Recession Hitting Small Firms Looking for Capital to Expand

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“Whereas larger companies can sell stock to raise capital, small firms often rely on personal savings, loans, or private investment to get off the ground.”

(WASHINGTON, D.C. – House Subcommittee on Investigations and Oversight) – The economic recession is preventing small firms and start-up companies from securing the private equity investment they need to launch, grow and develop new products and services, witnesses told Chairman Jason Altmire (PA-04) and the House Small Business Committee’s Investigations and Oversight Subcommittee Thursday. Access to financing is critical for promising enterprises seeking to develop the next innovative drug therapy or revolutionary breakthrough in technology. However, the private investments needed to fuel small business growth have fallen steeply in the struggling economy, lawmakers heard today.

“With the right idea, hard work and sufficient capital, a new business can grow into a large enterprise which employs hundreds of people,” said Chairman Jason Altmire (D-PA). “Unfortunately, today many entrepreneurs are finding that they cannot secure capital when they need it the most.”

During previous economic booms, much of the small business growth that helped boost our nation’s economy was fueled by venture capital and angel investors who invested in high-risk, high-growth endeavors. However, a panel of experienced investors told lawmakers today that venture capital investments are down by a third compared to a year ago, as investors have become more cautious about backing small firms. They also said some would-be entrepreneurs have shied away from taking a gamble, opting to remain in corporate jobs, rather than starting their own companies.

“In western Pennsylvania in recent years, venture capital has helped drive the growth of small medical research and development firms that are transforming our region’s economy,” Altmire said. “If sources of capital continue to dry up, it will stifle the development of new businesses and hinder our entire region’s economic growth and prosperity. It is my hope that today’s hearing will help us identify ways we can improve small businesses’ access to credit so they can attract the resources they need to launch, expand and create more good paying jobs.”

Whereas larger companies can sell stock to raise capital, small firms often rely on personal savings, loans, or private investment to get off the ground. Investors told lawmakers that small technology, alternative energy and biotech firms with cutting edge research should benefit from public and private resources that can help innovations reach the marketplace quicker and spur economic growth and job creation.

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1 comment
  1. Hank Wilfong Jr. said:

    It is true that venture capitalists help boost the start and expansion of small business growth. However, it has been my experience that the large portion of entrepreneurs that constitute the small minority business population that I know, started and grew by different “funding sources”.

    We financed our start-ups by money out of our own pockets, our relatives’ pockets and credit cards. What has hurt us more is the “credit card market” being restricted. We didn’t have “investors”. We still managed to “finance” our businesses and their expansion out of the profits we made. We financed our businesses on mortgages on our homes. We sometimes had three or four mortgages.

    Now we get to the real part of Mr. Sutherland’s excellent piece. “They also said some would-be entrepreneurs have shied away from taking a gamble, opting to remain in corporate jobs, rather than starting their own companies.” Folk don’t want to make that “gamble” on themselves. All I got to say about that is, They, who feel that way, should probably stay in their comfortable corporate job.

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