Small firms with available internal funds are more likely to demonstrate either sales growth or employment growth, or both. That is the unremarkable finding from a recently released study from the SBA Office of Advocacy. “How Strong Is The Link Between Internal Finance and Small Firm Growth? Evidence from the Survey of Small Business Finances” is the third of four papers published by Advocacy as a research compendium entitled Small Business in Focus: Finance. As might have been expected, firms that are larger, older and that demonstrate sales growth in the previous three years are highly likely to use some form of credit supplied by commercial banks and finance companies. Indeed, this research shows (again, unsurprisingly) that internal and external capital are particularly important for small, expanding businesses.

Of much more interest, from our point of view, is the simultaneous finding here that “very small firms” (defined in this paper as firms with fewer than 20 employees and less than $1 million in sales) demonstrate a particularly strong link between the availability of internal funds and firm growth. As far as microbusinesses are concerned, this study has at least one unambiguously relevant finding: cash flow and liquidity management training are critically important for these very small businesses. In fact, that is simply a long-winded and polysyllabic way of saying that practitioners need to incorporate bootstrapping techniques in their technical assistance curriculum for microbusinesses. That will certainly meet their needs much better than an offer to help them put together a 7(a) loan application package.