What the Defense Secretary taught me about SME Access to Capital

When I was doing consulting for a think tank on small business access to capital, I was asked to have a conversation with Ash Carter, who had just left as Deputy Secretary of Defense.  I joined a call with Mr. Carter and Mr. Philip Zelikow, the Executive Director of the 9/11 Commission.  Just a few days after this call, Mr Carter became the 25th Secretary of Defense of the United States.

Though the details of our conversation must remain confidential, the fact that two of our nation’s top experts on terrorism and national security were turning their attention to SME access to capital was frankly shocking.

There is a growing recognition in Washington, DC that our small business policies and regulatory framework for small business finance are wreaking havoc on the ability of SMEs to access capital – either seed capital or growth funding.  Despite being one the world’s top entrepreneurial engines, the US is quickly slipping. The rate of small business destruction exceeds the rate of creation by tens of thousands of firms a month.  While the tech sector is thriving in the a handful of cluster cities, the rate of financing for SMEs is in crisis for the heartland of America.

Bank lending to SMEs is in the 33rd consecutive year of decline (measured as a percentage of portfolio dedicated to SME lending).  The number of firms going public has fallen precipitously.

Mr. Carter stated that he perceives the decline in entrepreneurship and the difficulty SMEs face securing capital to be a very serious national crisis, threatening to the long-term health of the United States (paraphrasing his comments).

I could not agree more.  I continue to advocate in Washington, DC for regulations that support the need for financial innovation rather than stifling the engines of innovation. Parts of our payments and banking system are decades old and desperately need modernization.

There is a crisis – not being addressed by either party in this depressing election cycle – that has massive consequences for our ability to create and sustain the middle class and create jobs.   Please join with me in lobbying for more attention to be paid to this crisis – if the Secretary of Defense is concerned, we should be too.

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