Investors are fixated on large companies. I’m sure you heard that Nvidia’s (NVDA) market cap recently shot past $4 trillion, a figure roughly equivalent to the annual GDP of Japan.
But, just for today, let’s think small… very small.
That’s because we’re entering into an era of small business opportunities. Maybe even “the” era.
The Small Business Administration (“SBA”) typically defines a “small business” as one with 500 employees or fewer. And you might be surprised at how many of them there are.
The United States Census Bureau said there were 5.52 million of these businesses as of 2022, with another 29.8 million employee-less businesses out there. And according to the U.S. Chamber of Commerce, “Small businesses employ nearly half of the American workforce and represent 43.5% of America’s GDP.”
That makes them an important category. Yet for decades now, it has been a big business world.
Big business tends to influence (some might even say dictate) legislation and benefit from bureaucratic red tape and even taxes.
Comparatively speaking, that is. No company wants to deal with rules, regulations, and Uncle Sam picking their pockets.
But large, multinational corporations are much better equipped to handle them.
They have high-powered attorneys and certified public accountants, not to mention lobbyists, who have the time, resources, and incentives to find legal loopholes. In some instances, they might even lobby for more regulations. After all, what better way to keep out competition than with a jungle of bureaucratic red tape?
And they have scale – as in their sheer size assists them in growing and borrowing money at lesser costs than their smaller competitors. It’s an enormous advantage for already enormous entities.
None of that is going away. But the Trump administration did make a move this month that should spur small businesses onward.
The One Big Beautiful Bill From a Small-Business Perspective
Let’s start with Trump’s One Big Beautiful Bill, which he signed into law on July 4. I wrote about it on both July 2 and July 7, with the former including this:
One of the most significant areas the One Big Beautiful Bill addresses is the 2017 tax cuts… which [were] set to expire at the end of this year.
Back when it was first debated and passed under Trump 1.0, these provisions were billed as being all about “the rich.” And yes, there were corporate tax cuts in it, reducing the top rate from 35% to 21%.
That’s a 40% drop…
[But] as a small business owner – and as someone who knows plenty of other small business owners – I can tell you it made an enormous difference for us “little guys” as well. After 2017, we had more money to grow our businesses, hiring more people and signing up for more programs.
Small business owners everywhere breathed a sigh of relief when the corporate tax provisions were renewed. But one thing we didn’t touch on was the Small Business Tax Deduction within the bill.
Within the 2017 Tax Cut and Jobs, there included a provision for a 20% deduction for “qualified business income” (“QBI”) for small businesses. This originally was set to expire in 2025. But the new legislation makes it permanent.
This would impact “sole proprietors,” as well as partnerships, LLCs, and so on. Small operations, in other words.
The National Federation of Small Businesses (“NFIB”) – a lobbying group on behalf of small businesses – called it a “landmark victory” and their “top legislative priority.”
Along with greater clarity on the future and continued savings, there’s also 100% bonus depreciation. This means companies can purchase qualified equipment, machinery, and similar assets – and immediately expense it. All of it.
That, with the continuing tax cuts and the permanent QBI deductions, should positively impact small business profits.
And then there’s one other thing…
The Small Business Administration’s New Partner
The U.S. Department of Labor (“DOL”) and SBA signed a significant memorandum last week. Under this agreement, the agencies will work to establish “cross-agency access” and share training initiatives “on relevant programs.”
The purpose is to “streamline interagency cooperation and maximize resource delivery to domestic manufacturers” – with an obvious emphasis on engaging small businesses.
Trump knows it’s often easier for small businesses to change course then larger ones. For one thing, major corporations have put billions upon billions of dollars into outsourcing production.
So, while an impressive number of them have agreed to spend billions more toward building other facilities in the U.S., the majority are still invested elsewhere.
I’m not saying that won’t change going forward. In fact, I argued just last week that I’m seeing signs it will.
However, encouraging small businesses that already operate solely in the U.S. to expand further in the U.S.? That’s every bit as worthwhile an effort.
To quote DOL Secretary Lori Chavez-DeRemer:
The president is reviving our manufacturing industry that was neglected for so long. Our workers were tied up in red tape and burdened by economic bad policy. Now we’re reigniting the economy, slashing government waste, lowering taxes, and cutting needless regulations to usher in America’s golden age.
By joining forces [with the SBA], we are able to expedite support for domestic manufacturers; better recruit veterans, service members, and military spouses into the field; and grow our apprenticeship networks of sponsors, grantees, and participants.
These efforts will also open up plenty of investment opportunities, both in the private realm and in the market. That’s why I’m very excited about the portfolio for our Wide Moat Confidential small-cap service.
While stable large-caps should almost always be the bedrock of your portfolio, the right small-caps can considerably boost your returns. That’s why I can’t help but cheer these latest moves by the Trump administration.
The investment opportunities just keep coming.
Regards
Brad Thomas
Editor, Wide Moat Daily
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