Small company recovery lagging behind bigger folks

Small businesses are taking a lot longer to bounce back from the Great Recession than bigger companies.  It’s what Alan Greenspan has called a “bivariate” economy.

Just consider statistics from the Bureau of Labor Statistics.  Companies with less than 50 employees lost jobs at a rate of .4% a month since the start of the recession in December 2007, while companies with more employees cut employment at a .2% rate.   Since the date when the recession is supposed to have ended, last spring, large companies have added around 32,000 jobs a month compared to 158,000 at small firms. Small companies account for about 40% of total employment, according to the Economist. A report from the  U.S. Congress Joint Economic Committee also just concluded that, while hiring in mid and larger-sized establishments has been increasing since the middle of 2009,  it’s declined at small businesses.

There are various theories for why this is happening, but the most popular points to  tight credit and limited resources.  That is,  bigger companies can get around the high cost of financing by also tapping credit markets. They also have more ability to benefit from international markets, not to mention stimulus money. But, realistically,  small businesses have fewer options–accepting higher bank terms or reducing borrowing.  And that has slowed down their recovery, their ability to expand, and their appetite to  hire.

The conclusion of the report is to improve credit availability to small business. That’s what a proposal being considered by Congress would do. It aims to create a $30 billion fund to make it easier for smaller banks to lend to small companies–a good idea, though a bit more complex than meets the eye, something I just wrote about for CFOZone.com.  Another possibility not mentioned in the report: Boosting aid to Community Development Financial Institutions (CFDIs), which provide loans of up to $35,000 or $200,000 to small businesses and others, and have been a godsend for small companies during the recession.

But, there’s also the possibility that the better times at larger companies can help smaller folks. It’s what the Small Business Labs blog calls a “trickle down” recovery.  As bigger firms buy more from smaller companies, they’ll help boost overall growth.

That’s the theory. Could happen.