so will outweigh the costs. Each locale wants to be able to announce the most optimistic of predictions for the region to much fanfare and publicity. Politically, this is appealing, but most citizens have come to understand the fragility of the arrangement and how fleeting the proposed benefits to the community and region in return have become.

Some companies have learned how to play this game well, moving operations around from state to state, country to country to take advantage of the public’s generosity. And whenever economic adversity arrives or balance sheets are weak and need perking up to maintain share price and attractiveness, they pick up and move operations and jobs and leave a community rattled in the wake.

Some very visible cases of the risk of “putting so many eggs in one basket” exists. “Michigan Loses 5 Plants And Over 13,000 Jobs in Sudden Blow to US Manufacturing Base. “Intel Announces Mass Job Cuts, Sounds Alarm for Ohio, “CEO Lip-Bu Tan said the company expected “workforce reductions and attrition” to reduce its headcount to 75,000 by the end of 2025. This compares to the 108,900 employees Intel boasted at the end of last year, per an annual report filed with the U.S. Securities and Exchange Commission (SEC). “Intel’s ‘Ohio One’ project in Licking County has already suffered delays. Now the company said it will “further slow the pace of construction in Ohio to ensure spending is aligned with market demand.” An Intel spokesperson clarified that the projected timeline for completion of the first fab is 2030-2031, and that work is still actively happening at the Ohio One site.” “Ohio lured Intel’s chip plant with $2B incentive package.”

In Wisconsin, Foxconn promised a $10 billion investment in Wisconsin and the creation of 13,000 jobs. “The state legislature passed a $2.85 billion tax incentive package that required Foxconn to meet certain hiring and capital investment benchmarks during the next 10 years in order to receive the tax credits. The company also received a $150 million break in sales taxes, bringing the total state package to $3 billion. Foxconn largely failed to deliver on its original promises.”  On the east coast, “This past spring, DC taxpayers were sidelined when the Washington Commanders announced that city aid would help fund a new stadium on the site of the vacant RFK Stadium. The $4 billion deal will be offset by a staggering $1.15 billion in public revenue,” according to the Tax Foundation.

Big money has big access to even more big money that increasingly controls access to markets by creating barriers to entry behind them. They protect their portfolio while determining who can join a portfolio or be driven under. The unconstrained mergers and acquisitions over the last 3 decades have led to concentrations of market share so intense these days most small businesses can only hope to serve local markets and communities. What is lost is that these small businesses can lead to stable growth and employment opportunities that can sustain communities and regions. They are not likely to pick up and move because it serves little purpose, but if successful they may open other facilities employing more people. They do not require the huge infrastructure investments, large cash incentives and breaks as a multinational. But they do need access to capital to grow. With that they can create their own markets.

“The U.S. Small Business Administration defines a “small business” as a firm with revenue ranging from $1 million to over $40 million and an employee workforce of under 500. Based on the SBA’s definition, the 33.2 million small businesses in the United States make up 99.9% of all firms across the country.” The problem with definition is obvious; very few small businesses reach $1 million in revenue annually when they are in need of a business loan to finance growth. They are essentially dismissed because they are not able to magically expand their business while large businesses couldn’t expand without it.

The few banks that provide SBA guaranteed lending to businesses, (few since the return is much higher on riskier institutional trading) usually guarantee the loan for up to 80%, which one would think would be enough. Usually the SBA guarantee isn’t enough to meet collateral requirements since the banks require “liquid assets as collateral (which if the entrepreneur had he or she wouldn’t be needing a loan),” so this pushes SBA loans out of reach for most local entrepreneurs by design. I was told by two banks (the only two in the state working with the SBA at the time) in the early stages of my business that “it takes just as much paperwork for a $100,000 SBA loan as it does for $20 million loan; we would rather make the $20 million dollar loan” as I stared at the “We Make SBA Loans” sign in their window.

In 2024, the SBA made a total of Guaranteed Businesses loans of $42,231,749,609 to 76,334 qualified businesses, averaging $553,250 each. This indicates that most of the loans had to be very large to have that large of an average. This data distortion is similar to reports of wages nationally (when including CEO incomes) rising, when actually most wages have stagnated for the last 40 years (exacerbated further by the rate of real inflation which erodes spending power) tell a different tale.

Out of necessity, developing countries spend money to help grow small, entrepreneurial ventures that will add jobs and circulate money in the local economy with the anticipation that some may grow to be large. Some may fail, but playing the odds that, with the right support, enough will survive and thrive, creating local jobs that spend money locally is a winning strategy. If the U.S. is honest and recognize we have two economies – one that has grown exponentially and the other neglected, becoming a “developing country” –  that same approach and focus is needed here.

Small businesses contributed 55 percent of the total net job creation from 2013 to 2023. “Small businesses—firms with 249 or fewer employees—accounted for 99 percent of the 5.6 million firms covered under Unemployment Insurance in the first quarter of 2023. Over the last ten years [2014 – 2024], those small businesses have employed an average of 46 percent of the covered workforce. However, over the same period, small businesses contributed 55 percent of the net total number of jobs created.”

There are many abuses by large businesses that use their money and the influence that it buys to take advantage of programs such as the SBA. Elon Musk’s $9B Neuralink told federal government it’s a ‘small, disadvantaged business’. “The agency’s website says the business attested that it was a Small Disadvantaged Business, according to a first report by the Substack Muskwatch. The company attested to this “when registering with SAM.gov.” The SBA says it did not vet this self-certification.” But why the disproportionate scrutiny of small businesses whose books aren’t that complex? Small Disadvantaged Business certification allows the business special consideration in government assistance and contracting. Allowing this type of, well, fraud means many small and mid-size businesses are pushed out of the funding and contracting opportunities.

When the Covid-19 Pandemic, literally stopping economic activity, the US government did the right thing and provided grants to struggling small businesses to ensure they could meet payrolls to retain workers and make rent to keep the business open until things returned to normal. The intermediaries selected by the SBA to distribute the grants were told “not to use standard accounting procedures to evaluate worthiness, but to rely on employer certifications of need.” The intermediaries, too, slipped into focusing on big loans with big commissions, ignoring and/or denying loans to many worthy small businesses. Consequently, fraud accounted for a large chunk of the distributed money – an estimated $200 million. “At least 17% of the $1.2 trillion distributed by the SBA was wasted in fraud, the report found.” Discovery of the fraud was too late and to save the hundreds of thousands of worthy small businesses left to struggle and many to fail..

Large companies, and mid-size companies folded into larger corporations, have many sources of funding. Venture capital, private equity, hedge funds and public trading and emerging sources such as “private banking” are ready sources for large enterprises. ”Private Banking Market size [alone] was valued at USD 477.3 billion in 2023 and is estimated to register a CAGR of over 10% between 2024 and 2032. As overall assets increase, private banks gain a larger pool of potential clients with substantial financial portfolios. According to the India Brand Equity Foundation, for the fiscal year 2022 – 2023, the public banking sector held total assets amounting to USD 1.55 trillion while the private banking sector accumulated assets totaling USD 901.3 billion. The growing total bank assets contribute significantly to the overall growth of the private banking sector.”

Entrepreneurs, on the other hand, have nowhere to go to finance their path to growth. In fact, a typical entrepreneur finds out everything they were taught about creating a company in America is either outdated or an illusion – providing the hope to innovate but, in many cases, creating unwittingly the path to their own demise for dreaming so boldly. They find that it takes time to develop a market, and in business time is money. What makes it more difficult than it should be is that they have to stretch their personal resources until their market materializes and sustains them. They have to make hard decisions every day; do they pay their monthly health insurance premium or their phone bill –  when there is not enough there for both. If a business doesn’t have a phone line they will not last long and everything they put into the company so far is lost.  Their stress is the unnecessary daily drudge of playing defense to protect what they built so far, fearing they may not make it to the finish line, instead losing everything they had.

They are excited that they can perform their work for clients, while the accounting industry has already been convincing CFOs to “increase cash flow by stretching out payables beyond the agreed upon terms” and to “negotiate unreasonable terms” from vendors that make their ability to deliver a consistent, quality product or service more unlikely. Banks don’t lend against receivables, and any “invoice factoring” firm terms are so onerous that is not a solution except for the very desperate who see no option. For those who were able to build it, as the entrepreneur’s credit rating slides – since their money is tied up in client’s work and they have difficulty paying their bills on time – that becomes the convenient reason others place on them for being denied proper financing and having to close the doors.

One of the most agonizing things for an entrepreneur is the unending rejection of very small loan requests that would mean a lot to ensuring their success, as if they are “unworthy.” It chips away that their inherent optimism, pride and confidence. Adding insult to injury, they witness billion dollar companies file bankruptcy and hurting all of their suppliers, vendors and workers, dusting themselves and getting hundreds of millions more in financing and/or capital. If an entrepreneur miraculously makes it through everything thrown in their way,  surprisingly banks, economic development and politicians want to take credit.

Over the last 40 years the SBA has drifted from its primary role of providing loan guarantees and support for truly small business. It is understandable that we are now talking in terms of millionaires, billionaires and trillionaires. But this doesn’t mean the definition of small business has to change to accommodate them. Very few entrepreneurs reach the million dollar in revenue level while they are defensively watching their resources deplete waiting for payment. Out of desperation, some take out a 2^nd mortgage and home equity line of credit if they still have a home. They ran out of their family and friends who might have been fortunately able to help, who might see them as begging. They maxed out their credit cards – all while waiting to get paid for work performed which has their operating capital tied up.

And, on top of these stressors, most entrepreneurs are not warned to pay attention to Wall Street generated economic crises. The cycle rate of crashes have been increasing ever since globalization and the financialization of capitalism. While “self-financing” a business makes growth take longer, and time between economic upheavals is getting shorter, it keeps a business from gaining traction to reach a level of self-sustainability. They usually have to use any gains to survive until markets stabilize. Recent examples include the Crash of 2008 (“Economy lost more than 200,000 small businesses in recession, Census shows”) and the Covid-19 Pandemic (“78% of US Small Businesses Negatively Impacted by the COVID-19 Pandemic”).

Prior to these events, I noticed promising entrepreneurs struggling with operating capital issues were reluctant to make their condition public. “Who would do business with a company that might not make it,” was a common fear. After these two events, entrepreneurs began to talk more openly about their struggles since they realized that they were not alone, but part of a always large and growing majority; that they were not a failure, but a victim of a failed system. It can feel like being an “economic expatriate” residing in one’s own country.

If small, local entrepreneurs create the jobs that keep the local and regional economies humming, why are they denied access to a textbook necessity for small business growth – financing and access to capital – so nonchalantly? It is fashionable for economic development, agencies, local governments, banks, and the media to talk about the importance of entrepreneurism, but scratch the surface and support for entrepreneurism is very spotty to nonexistent – usually limited to classes, webinars and mentoring by people who never started a business.

An entrepreneur risks all on an idea or a vision to provide a product or service. They want to be employers and help the community. It takes self-reliance, perseverance, and yes, personal capital to turn a dream into reality. They should be admired and supported with the same excitement and generosity as the larger businesses who increasingly have a spotty record in delivering on their promises.

How can we change this?

Entrepreneurs with big dreams find out early that early stage venture capital is concentrated on the East Coast and the West Coast. Any new venture starting up between those two find serious venture capitalist are absent or are not venture capitalist at all, but charlatans. Entrepreneurs knowing they will need capital at some point to expand, thinking if they prove their concept money will follow, can sometimes fall into a trap of spending 80% of their day looking for something that isn’t there – neglecting their business to do so. Consequently, entrepreneurs have to weed out numerous fake venture capital groups or groups that pray on entrepreneurs, requiring them to put up their own precious funds before the inexperienced or deceitful organization pretends to look for venture capital for them.

While banks sometimes lend to small business owners in familiar enterprises, such as restaurants, rarely do banks lend to an entrepreneur with even the greatest of visions unless “connected” in some manner. Publicly they claim they are averse to putting depositors money at risk, which doesn’t square with reality. What is more riskier: One loan for $10 million to a developer, that employs 200 employees (choosing lower-wage immigrant labor to local workers) to build houses as a market crash is approaching, or $10 million in $100,000 loans to 100 small businesses each creating 10 jobs (i.e.1,000 jobs – each worker spending almost all their income locally)? Even if 50% of the small businesses fail – which can be lowered by concentrated support from local government – more jobs will be retained than the developer example who may be forced to lay off all and file bankruptcy on the single loan, affecting local suppliers and their employees.

Some solutions to right us from this pervasive and self-destructive path are:

• Local and state governments need to use the leverage of their deposits to make banks dedicate a portion of their deposits to assisting truly small, local businesses…and take politics out of the loan distribution. 
  • Since the Riegle–Neal Interstate Banking and Branching Efficiency Act of 1994, and even though the Act provides for compliance with local, state and federal community investment compliance, banks were allowed to shift deposits from communities and states struggling economically to areas that were more active – in effect “shorting” communities and pushing them to fail faster and deeper.
  • Since SBA loans are made through banks, migration of bank deposits away from communities that need to replace the single, large-factory in the town needs to be dis-incentivized.
  • Although lobbied hard by banks to leave it alone, local leaders need to be clear eyed and assertive to bring community investment back and keep it a priority.
  • Local leaders need to work with regional banks and credit unions to attract and pool money dedicated for truly small business development and support.
• Local and state governments need to provide more experienced small business support – especially during emergencies created by others, Wall Street and nature. 
  • Unlike the response to the Crash of 2008, but more like with the response to Covid-19, government needs to move quickly and deliberately to insulate small and mid-size companies from being, once again, collateral damage through no fault of their own.
• Local and state governments need to provide resource experts with experience in entrepreneurism to council and advise entrepreneurs and listen to to their recommendations
  • This isn’t a role for a recent college graduate with no experience in starting a business, or parochial accountants who judge a start-up’s income statement and balance sheet on how they fared without access to capital instead of where they can be with.
  • Local leaders need to roll up their sleeves and put everything they can in getting each start-up to self-sustainability.
• We all need to pressure government leaders for fundamental change of the Small Business Administration – Either change this Small Business Administration to “Mid and Large-Business Administration” and create a new “Small Business Administration” – limiting backed loans to businesses with up to $1 -2 million a year and up to 100 employees OR redefine a small business for this Small Business Administration and let it serve those businesses it was originally designed to help.
  • Having a pathway for successful enterprises to access capital commensurate with their demonstrated growth will ensure small start-ups can become the mid and large-size companies they are meant to be, energizing the entrepreneurial community.
  • Being an active liaison between a successful small business and higher levels of capital if they seek that path would ensure the early stage investment by the community continues to pay off.
• Small businesses need to harness their collective power (forget relying on national business organizations that have been taken over by big businesses and seem to always push those interests, making small business believe that their interests are the same) and put pressure on Congress to fix this inequity they allowed to grow.
• We do not hear much conversation about entrepreneurism these days. We need to elevate the conversation and remind people how many admired big businesses that draw our attention started in a garage, such as Hewlett Packard, or on kitchen tables as many did. And that many of them, too, struggled to find financing and capital in their early days.

Many great ideas die from not being able to access the market, leaving the entrepreneur, penniless, and rudderless. The critics will cite how many small businesses fail in their first year. If they were honest, they would say that the reason is the passionate entrepreneur exhausted their savings, borrowed what they could from friends and families, but could not stay operational until a time they were noticed and business started to replenish their investment. They did not have access to the capital that could have sustained their effort. However, even if half of the businesses were not successful, that would still create and sustain more jobs than the large business example mentioned. Plus money paid back could replenish the capital fund to generate replacements for the ones that were not salvageable.

Focusing more on small business development can stop the repetitive economic upheavals that destroy lives, families, communities and state resources.  This could insulate the lower economy – the important economy – from the the uncontrolled excesses of Wall Street speculation, making them fix their own unregulated messes.

A change like this is not one that can happen overnight. It took decades to get to this place and the entire country is too dependent on the current model that never seems to stabilize for the vast majority of Americans. But planning a 5  year transition to a more local and regional focus is doable if the political will is there. Government will have to use their authority to re-create the necessary conditions. Citizens will have to be convinced that this change is real and locked in, entrepreneurs will have to be groomed, trained and supported, and the support infrastructure will have to be built – all of this creating the opportunities for more jobs and professions. But the benefits will be realized early on to give continued hope. The threat that the hype of Artificial Intelligence (“AI”) and the jobs large companies seek to replace workers with it, make the urgency real. Most likely, the truth of AI’s capabilities and and dangerous shortcomings will unravel this movement, but not before displacing millions of blue and white collar workers and tossing communities into chaos like those experiencing the impact of offshoring from NAFTA on.

There will be a lot of well-funded opposition to this movement as large corporate portfolios and multi-national corporations sense they are losing their grip, some say strangle hold, on each of us. That is why transitioning to a new (really, old) economic model  is promising. If the economic model big businesses, Wall Street and their lobbyists with money have created is truly good for the masses, it will survive and the movement to a more locally controlled, small-business economy would fizzle. They might make minor changes to distract and delay the effort. If not, the transition will continue and their model will crumble. An army of advocates speaking truth to counter untruths would tip the balance.

If things don’t change soon, the U.S. will be dominated by Private Equity and Hedge fund groups who each control and dominate categories of commerce with the same outcomes of the feared monopolies of old. The constant drive for more and more profits means fewer and fewer workers and declining tax bases across the country as they lobby for loopholes, breaks and no regulation. The longer we wait for change the more damage is done to the entrepreneurial spirit.