Federal Policymakers

Dedicate a small percentage of current funding to new entrepreneurs and young businesses, and track the impact.

5% of Government Contracts:
Redirect 5% of government procurement dollars to businesses under 5 years old.

• Government contracting is increasingly biased against new entrants. The number of small businesses entering the federal procurement marketplace as new entrants declined by 79% from 2005 to 2019. Federal agencies have since been tasked with reversing this decline and “benchmarking the inclusion of new entrants.”

• Research suggests that government procurement practices – particularly basing decisions on past performance – may hinder new businesses.

• Ways to lower barriers for entrepreneurs include: faster approvals and certifications, faster payment terms, lower costs of entry, broader outreach marketing, prioritizing innovation as a selection factor, measuring past performance based on other customers, giving a pricing advantage, establishing set-asides, and/or providing concierge services.

• Policymakers can give new entrepreneurs direct assistance to navigate procurement bureaucracy and get paid faster, such as in Washington, DC or with private financing vendors like Now.

• Modify the SBA Small Business Procurement Scorecard to include tracking of businesses under 5 years old and include the age of business

5% of Workforce Development:
Redirect 5% of workforce training funding into helping Americans start businesses through local and online entrepreneurial support organizations.

• The Workforce Innovation and Opportunity Act (WIOA) of 2014 made “microenterprise and entrepreneurial training and support programs” allowable activities, but insufficient metrics and incentives have resulted in little uptake. Some of the few early innovators in this space include Make Startups (Georgia), City Startup Lab REEP program (North Carolina), and the Wisconsin Division of Vocational Rehabilitation. WIOA could encourage states and local workforce boards to spend at least 5% of their WIOA funds on entrepreneurship by training and supporting people to start and grow their own businesses.

• Local organizations that deliver strong support programming for entrepreneurs (through mentoring, networking, training, educating, incubating, and investing) include past Kauffman Foundation grantees nationwide, here and here.

5% of Economic Development:
Redirect 5% of economic development funding to bottom-up efforts that build entrepreneurial ecosystems.

• Traditional economic development incentives do not lead to desired jobs and growth. They are often focused on attracting larger companies, rather than growing new businesses.

• Existing federal economic development funding streams, including Community Development Block Grants and those overseen by the Economic Development Administration, can incorporate new practices for building entrepreneurial ecosystems from Startup Champions Network, SourceLink, Kauffman Foundation Ecosystem Building Playbook, and the International Economic Development Council. Resources for building entrepreneurial ecosystems in rural communities include e2 Entrepreneurial Ecosystems, Rural Rise, and Center on Rural Innovation.

“Entrepreneurship Czar”: Designate a lead coordinator on policies affecting entrepreneurs across the entire government. Serves as official liaison to voice the concerns and needs of entrepreneurs throughout government and facilitate the removal of barriers.

• Federal efforts to support entrepreneurship exist across an array of federal departments and agencies but lack a unifying and coordinating mechanism. Past presidential administrations had an assistant director for entrepreneurship within the White House Office of Science and Technology Policy, but the role lacked full authority and coordinating power across the executive branch.

• Track data on new business creation and growth and the lowering of barriers for entrepreneurs. Governments are generally poor at measuring entrepreneurial activity.

One-Stop Shop: Provide a single “customer service desk” for entrepreneurs to navigate government red tape.

• Many developing countries are streamlining their systems for new businesses based on the work of Global Enterprise Registration, a project of UNCTAD.

Entrepreneurial Support: Work with stakeholders and communities to provide information, support, and access to entrepreneurs.

Reduce or eliminate occupational licensing burdens and permits for businesses, including home-based ones.

Over the past 60 years, the percentage of the workforce subject to licensing requirements has risen from 4-5% to over 25%, as the economy shifted from manufacturing to services. The Federal Trade Commission is considering ways to reduce occupational licensing requirements.

Reduce tax hassles by allowing businesses to defer income tax deadlines and/or skip filing income taxes for a year if net income is below $5,000.

A 2021 NFIB survey found that 91% of small business owners use a tax professional to prepare and submit their taxes. Small business owners said “compliance” and “complexity” were the top two reasons for using a tax professional.

Tax preparation fees can exceed $900 for a business, which can comprise a significant percentage of net income for new businesses.

Provide relief for young businesses in their crucial first 5 years.

About half of all businesses fail within their first 5 years.

A CB Insights analysis of more than 100 startup failures found that the top reason for business closure was running out of cash. Tax changes that allow new businesses to keep more of their hard-earned money can extend the runway for new businesses.

Unleash entrepreneurs who want to create new jobs by freeing them from unfair bans and noncompete restrictions.

About 1 out of 5 Americans is held back by noncompete agreements, especially younger workers.

Bipartisan legislation has been introduced in both the House and Senate to limit noncompetes.

More than a dozen state attorneys general support reforming noncompete agreements. The Federal Trade Commission is exploring ways to curtail the use of noncompete agreements and has held workshops (here and here) with labor market experts to gather information.

Research from EIG on the impact of noncompetes on firm creation, mobility, and wages.

Research from AEI on how noncompete reform can benefit workers and boost economic dynamism.

Clarify the impact of new laws and regulations on young businesses starting and growing in their critical first 5 years.

Congress could receive such statement from CBO, CRS and/or GAO. The Executive Branch could receive such statement from the OMB/OIRA.

Studies have found regulations disproportionately burden new and small businesses. One study, for example, found that regulations reduce the number of small and medium-size businesses but are associated with an increase in the number of large businesses.

Entrepreneurs and aspiring entrepreneurs identify regulations and legal issues as substantial challenges. Members of both political parties and at both ends of Pennsylvania Avenue have identified the need to address regulatory hurdles to economic growth (examples here, here, and here).

Support transparent disclosure of online loan terms. Reform “confession of judgment” laws.

1 out of 5 small businesses borrow online.

78% of small business owners agree high interest, high fee products are a problem. 8 in 10 small business owners are in favor of regulating online lenders to ensure clear disclosure and reduce predatory lending.

Legislation has been introduced in both the House and Senate to apply the same protections to small business lending as currently apply to consumer lending. Similar legislation has become law in California and New York.

Provide portable healthcare benefits for workers in transition who want to start new businesses.

Tax incentives for health insurance for self-employed workers increase the likelihood of new business creation. Prior to the Affordable Care Act (ACA), self-employed workers were twice as likely to be uninsured, and those with employer health insurance were 2.5 to 3.9% less likely to create a new business. The ACA has led to a 3% to 4% increase in self-employment.

Among those who have seriously considered entrepreneurship but ultimately decided against starting a new business, 20% cited the need for health care coverage as a reason.

Bipartisan legislation in the Senate would establish a grant fund to create and test new models for delivering portable benefits to those transitioning out of or not in full-time employment. Companion legislation exists in the House.

Congress could expand the definition of a Qualifying Life Event under the Affordable Care Act to include “starting a new business.”

Support successful implementation of the State Small Business Credit Initiative (SSBCI) to spur new models of investing that make more early-stage capital available to new businesses.

Over 4 out of 5 entrepreneurs don’t access venture capital or banking when starting a business, so they need alternative capital mechanisms.

The American Rescue Plan Act reactivated SSBCI with $10B in funding. The first iteration of SSBCI invested $1.5B to spur $8.4B in small business lending. Here are examples of how states implemented SSBCI 1.0.

Funds using innovative investment models – such as revenue-based investing or profit-sharing – can reach more underserved entrepreneurs. Examples include Collab Capital (Atlanta), 1863 Fund (D.C.), Founders First (San Diego), Novel Growth Partners (Kansas City), Calm Company, Lighter Capital (Seattle), Capacity Capital (Tennessee), MainVest (online), LocalStake (online), and StreetShares (online).

Nonprofit evergreen funding models that invest in new enterprises and recycle funds continuously include Fountain Innovation Fund (Kansas City), MassVentures (Massachusetts), JumpStart Evergreen Fund (Ohio), and Vested for Growth (New Hampshire).

Nonprofit lenders can sell loan portfolios to commercial banks, thereby freeing up money to invest into more entrepreneurs. Examples include the Entrepreneur Backed Assets Fund, inspired by the work of Revolve Capital with success in places like Minnesota.

Funds that invest in catalyzing new fund formation can generate amplified impact. Examples include the Capital Access Lab (Kauffman Foundation), Renaissance Venture Capital (Michigan), Yozma Fund (Israel), and Multilateral Investment Fund (Latin America).

Defer student loan payments for Americans in the critical first 5 years of starting a new business.

Nearly 1 in 6 Americans has student debt.

Student loan debt contributes to lower rates of entrepreneurship, especially among younger generations.

Forty-eight percent of young people who own or are interested in owning a business cite student loans as one of the main barriers to becoming an entrepreneur. Research shows that higher student loan debt corresponds with lower rates of adult entrepreneurship.

Strengthen existing programs to help unemployed workers start new businesses.

Incentivize states to offer Self-Employment Assistance Programs to help more displaced workers use unemployment benefits to start their own businesses. Well-designed programs generate higher benefits than costs.

Remove the 5% cap that limits participation in Self-Employment Assistance Programs.