The growth of small and medium businesses in Canada and other developed countries has been remarkable, accounting for about 40% of GDP and over half of total employment. While these businesses are currently more diverse and dynamic than ever before, they also face new challenges to their expansion compared to older counterparts. This study aims to uncover the barriers to entry, obstacles to growth, and negative factors that affect the well-being of small businesses and entrepreneurship. Entrepreneurs have identified access to capital and credit as the main hurdle at different stages during the business life cycle.
Many small firms and start-ups often rely on personal funds from business owners, entrepreneurs, relatives, and acquaintances as their primary source of capital. Obtaining credit can be challenging for small businesses, especially in the early years of operation. If they do have access to credit, it is usually not through traditional bank loans. As a result, many businesses combine credit card balances and home equity loans to secure funding for their start-up ventures. Banks are required by laws and regulations to follow strict lending standards and assess risk management for each loan. These regulations were strengthened in the late 1980s and early 1990s.
In the past, banks had an easier time granting loans to manufacturing companies as they possessed tangible assets such as property, equipment, and inventory. However, service sector businesses lack these assets, making loan decisions more difficult for banks. Instead, banks must now evaluate factors like a company’s reputation, market position, and cash flow to determine suitability for a loan. This poses challenges for meeting loan approval requirements and is further complicated by the current significant changes occurring in both the banking industry and financial sector.
In the coming years, the banking industry will be divided into global, national, super-regional banks, and a smaller number of community banks. Super-regional and community banks are expected to enhance their services for smaller businesses by creating large loan processing centers that employ credit-scoring techniques and “intelligent models” (computer-based models using artificial intelligence). These advancements will enhance loan processing standards and provide increased security for small businesses.
The globalization phenomenon has had a significant impact on the business environment for small businesses and entrepreneurs. It is now crucial for them to identify foreign markets and supply sources in order to grow and succeed. However, this shift has negatively affected local retail small businesses due to the emergence of large retailers like Home Depot and Wal-Mart. These foreign competitors create strong competition, putting pressure on local businesses in terms of efficiency, price, quality, cost-control, marketing expertise, customer satisfaction, and innovation. Unfortunately, limited capital, credit access, and skilled workforce hinder local businesses from competing on an equal level. Consequently, they become vulnerable to the expansion of corporate giants.
The significance of a well-educated and trained workforce for the future success of small business entrepreneurs cannot be overstated. Regrettably, public school systems are failing to adequately equip individuals entering the labor force with essential skills such as literacy, math, and problem-solving. Consequently, many individuals who pursue education beyond high school choose to work in neighboring countries, resulting in a scarcity of experienced and skilled workers from the 50s and 60s. Additionally, insufficient technical education, brain drain, and the aging baby boomer generation pose challenges for small business owners in recruiting skilled workers. Despite its potential benefits for small businesses, e-commerce also presents various obstacles.
E-commerce encompasses various types of business transactions, ranging from a simple online advertisement that results in a phone conversation with a sales representative to intricate real-time transfers of funds between the bank accounts of buyers and sellers. While big companies can easily adapt their conventional sales and transaction processes for e-commerce, small businesses often have to rearrange all facets of their operations to align with this digital commerce.
Business owners can easily buy products online using credit cards, similar to regular consumers. The only distinction is that they must oversee authorized staff who have access to the card. However, selling products online presents more difficulties for businesses. Developing computer systems and software can be expensive, particularly for customized applications. Additionally, guaranteeing swift order processing, which is essential for customer satisfaction, may require additional infrastructure and cost considerations.
Furthermore, banks do not always ensure the validity of credit card orders, potentially leaving the vendor fully responsible if consumers dispute a purchase. Consequently, banks frequently require e-vendors to make substantial upfront deposits to mitigate against chargebacks. Additionally, e-commerce demands a distinct set of employee abilities, which significantly increase labor expenses. The regulations’ scope, intricacy, and unpredictability were acknowledged as significant obstacles to growth in small businesses.
All sectors of small business encounter stringent barriers to entry and licensing approval arising from regulations. These regulations impact a wide range of individuals, including young individuals seeking vendor licenses and bankers who view environmental laws as obstructing their lending capabilities. The situation becomes more intricate when federal, provincial, and municipal regulations overlap and conflict with one another. Smaller organizations face a heavier burden of these regulations compared to larger enterprises due to the latter’s capacity to afford cost-effective internal and external support.
Despite the challenges hindering the growth of small firms, future projections indicate that they will persist and have a noteworthy influence on job creation, innovation, and empowerment. Nevertheless, if authorities were to reduce or eliminate these obstacles to a more manageable extent, it would serve as a measure to bolster the growth of the overall economy.
The government can attempt to alleviate the challenges small business owners encounter regarding capital and credit. One approach is to distribute public grants evenly, instead of solely allocating substantial amounts to large corporations and university research projects. Furthermore, certain regulations imposed by the government need to be abandoned or adapted to consider the size of the businesses they affect. Public schools should also include courses that teach skills required by today’s business world. By implementing these suggestions or eliminating these barriers, small businesses can soar with their innovative ideas in the 21st century.
