Business Owners Pessimism Grows Despite Bill's Passage

MBA (10/7/2008 ) Palaparty, Vijay
U.S. business owners expressed concerns about credit availability, recession and energy prices in a recent survey from PNC Financial Services Group Inc., Pittsburgh, Pa. PNC said the pessimism reached a record high.
Twenty-nine percent of small business owners expressed doubt about their company’s prospects during the next six month, compared to 21 percent in the spring and 10 percent last fall. They also expressed concern over tighter credit availability; 25 percent, compared to 18 percent in the spring, said they find more difficulty in obtaining credit in the present. Conversely, 7 percent said they can access credit more easily now, down 7 percent from 14 percent reported in the spring.

The possibility of recession ranked second at 71 percent among businesses as having a negative effect on their company. Sixty-five percent shared similar concern in terms of the effects of inflation. Seventy-four respondents said the possibility of higher energy prices will have a negative effect on their company during the next six months.

MBA Chief Operating Officer John Courson , noting passage last week of H.R. 1424, the Emergency Economic Stabilization Act of 2008, said the ongoing credit crunch has severely impacted the ability of individuals and businesses to borrow, and has threatened to slow down the entire U.S. economy.

“This will enable financial institutions to offer credit so individuals can purchase homes and other items and businesses can continue to operate and grow,” Courson said.

“The U.S. economy is likely to remain weak through the middle of next year,” said Stuart Hoffman, chief economist for PNC. “Enactment of the economic stabilization plan will help stem more substantial deterioration of credit availability for small businesses as well as for larger businesses and consumers. This will help to prevent further weakening of important contributions to job growth and overall economic activity made by small businesses.”

Sandy Baruah, acting administrator of the U.S. Small Business Administration, said, in response to the economic stabilization plan, that America’s competitive advantage lies in its capacity to innovate but that without capital, ideas ream only as ideas. “Without capital, innovators and entrepreneurs many may not have the capital they need to do business,” he said. “Full functioning credit markets are critical to all of us—as business owners, as employees, as homeowners and as consumers.”

The National Small Business Association said the increase on federally-insured bank deposits to $250,000 from $100,000 will ease concerns of small business owners who regularly have in excess of $100,000 in their bank for operating costs.

Last month, the NSBA reported that 67 percent of small business owners said they have been impacted by the credit crunch. Furthermore, it found that 63 percent said they have been hit by worsening credit card terms and 32 percent said they suffered from tougher bank loan terms.

“To the extent that the plan reduces turmoil in the housing market, it will help the many small business owners who use a personal residence as collateral for business investments and don’t want to be in a position where the price of their home is less than their mortgage,” Baruah said. “If innovators and entrepreneurs are the engine of the economy, financing is the grease that allows the engine to run. The financial rescue plan is directed at the heart of our economy and the heart of Main Street. It will have a direct impact on the ability of small businesses to meet the challenges of innovation in the 21st century."