The Engine of the American Economy

Small businesses do not just participate in the American economy; they are the engine that drives it. According to the SEC’s Office of the Advocate for Small Business Capital Formation (OASB) 2025 Annual Report, there were 36.2 million small businesses in the United States, and between 2023 and 2024 alone, they were responsible for nearly 9 out of 10 net new jobs created nationwide.¹ That statistic alone should reframe how policymakers, investors, and lawyers like me think about how we serve, support, and promote the growth and sustainability of small businesses. 

Prior to co-founding Basswood Counsel, I served as Special Counsel at SEC’s OASB, where I was brought in to advise the Office on legal and policy issues affecting small businesses and their investors, such as venture capital funds and emerging fund managers. As a lawyer, I enjoy working with entrepreneurs as they take me through their entrepreneurial journey and navigate the legal and regulatory landscape. Recently, my colleague Hazvinei Mugwagwa and I had the privilege of seeing this up close through Basswood Counsel’s partnership with the U.S. Black Chambers (USBC) 360 Accelerator Program. It is one thing to read and prepare reports about capital-access gaps. It is another to sit across from founders who have built real businesses, served real customers, and responded to real problems related to operating the business–all while keeping in mind the legal and regulatory aspects of running and scaling the business.   

 The Access-to-Capital Problem Is Real — and the Numbers Prove It 

As a securities lawyer, clients often come to me when they are financing their businesses.  Unfortunately, as the SEC’s annual reports continue to indicate, raising capital remains a challenge for small businesses. For example, in 2024, 94% of small businesses experienced financial challenges. Related to that challenge, venture capital funding is becoming more concentrated. For example, for the first half of 2025, roughly 40% of all VC dollars went to just ten companies. 

These aren’t just abstract statistics. Behind those numbers, or lack thereof, are founders with dreams of building lasting businesses, determination to succeed, and endless sleepless nights. These numbers explain why, oftentimes, a founder with a strong product and a loyal customer base is relegated to financing growth on credit cards or delaying distribution and manufacturing opportunities because of limited access to credit lines or investors. These numbers are the reason why “friends and family” rounds–the earliest, most informal capital many entrepreneurs ever raise–may be the only capital they raise before it eventually closes its doors. 

What the Data Says About Black-Owned Businesses Specifically 

Over the past decade, the number of Black-owned employer firms grew from 124,004 in 2017 to 194,585 in 2022, with revenue climbing 66%, from $127.9 billion to $211.8 billion over the same period.  However, with respect to access to capital, the numbers are even direr for founders from underrepresented communities, which stifles the ability to build lasting businesses and close the wealth gap.  Despite that growth, Black-owned firms still account for only about 3% of all classifiable U.S. businesses and roughly 1% of total gross business revenue, even though Black Americans make up approximately 14% of the population. Further, in 2022, Black founders raised just 1% of all venture funding, and in 2024, that number was 0.6% and continued to decline. 

That gap between the growth rate, the revenue share, and access to capital is the overarching story. Black entrepreneurship continues to expand, but it is expanding from a small base, in an environment where access to capital, banks, and supportive ecosystems is measurably harder to come by. That is precisely the gap organizations like USBC are built to close, and precisely why Basswood Counsel has been glad to be a partner in that effort. 

The Problems We See Most Often  

At Basswood Counsel, we enjoy working with clients from all backgrounds at the early stages and taking the time to learn about their businesses before they make fatal mistakes. Unfortunately, in an attempt to save funds, many founders often forgo early legal guidance and do not engage counsel until something has already gone wrong, such as bad term sheets, an improperly documented round, or a dispute with an investor, manufacturer, or distributor. Engaging counsel at the formation stage could prevent several of those problems entirely. In our work with small businesses, we have seen a few recurring problems that show up again and again: 

1. Improper entity formation and weak corporate governance. Many founders form their company quickly, online or on their own, without considering whether the entity type, state of formation, or ownership structure fits their plans. Common problems include operating without a proper operating agreement or bylaws, failing to document ownership percentages and founder vesting, and never adopting board or member approvals for key decisions such as issuing equity. Other governance lapses, such as mixing personal and business finances, skipping annual filings and required meetings, and keeping incomplete records, can put a company’s liability protection at risk and show up as red flags in investor diligence or an acquisition. While these problems can usually be fixed, it is easier and less costly to get them right at formation.  
2. Noncompliance with securities laws. Most founders have heard of the different types of offerings and investors, but they do not know which pathway fits their growth stage, their investor base, or their budget. Many also do not realize that the instruments they issue to raise money, such as equity, convertible notes, SAFEs, or revenue-sharing arrangements, are securities, which triggers the applicability of securities laws to even to small, informal rounds. Getting this wrong early can create cap-table and regulatory compliance headaches that follow a company for years, only to surface when the company is growing or exiting. 
3. Underused non-dilutive capital and overly dilutive equity deals. Grants, loans, and other non-dilutive funding sources exist—although they may be scattered across federal, state, and regional programs. Without knowing whether these options are available, many founders default to selling equity without exploring whether a grant or loan can be used to finance a particular project or milestone.  Relatedly,  in their urgency to close a round, founders sometimes give up too much of the company to the wrong investor or on terms that are detrimental to the business.  Such a mistake can lead to a steep discount on valuation, an outsized ownership stake, or control rights such as board seats, veto powers, and liquidation preferences that limit the founder’s ability to run the company. An investor who does not share the founder’s vision, or who cannot support the company beyond the check, can become a burden that discourages future investors and complicates later rounds or an exit.
4. Overlooked tax considerations and missed tax benefits. Tax is rarely top of mind for early-stage founders, but decisions made at formation, such as choosing an entity and structuring ownership and compensation, can carry tax consequences that last for years. One of the most common and costly examples is failing to file an 83(b) election when founders receive stock that vests over time. Without the election, a founder may owe tax on the stock’s increasing value as it vests, and the filing window is short (generally 30 days from the grant) and cannot be reopened once it is missed. Founders also leave valuable benefits on the table. Qualified small business stock (QSBS) treatment, for example, can allow founders and investors to exclude some or all of the gain on a later sale of their stock, but only if the company and its stock meet certain requirements from the start, including being formed as the right type of entity. Overlooking these obligations, or the tax treatment of a financing or an exit, can lead to penalties, back taxes, and missed planning opportunities. Getting the structure right at the start is far less costly than unwinding it later. 
5. Weak or one-sided contracts and commercial agreements. This is one of the most common — and most preventable — problems we see. Founders sign vendor agreements, customer contracts, and platform terms of service without a lawyer reviewing the agreement. By the time a dispute arises, the founders have often already agreed to unfavorable indemnification language, personal guarantees and liabilities, automatic renewal terms, or dispute-resolution clauses that make enforcement impractical. Unprotected intellectual property. A company’s brand, technology, and creative work are often among its most valuable assets, yet many founders never take basic steps to identify, protect, and secure ownership of them. Questions about who owns what, and what rights the business actually has, tend to surface at the worst possible time, such as in the middle of investor diligence. 
6. Not preparing for an exit.  I always remind clients that, unlike corporations, which are perpetual, human beings are not. Run your business as if you will exit or check out at any time—whether through a sale, a merger, a buyout by partners, or a transfer to family. By the time a buyer appears, problems that were easy to fix early, as noted above, have become expensive. Potential buyers may use these gaps to lower the price, slow the closing, or walk away. Remember that your business is not Hotel California: You will actually have to leave. 

How Basswood Counsel Approaches This Work 

Although I have departed from the SEC, I am glad that at Basswood Counsel I still get a chance to counsel, educate, and advocate on behalf of small businesses. Basswood Counsel was founded as a boutique law firm precisely because we believe that small and growing businesses need counsel that understands both the letter of the law and the practical reality of running a business. We want our clients to be ready when the opportunity to scale, expand, or exit arises. We help our clients to stay ready so that when the moments come, they can proceed with confidence. Regardless of your background, industry, or development stage, we welcome you under the Basswood tree. 

Our culture reflects the same commitments. We are invested in the communities we serve. Educating small business owners and partnering with organizations like USBC that support them is as much a part of our work as representing clients. It all comes back to our motto: “We’ve got you covered.”  

Whether it’s a capital raise, a tax question, a contract, or a trademark, we want founders to know that someone in their corner has already thought about it. Small business is the engine of the American economy. Basswood Counsel is glad to do its part in fueling that engine.