Its the economy stupid - 2010
Submitted by Worth blog
Written by Michael Vass
I realize that most people are getting ready for the holidays and time with family and friends. But for those of us with small businesses this is the time when we start trying to total up the year and plan for next year. To that end, I offer some thoughts.
I have confirmed among bankers I know that all small businesses, at least in central New York but I’d imagine across the nation, are in a worse position than the White House wants to admit. Unemployment numbers are still high and are net increasing the number of unemployed. Christmas sales are sluggish, even with massive discounts in excess of 40% on almost any item you can name.
But look forward a bit. In January 2010 you can expect a surge in unemployment numbers. That’s because those that were employed for the holiday season will be let go. Add to that the 4th quarter earnings of most businesses will report minimal or negative sales growth. Thus I expect the stock market to take a hit, not that it’s recent rise is based on anything but hype.
In addition we will see the Government wax on about how it is doing everything it can for small business. Like a recent SBA loan programs for $30,000. Except it will not mention that the program to increase lending by commercial banks is ill-defined. It requires so much paperwork and restrictions that it requires banks to add personnel just to administrate the loan, which banks don’t want to do. It has restrictions on who banks can lend to and how they might qualify - regardless of their credit ratings or relationship with the bank. It has murky guidelines on disbursement, and will not allow a small business to consolidate debt or use the funds for current liquidity concerns. In effect it is useless for most small businesses, and as I have been told not one bank in central New York, at least, has accepted the program or made a single loan under it.
So much for helping small businesses. And 2010 will likely have even more of the same.
The Obama Stimulus will kick in, mostly around the election, with far more of the $787 billion than has been used to date. Most of that money will be directed to short-term Government based jobs. Items like building roads, giving raises to teachers, and supporting States that are underwater with their budgets. It will do nothing for small businesses more than what we have seen already.
The answer to this problem, according to some politicians, is to create another Stimulus - with a different name. Under this new program even more money will be spent on building roads and infrastructure (temporary Government jobs) and on loan programs to spur small business growth (via programs that few can qualify for, banks don’t understand, and are restricted in the use of the funds such that its effectiveness is nullified).
The net result, in short order, will be an increase in foreclosures and mortgages that are in default. This is the only result from the increase in unemployment and the real number of people not working (not just the Government stats). But polispeak and posturing will make it sound like everything possible is being done, while it is not.
Ultimately, Government unemployment figures will hit 11.5%, and for the first time I believe it may hit or exceed 12% before April 2010. Most of this job loss will be among small businesses. Also there will be a new all-time high in home foreclosures (a topic that has suddenly become unreported in the last year).
In this year I have watched some 20% of small businesses I know go under. I have watched and had confirmation of many more small business owners taking on part-time or full-time jobs just to keep close to even and/or maintain their homes. I am aware of small businesses earning some 40 - 65% less money this year than last, with projections for early 2010 to earn another 25% less on top of that.
But the best part is the taxes. For 2010 many small businesses will have to still pay taxes on money they don’t have. States like New York and California are leaning even more weight on small business to pay for debts that will not shrink. If Health Care Reform passes, even more taxes will be owed by small businesses. Then there is the burden of the “necessarily skyrocket” of energy costs and taxes proposed by the Cap & Trade Bill that is trying to be quietly passed in Congress.
For those that may want to seek aide, the Government offers nothing. Small businesses do not qualify for unemployment benefits, though they pay a lot of the taxes that fund it. Small businesses that are failing are ineligible for SBA loans and banks will not back them due to their increased restrictions in this economy. In fact, a troubled small business can only count on one thing from the Government - a higher tax burden.
This is what 2010 appears to hold for small business. It’s a bleak landscape with any sign of improvement so far off it does not appear on the horizon. Personally I see this as the culmination of a grand experiment of intellectuals and academics that fill the White House. But a person forewarned can make preparations.
Of course I would love to hear from other small business owners. Do you see the same environment as I have? Are you hearing the same comments from your local and regional banks? Are you feeling the same weight from taxes and future tax burdens? Are you experiencing similar loss of profits and revenues? What do you think will happen in 2010?
