The Main Street Employee Ownership Act of 2018: A Step Forward for Economic Development Through Employee Ownership
The Main Street Employee Ownership Act of 2018 (the “Act”) represents the first piece of Congressional legislation in support of employee-ownership in almost 20 years, the Act was passed as part of the massive $717 billion John McCain National Defense Authorization Act.
The most significant provisions of the Act will be to open the Small Business Administration’s (“SBA’s”) Section 7(a) loan program to small businesses that sponsor Employee Stock Ownership Plans (“ESOPs”) and small businesses that are cooperatives. It should be noted that the SBA Section 7(a) program does not itself loan funds directly, but provides significant guarantees to banks and community development financial institutions (“CDFIs”) that allow them to see such enterprises as more credit worthy. The Act also directs the SBA to (i) coordinate its lending practices with funds licensed as SBA Small Business Investment Companies and (ii) have its microloan program to consider employee ownership as an area for investment and lending.
In addition, the Act also directs the SBA to provide through its Small Business Development Centers (“SBDCs”) programs that will:
Provide training and educational activities on employee-ownership options;
Conduct one-on-one counseling aimed at developing basic business planning tools, to also include consulting on transition issues, governance training, and executive/management education with respect to worker-ownership;
Encourage succession planning with a focus on transitioning to cooperatives and ESOPs by:
Promoting the successful management of such employee-owned concerns;
Assisting employee-owned businesses to meet size standards with respect to financing and contracting programs administered by the SBA;
Coordinating with lenders to conduct outreach on financing to support the transition to employee-ownership;
Helping small businesses to explore and assess the possibility of transitioning to becoming an employee-owned business concern; and
Coordinating with development centers in the Dept. of Agriculture, the Manufacturing Extension Partnership, CDFIs, employee ownership associations and service providers and local, regional, and national cooperative associations.
The Act, however, provided the SBA with no additional funding to carry out any of these programs, so implementation may be somewhat uneven, and may well depend on how well those groups currently involved in promoting employee ownership are able to work with local, regional and state SBA officials in understanding the importance of these promotion and training programs and the impact of the Section 7(a) loan guarantees are to sustaining this most significant area of the overall economy.
And the impact of the coming wave of baby-boomer retirement among owners of small to medium sized U.S. businesses – sometimes colloquially referred to as the “Silver Tsunami” — should not be underestimated. As pointed out by Steve Dubb, in the August 14, 2018 issue of The Non-Profit Quarterly magazine:
Nearly half of US small business owners are baby boomers aged 53 to 71. Collectively, they own 2.34 million businesses, employ 24.7 million people, and have combined sales of $4.14 trillion. It is estimated that 80 percent of these businesses lack a plan for what they are going to do when their owners retire, or if misfortune falls, die unexpectedly (citations omitted).
In short, people’s livelihoods across the nation are at stake, as hundreds of thousands of companies are likely to shut down in the coming decade due to the failure to develop adequate business succession plans, . . . [and] one step to address this situation is to make it easier for the people who work at these companies to buy the businesses where they work.”
The Act, therefore, provides a small, but enormously significant step for promoting employee ownership as a viable tool in the economic development tool box for stabilizing jobs and building community wealth. How well it can accomplish this purpose depends on how aggressively and effectively those committed to employee ownership can convince the SBA to follow the Act’s directives to prioritize employee ownership promotion, training and financing among small business owners, local and state governmental officials charged with economic development, banks and financial institutions that provide credit to small- and medium-sized businesses, and economists and others that craft policy options for promoting job retention and economic growth. Most importantly, those of us who work in organizations across the country that understand the importance of worker ownership and are committed to its expansion must make the most of the opportunities opened up by the Act for getting our message across and making the SBAs directives a blueprint for real action and not well-meaning, but dormant sentiments.