The benefits of lending relationships Essay Paper

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While politicians have long delivered empty platitudes celebrating the role of small businesses, praising these enterprising Americans as the cornerstone of our nation’s capitalist system, reviewing empirical data gleaned from studies on business size quickly shatters that oft repeated illusion. Comprehensive research on the relationship between the size of a business and the benefits provided it through institutional means has consistently demonstrated that large businesses and corporations receive an inordinate share of the federal subsidies, tax breaks, and other opportunities designed to level the proverbial playing field. Whereas a small business with a small staff of local employees is forced to shoulder the burden of payroll taxes and other costs associated with insuring a workforce, the typical corporation with thousands of employees is permitted to outsource as many positions as possible to reduce their tax and insurance liabilities (Wiklund & Shepherd, 2003). After conducting an exhaustive empirical analysis of the relationship between businesses of various size and their lending institutions, a team of financial researchers found that “firms that borrow from multiple banks are charged a significantly higher rate” (Petersen & Rajan, 1994), a trend which is disadvantageous to small businesses that have been forced to seek additional capital from alternative sources to survive the effects of a prolonged recession. When the totality of the situation is examined objectively, it becomes clear that the intended structure of America’s capitalist economy has been rendered unrecognizable, with those companies most in need of assistance being ignored in favor of massive, multinational conglomerates.

In a transparent effort to persuade the general public that small businesses are actually protected and preferred by governmentally employed contractors, an emerging trend founded upon the concept of small-business preference programs has been widely publicized of late. A small-business preference program is ostensibly designed to funnel a predetermined amount of federal spending to small businesses across the country, by limiting the bidding process for certain infrastructure projects and other public contracts to companies of a certain size. The majority of commonly utilized small-business preference programs target a specific subsection of the small business owning population, with the 8(a) Program for Small Disadvantaged Businesses, Veteran Preference Program, HUB Zone Preference Programs, Women Owned Preference Programs, and Mentor-Protege Program ranking among the most widely applied for. While these programs obviously do deliver much needed assistance to small business owners struggling to stay afloat, offering an array of advantages and resources to those who need them most, the reality is that small-business preference programs would not be needed at all if the economic culture in America was not so unbalanced in the first place. With corporate titans like Boeing, General Dynamics, and IBM dominating their individual industries by virtue of their decades-long contractual relationships with the Department of Defense and other government entities, small businesses today have no realistic path by which to penetrate these lucrative markets.


Kenny, C. (2011, September 28). Rethinking the boosterism about small business. Bloomberg Businessweek. Retrieved from boosterism-about-small-business-09282011.html

Petersen, M.A., & Rajan, R.G. (1994). The benefits of lending relationships: Evidence from small business data. The Journal of Finance, 49(1), 3-37. Retrieved from Rajan 2004.pdf

Wiklund, J. And Shepherd, D. (2003), Aspiring for and achieving growth: The moderating role of resources and opportunities. Journal of Management Studies, 40: 1919 — 1941. doi: 10.1046/j.1467-6486.2003.00406.x

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