Although the Great Recession officially ended more than five years ago, you would not be able to tell in many communities across our state. Unemployment and poverty are rising in many of our counties, particularly those that are the most economically distressed. In fact, poverty rates in some counties—especially in the northeastern and western parts of the state—have exceeded 25 percent. Difficulties in securing employment make for difficulties in making ends meet each month, and in light of real and continuing challenges, we need to ensure that individuals and families in every community can build the assets necessary to secure their economic futures.
One way to do that is through encouraging entrepreneurship. North Carolina is home to almost 820,000 small businesses. Businesses with less than 100 employees make up almost 96 percent of employer firms in our state. Their impact is significant, and it extends beyond just the business owner. Small businesses create jobs, generate local economic activity, and provide a pathway toward asset and wealth building for business owners and their communities. A thriving small business can provide both an economic anchor for the local economy and long-term financial security for the entrepreneur.
According to the research on financial security examined by the North Carolina Assets Alliance:
- Households with assets are more likely to weather an economic downturn and are better positioned to provide future generations with a sound foundation and head start in life.
- Children in households with assets are more likely to graduate from high school, attend college, have stronger connections to the workforce and civic life, and enjoy better health outcomes.
- Communities with assets provide lower-cost goods and services to their residents, opportunities for young people to get ahead in school, and the connections to social capital.
As we learned in the Great Recession, liquid assets readily convertible into the cash necessary to stay ahead of bills and mortgage payments are especially critical to family financial security. Sadly, according to the 2014 CFED Assets and Opportunity Scorecard, 52% of North Carolina residents are “liquid asset poor” — meaning that families do not have sufficient cash to weather three months of expenses at the federal poverty level, in the event all income is lost.
Traditionally, individuals and families are able to grow assets to become financially secure through investments in education, homeownership and small business. Unfortunately, too few small businesses in North Carolina are able to access the resources from traditional sources needed to start up and grow. Beyond capital, entrepreneurs also need technical assistance and training to successfully manage and grow their ventures over the long-term. Financial management, business planning, succession planning, and marketing are all important for business owners who are developing their business acumen.
Fortunately, there are lenders and service providers stepping in to fill the gap. Community Development Financial Institutions (CDFIs), for example, are mission-driven lenders, providing flexible loans and technical assistance to entrepreneurs that are not served by traditional financial institutions.
Another method for stimulating business creation and expansion is the promotion of Individual Development Account (IDA) programs. Using matched savings, low-income workers can build financial assets through homeownership, education, or starting or expanding a small business. Since 1996, the NC IDA program has provided small business investments for start-up or working capital, the purchase of needed materials, supplies or equipment, and acquisition to land/office space. Business owners in the program are required to complete a business plan and participate in financial education classes in order to receive a match for his own savings toward these investments.
These programs address a growing need, but without broader policy support at the state level, they will be limited in their impact. Indeed, without new funding the NC IDA program will end in 2015. Currently, North Carolina has a state microenterprise rate of 15.8% compared to the national rate of 16.5%. If we were able to achieve Florida’s best-in-the-nation rate of 20.8%, 236,529 more workers would be microenterprise owners.
As many other states have done, North Carolina can make a proactive investment in our state’s entrepreneurs and small businesses to include access to capital, needed technical assistance and training, and state support for individual development accounts.
To be sure, addressing our state’s economic challenges will take a long-term, concerted effort. Entrepreneurship represents a viable pathway for individuals and families to regain a more secure economic footing. While limited services and resources are available, further investment to support our state’s entrepreneurs ultimately benefits our economy as a whole.