Cuts in debt ceiling deal could harm country’s entrepreneurship boom

While it was absolutely essential that lawmakers raise the debt ceiling to avoid economic turmoil, the legislation to do so, unfortunately, makes cuts to programs designed to help underserved entrepreneurs start, sustain, and potentially scale their small businesses.

Buried in the details of the debt ceiling deal is a $150 million cut in funds for the State Small Business Credit Initiative (SSBCI), which provides funds to states to promote entrepreneurship, support small business ownership, and democratize access to capital. These cuts are expected to lead to a 30 percent reduction in funding for programs that help small business owners navigate their financing options and learn the ropes of running a business.

The timing could not be worse. There have been 10.5 million new business applications since 2021—many of them spearheaded by women and people of color. These new entrepreneurs are already facing headwinds caused by high interest rates and tightening credit requirements. Weakening programs that support small business owners with coaching, mentorship, and technical assistance is another blow for budding entrepreneurs in the crucial make-or-break first years in business.

Only half of all small businesses manage to persist beyond five years. However, research shows that early small business mentoring leads to higher revenues and increased business growth. One study by UPS found that 70 percent of small business owners who received mentoring survived for five years or more, double the rate of those who did not.

Business coaching is powerful for the simple reason that while new small business owners bring passion and skill to their enterprise, many have to learn the intricacies of running a business in real time. Being a fantastic baker does not make one a bookkeeping, marketing or financing whiz. Learning business skills and accessing capital are crucial for success, which is why there are government initiatives like SSBCI designed to help. 

Importantly, the cuts to SSBCI funds for coaching will further exacerbate the disparities that underserved entrepreneurs like women and small business owners of color face in achieving success. Access to capital is already a huge challenge. Most entrepreneurs of color lack confidence they could finance an unexpected $5,000 expense or go after growth opportunities including contracts, marketing campaigns, or hiring additional workers, according to a Reimagine Main Street survey. Now, crucial funding for programs created to support their entrepreneurial journey is gone.

But this isn’t just about money. This is about individuals’ capacity to establish businesses that create financial stability for themselves and their families. Consider, for instance, La Kesha Wash, who launched her interior design firm, Meticulous Designs, during the pandemic. With the aid of business coaching, she successfully grew her clientele to exceed 100. The impact of such achievements transcends individual triumphs; it also resonates with the broader success of communities and the national economy. Underscoring the importance of the resources now at risk due to these funding cuts, one study discovered that business owners who received advisory support contributed significantly to job creation, adding 1.4 jobs on average within a span of 1.7 years.

During this fall’s federal budget process, our lawmakers must reconsider these SSBCI cuts. They must recognize the vital role that entrepreneurs play in our economy and empower them to succeed. Entrepreneurs are not just building businesses; they are creating jobs, driving innovation, and powering economic growth. As we navigate the uncertainties of our economic future, we must not turn our backs on these dynamic forces of entrepreneurship. Instead, we must invest in their potential, provide them with the resources they need, and work to create a stronger and more inclusive economy.

Joshua Miller is Vice President of Research and Policy at Accion Opportunity Fund, one of the nation’s leading community development financial institutions.