There are debates on whether the government should offer lower interest rates on loans for small businesses. From one point of view, interest rates on loans for all businesses should be the same because the real-life experience suggests that the size of interest rates does not affect the entry of small businesses (Di Patti & Gobbi, 2001). Furthermore, according to some studies, higher interest rates, on the contrary, increase market concentration and, hence, market competition (Hannan, 1991). Nonetheless, there are reasons to believe that government should offer lower interest rates on loans for small businesses because it helps them employ more people and raise capital.
The primary reason why the national government should offer lower interest rates on loans for small enterprises is that it will help to tackle the nationwide labor shortage that characterizes the modern American economy and hampers economic growth (Marshall, 2018). Lower interest rates decrease the cost of borrowing and enable small businesses to purchase a larger amount of sophisticated equipment and develop themselves. Therefore, a developing business requires hiring more staff members. Undoubtedly, the decrease of interest rates on loans for small businesses will not bring an immediate result. Still, it is the groundwork for unemployment rate reduction in the long-term perspective.
According to Korns (1957), the interest rate for small businesses should not exceed sic percent, and this recommendation remains topical even in the 21st century. Governmental aid in obtaining credit will help small businesses to raise capital for a reason mentioned in the preceding paragraph. More precisely, small companies will have more money to purchase equipment and hire more employees. This, in turn, will enable them to produce more goods and services. Therefore, they will be able to sell more shares and, thus, gain more capital.
References
Di Patti, E. B., & Gobbi, G. (2001). The changing structure of local credit markets: are small businesses special? Journal of Banking & Finance, 25(12), 2209-2237. Web.
Hannan, T. H. (1991). Bank commercial loan markets and the role of market structure: Evidence from surveys of commercial lending. Journal of Banking & Finance, 15(1), 133-149. Web.
Korns, W. (1957). Aid to small business.Editorial Research Reports 1957 (Vol. II). Web.
Marshall, P. (2018). Labor shortage debate. CQ Researcher, 28, 777-800. Web.