By Jessica Smith, NPR, August 15, 2011

Every business starts small. But more than ever, it's harder to turn small businesses into bigger companies that employ more people. In a country that desperately needs more jobs, this is a big problem.    

Small firms represent about 99 percent of all U.S. businesses, but a study by the Ewing Marion Kauffman Foundation shows that while businesses are being formed at roughly the same rate as in the past — the number of startups is even rising — these small businesses create fewer jobs than in the past.    

The study found that in the 1980s, startups created an average of 3.5 percent of all U.S. jobs, but in the 2000s, they contributed only 2.6 percent of U.S. jobs.    

Since the financial crisis, banks have all but stopped lending to small businesses. Tighter credit means it's also harder for entrepreneurs to borrow against their credit cards, or their homes, as they've done in the past. But many challenges facing small business owners started before the recession.    

What Is A Small Business? 

• A small business is defined as an independent business having fewer than 500 employees. 
• Small firms employ about half of all private sector employees and pay about 43 percent of total U.S. private payroll. 
• Seven out of 10 small firms last at least two years, about one-half survive five years and one-quarter stay in business 15 years or more. 
• In mid-2010, commercial banks began to ease the tight lending conditions on small businesses that had begun in early 2007. 

Barriers To Expansion    

In a series of stories, Morning Edition goes inside five small businesses whose owners are struggling to expand and face a variety of barriers.    

For Daphne Wilson, the CEO of the Zoe Engineering, in Milwaukee, Wis., the issue is credit. She wants to hire more people but banks won't give her the loans. Banks have also rejected Native American Natural Foods, a foodmaker located on South Dakota's Pine Ridge Reservation, despite the fact that the company has plenty of orders coming in. "We literally went to every single lender in Western South Dakota that would talk to us," co-founder Mark Tilsen says. "I think we met with 11 banks and none of them would even submit the application."    

For John Natuzzi Jr., the battle is big competition. He took over the family business, Natuzzi Bros Ice Co. in Queens, N.Y. He wants to grow the business, but he's up against industry giants who've locked up sales to big supermarkets.    

Regulation can also be a barrier. In Washington state, Precision Iron Works founder Steve Leighton has to pay state-mandated wages on big public works projects like schools. That makes it hard to compete with some out-of-state bidders. Leighton says the wages can be $10 an hour more. "There is no way to make that up," he says.    

And, despite the high unemployment rate, many companies face the ironic problem of being unable to find qualified workers. That's the case with Hamilton Farm Bureau, an agribusiness located in Traverse City, Mich.    

Pile on the complexity of providing health care for workers, and tax and accounting issues, and running a small business seems more daunting than ever.    

But many entrepreneurs don't have a choice — running their own business is in their blood and part of their identity. The challenge now is figuring out how to use that entrepreneurial passion to create more jobs.