The Small Business Economy 2006

U.S. Small Business Administration, Office of Advocacy, 2006. [288] pages

This Small Business Research summary summarizes a research report prepared by the U.S. Small Business Administration’s Office of 

Advocacy and its contractors. The opinions and recommendations of the authors of this study do not necessarily reflect official policies 

of the SBA or other agencies of the U.S. government. For more information, write to the Office of Advocacy at 409 Third Street S.W., 

Washington, DC 20416, or visit the office’s website at www.sba.gov/advo.

Purpose and Scope

In this fifth edition of The Small Business Economy, 

the Office of Advocacy reviews the economic 

environment for small businesses in the year 2005, 

including the financial and federal procurement marketplaces in chapters 1-3. New research on women 

in business, education and entrepreneurship, and 

the approach to local and state economic development known as “economic gardening” are featured 

in chapters 4-6. Advocacy’s annual report on implementation of the Regulatory Flexibility Act (RFA) 

and the results of Advocacy’s initiative to carry 

regulatory flexibility successes to the state level are 

summarized in chapter 7. Appendices provide data 

on small businesses, as well as the key RFA law and 

executive order.

Highlights

The Small Business Economy

Signs of economic progress continued in 2005. 

Three economic indicators key to an analysis of the 

economy’s performance—output, productivity, and 

unemployment—were up. Business starts totaled 

671,800, above closures at 544,800, contributing 

to a new high in employer firms of 5.99 million. 

Nonemployer firms reached 19.86 million.

Small Business Financing in 2005

Favorable financial conditions supported U.S. economic growth in 2005 despite hurricanes and energy 

price increases. Real gross domestic product grew 

at a rate of 3.1 percent. Net borrowing increased by 

19 percent, a pace comparable to that in 2003-2004. 

Commercial banks expanded lending and eased 

terms on commercial and industrial loans.

Federal Procurement from Small Firms

Small businesses continued to benefit from the federal acquisition of goods and services from small firms 

in 2005, and also from changes that helped clarify 

the federal procurement environment. Small firms 

were awarded $79.6 billion in contracts, according 

to data from the Federal Procurement Data SystemNext Generation.

Women in Business

Research on women-owned businesses finds that 

between 1997 and 2002, the number of womenowned firms increased by 19.8 percent, and the 

number of women-owned employer firms, by 8.3 

percent. Women owned 6.5 million, or 28.2 percent 

of nonfarm U.S. firms.

Education and Entrepreneurship: What is 

Known and Not Known about the Links between 

Education and Entrepreneurial Activity

Research on the impact of general education on 

entrepreneurship suggests positive, but not linear links. The highest levels of entrepreneurship 

are found in individuals with at least a bachelor’s 

degree. Research also suggests a link between entrepreneurship education and venture creation. 

Economic Gardening: Next Generation 

Applications for a Balanced Portfolio Approach 

to Economic Growth

“Economic gardening” is an entrepreneur-centered 

growth strategy pioneered in the city of Littleton, 

Colorado. Its best practices emphasize 1) infrastructure—building the community assets essential to 

commerce and overall quality of life; 2) connectivity—improving the interaction among business owners and critical resource providers; and 3) market 

December 2006 No. 286
information—accessing competitive intelligence on 

markets, customers, and competitors comparable to 

that historically available to larger firms. 

An Overview of the Regulatory Flexibility Act 

and Related Policy

In the 25th year of the Regulatory Flexibility Act 

(RFA), the Small Business Administration, Office 

of Advocacy’s report shows RFA implementation 

by federal agencies is improving. More agencies are 

approaching the Office of Advocacy requesting training or seeking advice early in the rulemaking process. First-year cost savings achieved for small firms 

through the RFA process totaled $6.6 billion in FY 

2005. Also in 2005, 18 states introduced regulatory 

flexibility and 7 states enacted regulatory flexibility 

legislation or an executive order. 

This report was peer reviewed consistent with 

the Office of Advocacy’s data quality guidelines. 

More information on this process can be obtained 

by contacting the director of economic research at 

advocacy@sba.gov or (202) 205-6533.

Ordering Information

The full text of this report and summaries of other 

studies performed under contract with the U.S. Small 

Business Administration’s Office of Advocacy are 

available on the Internet at www.sba.gov/advo/research. 

Copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847 or (703) 605-6000

TDD: (703) 487-4639

www.ntis.gov

Order number: PB2007-103421

Pricing Information:

Paper copy A03 ($65.50)

CD-ROM A00 ($48.00)

For email delivery of Advocacy’s newsletter, 

press, regulatory news, and research, visit http://web.

sba.gov/list. For Really Simple Syndication (RSS) 

feeds, visit www.sba.gov/advo/rsslibrary.html.