Built for all, built to last: Six shifts that could change the U.S. small business landscape for generations of entrepreneurs
Major gaps exist in the ecosystem that supports entrepreneurs on their journey from business inception to growth. New small businesses have opened at record rates in the last few years, but many will close their doors prematurely because they cannot access the support they need to grow and flourish.
We surveyed more than 30 of the nation’s small business leaders to uncover the most critical gaps holding entrepreneurs back and identified six key shifts needed to realize a vision where more entrepreneurs succeed over the long term — informing a strategy to create a stronger, more connected small business sector that expands access to capital, tools, and know-how, and leads to ongoing success for small businesses across the United States.
Coalitions like Mastercard Strive USA can meet these challenges head on. But we can’t do it alone. This is a call for partners across finance, policy, philanthropy, and technology to join us in committing to sustained investment in strengthening small business ecosystems across the country.
By Sandy Fernández & Victoria Brown
Millions of new small businesses have opened their doors in the U.S. over the past five years. Of those, roughly half will shutter in the next five years if historic small business closure rates apply.
Some will close for valid business reasons, such as weak consumer demand or strong market competition, but others will fail because they lacked access to affordable financing, the right digital tools, or business advisors who could have enabled their success. Those are the challenges that keep leaders in the small business sector up at night. This year, these same leaders are poised to take action to drive industry-wide changes that could drive long term success of small businesses.
Resilient small businesses strengthen communities — and the data proves it. A 1% increase in entrepreneurial activity in a U.S. state, for example, correlates with a 2% decline in poverty.
These aren’t just promising correlations. They’re evidence that smart, targeted investments can improve business survival, reduce poverty, and drive economic growth. But the opposite is also true: if we fail to invest in the support networks that U.S. small businesses need, we risk losing thousands of viable businesses in the years ahead.
Many of the gaps in the U.S. small business ecosystem — defined as the non-profit, government, and private sector organizations that deliver capital, know-how, and services to small businesses — are well known. They include the limited supply of affordable growth capital to uneven access to quality technical assistance. Smart investments and targeted reforms can begin to close these gaps. But where should we focus first? And what specific solutions can drive lasting, systemic change when addressed together?
To answer these questions, Mastercard Strive USA in partnership with 60 Decibels, a leading impact measurement firm, recently surveyed more than 30 senior leaders across the U.S. small business support ecosystem whose voices and expertise will directly inform and shape concrete solutions. The respondents lead community development financial institutions (CDFIs), think tanks, business support organizations (BSOs), fintech companies, CDFI and credit union associations, advocacy organizations, ratings agencies, and other types of support networks. They work directly with small businesses and community organizations in all 50 states, Puerto Rico, and Native communities. Collectively, they have hundreds of years of experience working directly with small businesses. They are also all part of the Mastercard Strive USA network.
What we heard was that there are numerous challenges facing small businesses in the U.S. — including access to affordable growth capital, the ever-present urgency to adopt new technologies, regulatory enablers and burdens, and a fragmented ecosystem that makes it difficult for investors, advisors, and capital providers to support small businesses efficiently at scale.
From these insights, six key shifts for durable small business change emerged:
- Boost technology investments: Crowd-in investments in new technologies, platforms, and innovations — and the tools necessary to implement them.
- Reach entrepreneurs with the right resources at the right time: Expand support for scalable and navigable technical assistance resources and integration with small business capital programs.
- Improve capital access and flexibility: Provide more flexible philanthropic capital through new and bigger coalitions of partners.
- Deepen support for effective public programs and incentives: Continue supporting and innovating on public programs and incentives with a demonstrated track record of results.
- Grow transparency and standardization efforts: Promote data and process standardization and transparency to catalyze new investments.
- Expand ecosystem collaboration: Drive more industry collaboration to grow and strengthen the ecosystem.
The challenges facing small businesses today are immense — but the opportunity to catalyze a more resilient, better-connected ecosystem has never been more timely. Making smart investments and advocating for reforms that support entrepreneurs can create jobs, strengthen communities, and grow the national economy.
The biggest opportunity: Creative and diverse sources of capital
While all six of these priorities are necessary to spur systemic change, access to flexible and diverse sources of capital ranked as the highest-priority solution in the next two to three years. Of the respondents, 79% identified capital programs and federal funding as critical policy areas affecting their service delivery, while 72% expressed concern about the availability of philanthropic investments, structured private capital vehicles, and secondary market solutions.
They noted that growing the number of innovative public-private partnerships is one solution, given that those investments often drive outsized impact, especially those which provide less restrictive capital. More broadly, funders can also use this moment to advocate for a fundamental shift away from traditional philanthropic models toward a broader spectrum of flexible financing mechanisms.
“There’s tremendous opportunity for philanthropy to shift from charity to strategic investment,” one leader noted in the survey. “This means using grant dollars as well as other types of capital such as Program-Related Investments, secondary market structures, and blended capital models differently. On the grant side, CDFIs need multi-year catalytic funding which would allow organizations to invest over the long-term in infrastructure, technology, and operational capacity with flexible funding that aligns with their impact timeline.
Continuing to leverage public funding — and, relatedly, finding new and creative ways to bring in more private sector capital — is critical, given the amount of federal funding provided to entrepreneurs in recent years and the unprecedented growth in the number of small businesses. State governments also have an opportunity to structure drawdowns of federal programs such as the State Small Business Credit Initiative (SSBCI) in a way that expands access to loan participation programs and equity investments, rather than relying solely on traditional debt instruments. The missing link is often access to multi-year funding that includes debt, equity, and grants to enable organizations to invest in infrastructure, technology, and operational capacity. The current approach of restricted, short-term grants with unrealistic timelines prevents organizations from building the core capacity that supports sustainability and scale.
“I think the private sector needs to do more,” one survey response said. “Frankly, there’s a need for a longer runway. Unfortunately, many philanthropic organizations make what I call spotty investments — they may drop a few dollars in one place and say, ‘Okay, do all this work, have all this impact, you’ve got three years to do it.’ We all know that community economic development takes much longer than that.”
Beyond capital: Getting the right help, at the right time
Another significant opportunity to emerge from the survey centers on enabling both small businesses and the organizations that support them adopt new technologies, platforms, and innovations that can drive efficiencies. Tools such as AI and data analytics can help small businesses compete with larger companies while also adding more protection against digital threats such as cyberattacks, fraud, and data breaches. These investments can break silos within the ecosystem by creating shared platforms that connect entrepreneurs with a broader range of capital providers and technical assistance organizations.
Other potential benefits include shaping and promoting industry-wide infrastructure that multiple organizations can adopt, as well as seeding, testing, and scaling innovations that support business growth and resilience. These solutions usually require a multi-year investment, which often doesn’t align with the short-term nature of many existing funding sources.
In addition, expanding support for more scalable and tailored technical assistance that is integrated with capital programs would bridge a gap for small businesses to invest their capital more effectively and improve profitability through education around strategy, marketing, workforce development, and operations. Limited capital readiness is among the biggest barriers to small businesses adopting intermediary products and services, but access to proper, tech-enabled technical assistance could solve that problem.
Additionally, leaders can continue supporting public programs and incentives with track records of results, such as those often implemented by state or local economic development agencies. Complementary reforms such as making application requirements less burdensome and extending regional programs across state lines with minimal additional requirements would also help them reach more entrepreneurs.
Strength in numbers
Data analytics, including its benefits to implementing AI tools, ranked as another top priority — particularly the development of industry-wide guidelines around definitions, standardization, and transparency that would attract more private sector capital. At an industry level, reliable data is critical for making the case for more resources by, for example, providing insights that inform an analysis on business opportunities and risks.
“Data is going to be a central point of focus for us as well, and the partnerships and resources out there that, at an industry level, can be put in place to help us not only collect but process and analyze data in a much more streamlined way,” one survey comment said.
Driving more collaboration within the ecosystem — and moving away from individual efforts on big challenges — is also top of mind for respondents. CDFIs working together during the pandemic to distribute emergency federal funding showed the huge potential impact of this approach. But outside of a crisis, the industry has struggled to maintain that spirit of collaboration for the greater good of the community. More intentional structure and incentives will need to be required going forward, according to respondents.
Collective action to drive systemic change
While the six key shifts raised by respondents varied, a common theme unites them: stronger systems and infrastructure are essential to unlocking new sources of capital, increasing efficiency, and catalyzing new collaborations.
Mastercard Strive USA is committed to strengthening the U.S. small business ecosystem by investing in the resilience of the organizations that support entrepreneurs and their small businesses. Insights from our survey make it clear: Working together, we can commit to sustained investments that will equip these small business support organizations with the capital, digital infrastructure, and technical assistance to grow. In turn, more small businesses will start, scale, and navigate the challenges that often lead to early closure and we can strengthen and grow the middle class.
Sandy Fernandez is vice president of North America at the Mastercard Center for Inclusive Growth and leads the Mastercard Strive USA program.
Victoria Brown is senior director, programs and implementation at DAI where she leads implementation of Mastercard Strive USA.
Want to learn more or connect directly? Reach out to us at striveusa@mastercard.com.
You can also see a summary of the six shifts surfaced by our community on this fact sheet or learn more about Mastercard Strive USA’s impact in this snapshot about our partners and work in 2024.
