What Are the Benefits of Businesses for the Local Economy?

With 30.2 million small businesses operating nationwide, the magnitude of small business impact on the local economy cannot be ignored. Statistics reported by the U.S. Small Business Administration (SBA) show that businesses operating in local communities are the foundation of the American economy at large. Not only do they provide valuable products and services to consumers, they fuel local economies with tax dollars, spur employment, and create community pride and development.

Spur Innovation and Growth

It is easy to see the benefits of business to society as a whole because companies, particularly big corporations and manufacturers, are the producers of many of the goods and services that the public consumes. However, it is often in the smaller companies that big new ideas are pushed to the forefront by innovative entrepreneurs. Because they need to stand out from the crowd to be competitive in the marketplace, small businesses create new, unique products and solutions to problems. Mega-companies such as Facebook, Google, Coca-Cola and Amazon all started with a small group of innovative thinkers who dreamed big. As they grew, they expanded their ranks and hired more local workers to run their businesses.

Create Jobs Locally

The importance of small business growth within local economies is perhaps most noticeable in employment figures. According to the SBA, small businesses have created 8.4 million net new jobs since the year 2000, 4 million more than large businesses. Additionally, they represent roughly 99 percent of all companies nationwide that have paid employees. Small businesses tend to hire employees who live near the communities in which they operate, thereby boosting local employment rates. With their earnings, workers purchase goods and services, so money is fueled back into other local businesses.

Keep Money in Local Communities

No one likes to pay taxes, but small businesses also keep disposable income and tax money within their communities. Business tax money, paid by both employees and businesses, stays local and further benefits the communities through its support of schools, roads and municipal services. Consumers often purchase goods and services from nearby small businesses rather than from big-brand stores because they want to support individuals and store owners in their local communities. Similarly, small business owners tend to support other business owners, purchasing supplies, partnering in marketing efforts and creating a cycle of support that helps locate economies to thrive.

A Shared Community Identity

Also significant is the importance of small business involvement in the civic and cultural life of small towns and local communities. Business owners have a vested interest in stimulating the local economy and driving business not only to their own shops, but to the area in which they live. Typically, these owners are also actively involved in supporting community civic organizations and in giving back to charitable groups within their region.

Many communities form business networks to support each other in their marketing efforts. They work to educate the community on the importance of “shopping local” and getting behind businesses that strive to operate using sustainable practices. They work together to impact government policies, support local arts and culture venues, and share resources.

Diversity in Business Ownership 

Small businesses also provide opportunities for women and minorities to establish themselves in significant roles within companies or start their own businesses. According to the SBA, 29 percent of all small businesses are owned by minorities and 36 percent are owned solely by women. Many government loans and grants are available to members of these groups, and the financial assistance goes a long way in helping them find the foothold they need to start their own business ventures.