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Small Businesses Role in the American Economy Essay

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Updated: Jun 3rd, 2020


The American government considers small businesses as one of the most crucial economic resources. They play a significant role in promoting national growth. Indeed, a research carried out by the United States Small Business Administration (SAB) proved that 99.7 per cent of the countries’ leading employers come from small businesses (Bottleson, 2011). Moreover, over 39 per cent of technical workers like scientists, computer workers and engineers work in small businesses. Recognizing the significance of small businesses in the US, the legislature and the Executive have come up with contracting policies to assist in growth and sustenance of the small businesses.

Currently, through Federal Acquisition Regulations (FAR), the American government is working on encouraging small businesses. The government is establishing a network of resources to avail contract opportunities to small businesses (Bottleson, 2011). The main objective of amassing these resources is to provide a level playing ground for small businesses to acquire goods and services with minimal competition from the big corporations. In a bid to encourage small businesses, the government has established some socio-economic policies that it considers when soliciting contracts for small businesses.

This paper will look at some of these socio-economic considerations. Besides, the paper will discuss the differences between contract financing through loan guarantees and private financing and their effects on minority vendors. It will also look at the protections available for the intellectual property of contractors. Finally, the paper will compare title policy with license policy.

Socio-economic considerations

Under the Small Business Act (SBA), numerous contracting programs help small businesses acquire contracts. The programs include HUBZone, WOSB, and SDVOSB. These programs consider different socio-economic factors that help the government decide if a business qualifies for a contract (Croom & Brandon-Jones, 2005). One of the considerations made is if the contracting is to be through a single source or through a reserve award. Moreover, the programs help the government make a decision on whether to conduct a price evaluation on all the small businesses that qualify for the contract.

Before coming up with the necessities for setting aside acquisitions, the federal government also considers the dollar value of acquiring the contract. They ensure that the procurement will add value to not only the small business but also the government will also make something out of it (Croom & Brandon-Jones, 2005). The federal government gathers information on the value of contract dollars, and number of contracts every small business gets from the various agencies. This information helps the government identify if the agency is fulfilling its small business objectives.

The government has set aside certain contracting procedures to ensure that all parties working in small businesses receive equal consideration. The government has established various categories for the small businesses existing in the country and allocated them some percentage of the contracting goal based on their numbers. Currently, the small and disadvantaged businesses receive five percent of the contract goal, five percent of the contract goal goes to women owned businesses, and three percent goes to HUBZone, while another three percent is allocated to Service Disabled Veteran Owned (“SDVO”) businesses (Croom & Brandon-Jones, 2005).

Through this provision, the American government ensures that all the disadvantaged parties operating small businesses in the country have access to government contracts, thus helping them improve their social and economic wellbeing. The government seeks to ensure that small businesses have high chances of partaking in all the contracts the federal agency offers to leading businesses. They include services for main systems, assemblies, subsystems’ contracts, and components.

Contract financing via loan guarantees vs. private financing

Contract financing via loan guarantee arises when a contractor seeks to acquire financial assistance from a financial institution. For the institution to offer financial assistance, it may request for a guarantee from the government as an assurance of the security of its finance. In this case, the financial institution applies to the Federal Reserve Bank for the guarantee (Cibinic & Nash, 1998). Contract financing via loan guarantees is provided for by section 301 of the Defense Production Act. In this case, the government requires a guaranteeing agency where the agency cannot be a government institution. In an instance where the government assists small businesses to acquire services through a guaranteeing agency, the agency is given the mandate of approving the qualification for the guarantee and setting up the maximum dollar amount that the small businesses may acquire.

In the context of contracting finance through loan guarantee, contractors do not have influence over the maturity period of the guaranteed loan. The guaranteeing agency is responsible for setting the maturity period. Contract financing via loan guarantees involves the Federal Reserve Board. The Board works in collaboration with the leaders of guaranteeing agencies in coming up with the most appropriate rates of interests, commitment fees, guarantee fee, and other costs that might be imposed on the loan extended to small businesses (Cibinic & Nash, 1998). The guaranteed loans are similar to those acquired through private financing. Nevertheless, the guaranteeing agency is obliged to buy a decided amount of the loan upon the request of the lender. Besides, the guaranteeing agency is obligated to assume loses incurred for the loan guaranteed.

On the other hand, private financing is a situation where the government helps small businesses to acquire financial assistance from private institutions. Private financing is a constituent of a broader procurement strategy called Public Private Partnership. The government uses this approach as a way of encouraging small businesses to contribute in delivery of public services. In a bid to acquire private financing, the small business has to offer a declaration that the business will pay all the arrears of financing in case of contract termination. Before the financial crisis, which locked the world between 2007 and 2010, the American government helped small businesses acquire private financing through senior debt or bonds (Bottleson, 2011). However, after the crisis, the government ceased using bonds. Currently, it only uses senior debt to help the businesses acquire financial resources.

Contract financing through loan guarantees entails numerous steps. Consequently, it is hard for minor vendors to be sure of its success. Besides, it takes a long time to process and acquire the finance. Hence, it is hard for vendors to dictate on the time they will start working on their projects (Bottleson, 2011). The guaranteeing agency is responsible for deciding if the contractor qualifies for assistance as well as the maximum amount that the small business (contractor) can acquire. Consequently, in this method of financing minor vendors, the vendors have no control over the extent to which they can run their project. They are compelled to work with the provided financial resources and ensure that they repay the loan within the stipulated period. In short, the vendors do not have full control of their businesses.

Since the American government has realized the role played by small businesses in promoting economic growth, it is working on modalities to ensure that existing businesses are saved from competition waged by leading businesses, and that more vendors come up with small businesses. One of the current modalities is helping the vendors acquire financial resources through private financing (Croom & Brandon-Jones, 2005). In this arrangement, vendors have the ability to acquire adequate financial resources thus running their projects as expected. Private financing is viewed as one of the most secure methods of acquiring financial resources for small businesses. Private institutions accept to lend their money since they believe that it is hard for the government to default. Besides, they are sure of getting back their money, as it is hard for a government to go bankrupt. The method is fast, thus vendors are able to implement their projects on time.

Intellectual property protections

Most of the American clients require contractors to have intellectual property rights. Every client wants to be sure that he or she is dealing with an accredited contractor. There are two categories of intellectual property protection rights for contractors. These are “foreground” and “background” intellectual property protection rights. Foreground intellectual property refers to the service that a contractor offers to a client. The background intellectual property protection right grants the contractor the right to own whatever he or she has developed (Cibinic & Nash, 1998).Even though a client may require to make use of the contractor’s skills or products, the protection right gives the contractor the right to own the skills and in case the client wish to use it in the future, he or she cannot do that before consulting the contractor.

In most cases, a contractor is asked to relinquish the patent of the product or services he or she offers to his client. In such a juncture, it would be hard for a contractor to hold to his intellectual property if he or she does not have the background intellectual property right. The background intellectual property protection right helps the contractor retain ownership of his own work. Besides, it helps the contractor strike a productive deal with a client during negotiations. As contractors continue building on their works, the value of their works continues improving. Hence, Background property protection right allows the contractors to continue benefiting from their work. In the absence of this protection, clients and other contractors would take advantage of the contractor and use his or her work for personal gain.

Title policy vs. license policy

Under part 27 of the Federal Acquisition Regulations, The American government has come up with regulations to ensure that contractors or third parties do not infringe or exploit the patent rights of other people. The regulations in this section are split into two: title policy and license policy. Title policies are policies that seek to identify the actual owner of any intellectual property (Feldman, 2012). The policies seek to ensure that every party to a contract, be it the government or the contractors understand and respect the ownership of the intellectual property.

Title policy gives an individual enjoying a patent the discretion to allow others to use his or her right or not. In most cases, the government tends to infringe into the patents of individuals (Feldman, 2012). In a bid to avoid this scenario, the title policy dictates on what the government ought to do in case it wants to use a patent of another party. The ultimate goal of title policy is to give absolute power to the owner of any patent.

At times, the government or contractors may require using another person’s patent in their contracts. Because of the laws safeguarding the patents, they require to seek authorization from the patent’s owner (Feldman, 2012). Failure to seek authorization would amount to infringement, which could result in litigations. The license policy sets out the requirements that a contract or government wishing to use another person’s patent have to meet. The policy ensures that a third party is not denied the privilege to use a patent. On the other hand, it ensures that the third parties respect the patent and exploit it within the established guidelines.


Small businesses play a significant role in the American economy. They are the principal employers in the country. Consequently, the American government works hard to see that these businesses access government contracts thus enhancing their growth. In allocating contracts to small businesses, the government considers numerous socio-economic factors. It first identifies the number of small businesses in the country and classifies them under various groups to ensure equal representation. In addition, to ensure that the businesses benefit from the federal contracts, the government analyzes the dollar value of every contract.

It also gathers information on the number of contracts each business has with the federal agency and assesses each to make sure that the federal agency meets the contract goals. Small businesses acquire contracts either through contract financing via guarantees or through private financing. In a bid to ensure that contractors benefit from intellectual property, the government has established background and foreground intellectual property protection rights, which ensure that clients do not exploit their contractors. Besides, part 27 of the FAR has clearly set out the title policy and license policy to ensure that no party infringes into patent of the other.

Reference List

Bottleson, J. D. (2011). Requirements and cost stability: a case study of the F/A-18 Hornet program. Web.

Cibinic, J., & Nash, R. (1998). Formation of Government Contract. Washington, DC: The George Washington University.

Croom, S., & Brandon-Jones, A. (2005). Key issues in e-procurement: procurement implementation and operation in the public sector. Journal of Public Procurement, 5(3), 367-387.

Feldman, S. (2012). Government contract guidebook 2011 – 2012. Eagan, MN: Westlaw.

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