Small Business Growth Key to Recovery

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The key to job growth and recovery in the US is a small business rebound, Milton Ezrati, chief economist at money management firm Lord Abbett, told CNBC Tuesday.

“If businesses don’t turn around on the small side,” Ezrati said, “we aren’t going to see the employment response.”

Ezrati’s belief is in line with that of Federal Reserve Chairman Ben Bernanke, who said Monday at a Fed forum dedicated to helping small business, that lending credit to small businesses is essential to recovery.

Small businesses employ about 12 million of some 130 million US workers, and they are the main generator of new jobs. However, employees of small businesses earn less per capita than those who work for large companies.

What’s inhibited small business growth, some believe, is the lack of access to loans, and even venture capital money, since the credit markets froze in 2008. Some community banks, which are typically the first stop for small business loans, remain mired in uncertain real estate loans and simply don’t have the personnel to deal with new applications.

Fed Governor Elizabeth Duke said Monday that credit is loosening gradually for small businesses and that the Fed is taking steps to improve the outlook for that sector.

By contrast, large corporations are holding record-high cash reserves on their balance sheets. And should corporations need more cash, they, unlike small businesses, have access to capital markets.

Richard DeKaser, founder and president of Woodley Park Research, said small businesses are still reacting to the recession, affecting their views of the present and near-term future, whereas corporations have moved past that stage.

In fact, CEOs of large companies see growth in the second half of this year, according to the Business Roundtable, whereas small businesses see decline, noted the National Federation of Independent Business.

“What small businesses are responding to are events that have transpired in the past, especially due to financial conditions and deterioration,” said DeKaser.

Then, striking an exceptionally optimistic note, he added. “In my view, you’ll see this turn around in the next month.”

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