The Great recession has ended in June 2009 according to the National Bureau of Economic Research findings. The economy has shown signs of improvement in the past 15 months. But then the condition of small businesses hasn’t yet improved and in-fact has worsened. The situation is expected to remain the same as long as home prices continue to decline, uncertainty prevails on health care law and business regulations, rising marginal income tax rates continue. Positive outlook, job growth, business formation rates and investment levels do not seem to show any signs of improvement for small businesses under the current conditions.
Recovery for small businesses is possible only if we can fix the weak housing market, reduce the uncertainty about Washington’s new regulations and extend tax cuts of the Bush administration. Small businesses are weighed down by weak housing markets. The collapse in home prices has affected the construction and real estate industries that largely comprise of small companies. It is been estimated by Small Business Administration that 99.6 percent of companies involved in real estate and construction job are small businesses. The level of unemployment in construction industry is 17.2 percent.
Moreover, data from the Barlow Research’s quarterly survey revealed that small business owners were the frequent users of home equity loans. About 25.4 percent of 900 small business users used their homes as collateral to borrow loans for their businesses. With the recent fall in housing prices by 28 percent the loans have lost its value in time. The declining value of loans combined with the tightening loan standards of banks have made it extremely difficult for the expansion of small businesses.
New health care laws have also been passed. The law will lead to a rise in health insurance premiums. The small businesses that are affected by the weak recovery and are under pressure from declining sales and profits are constantly trying to adjust their health insurance plans that would help them gain profits and cut down on costs. Even the non-insurance part of the health insurance law is worrying for small businesses as they have no idea about the costs involved in paying to the vendors.
Small businesses are also worried about the new regulations of Washington policymakers because it becomes very costly for them to adhere to government rules and regulations. In a study by economists, Nicole and Mark Crain of Lafayette University, explains “As of 2008, small businesses face an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees).”
It is found that rising income personal income taxes is discouraging many small business owners from expanding their business. Research done by Douglas Holtz-Eakin, Robert Carroll, Harvey Rosen, and Mark Rider have proved that tax-rise mar small business hiring and investment. The existing problems have put small businesses in limbo.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to