Small Businesses are not hiring or borrowing, because... there's no demand!
This has been a long hard recession for small business. And though, officially, the recession is over, it has not ended for small businesses.
They are hesitant to take any risks or borrow more money, and most cannot even consider hiring new help. Things really began to slide downhill for small businesses and their owners after the financial meltdown of the Big Banks. And now they are fighting for their very survival.
The Big Banks are back to making money thanks to the largess of the taxpayers. But small businesses have received no help from the taxpayers or Congress.
Production has improved. Hours worked have increased slightly. But neither of those improvements have helped small businesses. The perceived slow recovery has not benefitted small businesses either.
It has become a matter of survival for millions of small businesses throughout the country. From manufacturing and services, to retail, restaurants and entertainment, demand for their products and services is flat or down. And, until that demand picks up, small businesses will not take on more debt to expand nor will they hire on just expectations that the slow improvements will continue.
Therein lies their dilemma.
Loan demand is down and line's of credit are being drawn on sparingly as small businesses remain cautious due to an uncertain future.
Evidence of the struggles small businesses are facing surrounds us in most cities and towns and counties throughout the country. Vacancies are rising in industrial complexes and business centers at increasing rates; beautiful new buildings sit as ghostly reminders of a flagging economy.
Last month's Small Business Economic Outlook Survey turned pessimistic after several months of modest gains. The National Federation of Independent Businesses monthly survey fell by 3.2 points as members cited "deterioration in the outlook for business conditions and 'real' sales gains." The survey showed that more firms are looking at declining sales than are expecting higher sales.
In essence, small businesses are telling a different story than Wall Street and the business talk shows; a disparate difference between the positives on Wall Street and the negatives on Main Street.
Politicians have been talking about helping small business for nearly two years but have different opinions on how to accomplish that. While they banter, the situation continues to deteriorate. By contrast, it only took Congress a few days to pass a $700 billion bill to help Big Banks. They have yet to do anything that truly helps small business.
There have been a few things that have helped small businesses and to help them retain employees, but they have only slowed the devastation. A reduction in taxes gave some relief from the burdens of a failing economy, but, definitely did not go far enough.
Some politicians advocate tax credits for hiring new workers while others want to cut taxes for all businesses. Either would give businesses short-term relief but would do little to encourage hiring.
Most small businesses are struggling to retain those employees they are still able to employ. Tax breaks and tax credits are of no consequence if demand does not improve. That can be shown in a simple example:
- If a small business owner and his only employee are manufacturing and shipping 1,000 widgets a month and scratching out a living, the owner does not need to hire another employee.
- A tax break would mean that he, and the employee who he still employs, could pocket a little more money each month but would not encourage adding another employee.
- A similar outcome would occur if given a tax credit which, as a result of current circumstances, would go unclaimed. The owner would not hire another employee because of the offer of a credit. The math is simple: A $5,000 tax credit for hiring a $25,000 a year employee could cost the owner of the small business $20,000 by the end of the year; a loss that would mean even less money for he and his retained employee, and could cause the failure of his business.
The flaws in politician's thinking are obvious in this simple example. If the demand for widgets does not increase, and in fact may decline, there is no incentive to hire.
The problem in this country is demand, not supply!
Considering that small businesses account for the greatest number of new jobs, a different, more innovative approach must be taken to stimulate jobs and the consumer and it must involve helping small businesses.
Congress needs to change their thinking!
The answer here is quite clear. Stimulate at the bottom. Stimulate those that will spend on the necessities of life, putting the money back to work immediately, therefore, increasing demand and stimulating the overall economy.
Stimulate small businesses, stimulate 'the people' and the benefit will surely trickle up!