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Enterprise Updated: 05 Jul 2018

How small businesses help the economy – and what’s in store for the future

Small businesses and startups face obstacles when building operations. For owners, the challenges can be great and the return on investment can be minimal in the beginning.

Despite the hardships, small businesses are an economic booster for the communities where they set up shop. They also may have a big role in economic stature down the road.

Their activities tend to have a multiplier effect on the rest of the economy.

“The impact is positive,” said BBVA Research Economist Marcial Nava. “Small businesses create jobs. In addition, their activities tend to have a multiplier effect on the rest of the economy. This has a favorable effect on the well-being of their communities.”

Nava points to the current economic expansion in the U.S., and how small businesses have benefited significantly from it.

“For instance, according to the National Federation of Independent Business, the net percentage of firms planning to increase employment and the net percentage of firms with current job openings are the highest since 2000,” he said. “A tight labor market also implies that more firms are willing to pay higher salaries in order to attract or retain workers.”

Existing small businesses and their operations are helping the economy across the board. But Nava also expanded on the potential for growth across the country for people looking to potentially open their own business, specifically pointing out BBVA Compass’ own footprint.

Our footprint offers great opportunities for small businesses.

“This is a good time for small business growth,” he said. “Our footprint offers great opportunities for small businesses in the short- and long-run. Above average economic expansion, healthy population growth, a business friendly environment, quality of life, and access to some of the most dynamic economic regions in the country are just some of the many advantages that our footprint has to offer to small business owners.”

Historically, small businesses have helped the economy.

The existing environment is a friendly one for aspiring business owners.

But what about the future, when it comes to a business-friendly environment? There is some generally good news – and just a few caveats.

“Overall, the outlook is positive,” Nava noted. “The U.S. economy is expected to experience robust economic growth through the rest of 2018 and 2019. Nevertheless, small businesses may experience some difficulties in hiring as the labor market continues to tighten. As the Federal Reserve continues to raise interest rates, the cost of funding expansion projects will increase. Additionally, the impact of trade tariffs in industries and regions has become a source of uncertainty for the future of small businesses. However, that being said, tax reform should give a boost to small business’ bottom line. “