The Engine of America: Expanding the SBA to Secure Our Economic Future
Part II: The “Missing Middle”
A healthy economy supports businesses at every stage. Last week, we addressed the needs of microbusinesses, “mom-and-pop shops.” This week, we will explore the middle-market. The first challenge for middle-market companies is a legal and financial “no-man’s land.” They are often too large for traditional micro-lending and community banks, but too small to access public capital markets. We must expand the Small Business Administration (SBA) to target this specific tier of high-growth private companies and revitalize America’s economic engine. In other words, supporting American small businesses requires policies that reflect competing business needs across a wide array of American industries. The mission does not change, but the tools do as businesses grow and scale.
When a company reaches a size with revenues exceeding $10 million and 2,000 or more shareholders, it must register and begin reporting to the Securities and Exchange Commission (SEC). This includes companies like Target, FedEx, and Microsoft. The SEC considers companies below this threshold to be “small businesses.” They remain privately owned and heavily rely on bank debt and private equity rather than the stock market. On the other hand, however, the SBA’s definition of “small business” is much broader. Under SBA guidelines, a “small business” can mean up to 500 employees and annual revenue up to $40 million. It is important to notice the funding gap here. Because of the difference between these two definitions of “small business,” a company with 300 employees, 1,000 investors, and $20 million in annual revenue is a “giant” to a community bank. These local banks lack the liquidity to finance a new factory, a massive distribution hub, and other major capital projects. This same business, however, is a small business to Wall Street and typically cannot access capital through the stock market. These businesses are the “Missing Middle.”
While microbusinesses are the foundation of the American economy, middle-market companies drive productivity, growth, and build local and regional economies. According to 2022 statistics, small businesses generated approximately $17.8 trillion in revenue, and the scale-up sector drives this astounding revenue. These companies are primarily responsible for U.S. innovation and exports. As mid-size companies scale up, they purchase equipment and invest in technology that spurs national productivity and keeps the United States competitive.
Currently, the SBA has two primary programs to support the “scale-up” sector: 504 Loans and the Small Business Investment Companies (SBIC) program. Both of these programs require reform to meet modern demands. The 504 Loan Program does the heavy lifting, offering long-term, low fixed rates for big purchases. Think land, buildings, and heavy machinery. Then there is the SBIC program. SBIC is where the SBA partners with private equity funds to provide cheap capital for high-growth small businesses. To truly turn this sector into a global powerhouse, we must expand the SBA’s mandate. The SBA must be tasked with accelerating the growth of small businesses, not just supporting them.
Today, the 504 Loan Program can be an excellent tool for large capital purchases, but it has strict rules for refinancing existing debt. To improve this tool, I propose a Radical 504 Refinancing Reform. Many manufacturers find themselves trapped with high-interest private loans taken out during recent inflationary spikes. By allowing businesses to refinance into long-term, SBA-backed fixed-rate loans, the government can instantly free up cash flow to hire employees, expand operations, and continue building local economies. Next, I propose a new tier of zero- or ultra-low-interest loans specifically for small manufacturers onshoring production back to the U.S.—I call this the Sovereign Supply Chain Loan. These funds will help companies purchase the robotics and automation necessary to compete with low-cost foreign labor. We are not just supporting small businesses; we are promoting national security. By subsidizing these costs, the SBA can make American manufacturing cost-competitive again without the need for nonsensical tariffs that are hurting, and not helping, American small businesses.
The companies that make up the “Missing Middle” need the support of the United States government far more so than the behemoths and mega-corporations that we already subsidize. I want to bridge the gap between Main Street and Wall Street, extend capital to local communities, expand the SBA to ensure the American economy remains globally competitive, and rebuild the American middle class. Next week, we will examine the Small Business Administration itself—how it operates, its current gaps, and how we can revitalize this incredibly important agency.
