New Research Highlights Financial Vulnerability of Microbusinesses in U.S.

December 1, 2014

We know that microbusinesses in the United States contribute significantly to nationwide economic activity and their owners’ household balance sheets, but many still struggle to make ends meet or build sustainable long term growth. A big obstacle is the lack of knowledge about how the typical microbusiness manages its finances, the major financial challenges they face or which components of financial capability lead them to business success.

The Corporation for Enterprise Development (CFED), with support from the MasterCard Center for Inclusive Growth, explored these challenges and published a new study titled In Search of Solid Ground: Understanding the Financial Vulnerabilities of Microbusiness Owners. Key findings show that:

  • Microbusiness owners’ business and personal finances are often inextricably tied, and that they are dealing with significant financial vulnerabilities that reach far beyond access to credit;
  • Many microbusinesses suffer from cash flow issues and can’t cover immediate business expenses leading to financial insecurity, both for microbusiness owners and their households;
  • Due to low savings levels, microbusinesses are not equipped to deal with emergencies or meet long-term goals that contribute to greater financial stability; and
  • Many microbusinesses have a hard time accessing financial products, including credit, to minimize financial insecurity — especially young startups, less formal businesses, those generating lower household incomes for their owners, those with fewer employees and minority-owned businesses.

As we continue to explore inclusive growth strategies and opportunities around the world, it is important to recognize the role of small and micro businesses to contribute to sustainable economic development.  This study by CFED provides a more nuanced story about what constitutes financial capability and offers new insights into the types of solutions that might resolve microbusinesses’ greatest financial challenges in the United States.

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