Recession Continues For Small Business With No End In Sight

The NFIB, which acts as an advocate organization for small businesses, issued a report called “Small Business Credit In A Deep Recession.” The group could have avoided this waste of effort. The conclusions of the study are already well understood by most economists and the federal government. The number of small businesses that hold a credit line or business loan fell almost 20% in the last year. The companies questioned said the main use of loans is to augment cash flow. That is precisely what banks do not want to hear.

Small business support groups have a history of complaints about the same issue. They say their members create over half of the new jobs in the economy. Small businesses need banks to change their appetites for risk. The government needs to support efforts by banks to provide funds at the very least. Financial firms would be more likely to take risks with federal guarantees in place.

Banks have taken enough of an earnings beating in the last three years. Their balance sheets have been weakened to the point where they have no interest in loans to homeowners without perfect credit, or in extending credit to business that do not have extremely strong cash positions and a diverse customers base. There is too much of a chance that the economy will not improve. Financial firms do not want to add to their inventories of foreclosed homes or the bad debt reserves they have for loans to companies.

The conundrum small businesses cannot work through is getting the financial guarantees from the federal government to facilitate bank loans. That might be done through the SBA or the Treasury. Whatever the source might be, it is not likely to be available. Part of the new move toward austerity is that discretionary programs are likely to be eliminated or sharply cut. Government support for companies with under 500 employees will be as much a target for legislators as any other expenditures that are not core to the operation of the federal system, or to entitlements, or defense.

Austerity will leave some government agencies without the support they need to fulfill their mandates. That is the case no matter how cruel it may seem or how counterproductive it may be to the economy. Austerity programs carried out in a budget as large as that of the federal government are likely to wash out programs that have merit because Congress cannot sort through the tens of thousand of programs which make up the discretionary spending part of federal expenses.

If the federal government did not come to the rescue of small business over the period in which the Obama stimulus package was in place, it certainly will not do so now.

Douglas A. McIntyre