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There is a disconnect between the market rally that shows the economy may soon recover and small businesses that continue to face a challenging environment. First of all, you must put the market rally in historical perspective and you must explain the market rally. The market rally has generated some excitement, being one of the strongest market rallies in history. However, the 50% increase between March and July 2009 should be compared to other historical benchmarks. According to Barron’s Market Week (August 3, 2009), the S&P ended July 1997 at 954 and the S&P ended July 2009 at 987. Base). Additionally, the July 2009 S&P level is well below the October 2007 all-time high of around 1,580 (down more than 37% according to Yahoo! Finance). The current market rally is indicating that times are starting to stabilize for large, publicly traded companies. Maybe not an improvement, but less bad news is good news in the current environment. However, small businesses face more challenging times ahead.
Financial lending institutions need money to flow from Wall Street to Main Street. Credit markets are thawing and large companies may once again qualify for loans. Qualifying for the loan will allow large companies to calm their cash flow nerves. However, small businesses are facing more scrutiny when applying for and renewing loans. Even small business owners with a high credit score and a substantial portion of collateral are not having loans accepted or renewed. If the loan is not renewed, the small business may not be able to raise equity and take advantage of its local market conditions. The loan is then not renewed, forcing the small business owner into repayment. Many small businesses and small business owners do not have the assets to pay off the so-called loan. Cash outflows to repay loans (if available) can potentially cause financial hardship for the small business by crushing liquidity, working capital needs, and accelerating the rate of cash burn. All of these make it more difficult to qualify for loans from other lenders. These barriers put more pressure on small businesses (even in recovery). Additional small businesses will be forced to have tighter lending standards which could potentially increase the number of small business failures even as the economy recovers for larger companies. Understanding this situation is important for the small business owner because they can (immediately) begin to review their actions and focus on their financial situation before requesting a loan or applying for a loan renewal. Take steps to strengthen your overall position. financial institution.
Second, financial lending institutions are currently trying to figure out new lending standards. The new standards are tougher than what small business owners want. Small businesses enjoy NINJA time (no income, no job or assets – no problem). Small businesses now find themselves in trouble when it comes to renewal because they are required to provide accurate financial information and understand that renewal is no longer guaranteed. The “hassle” of the small business is the increased time and higher financing costs, including hiring a certified public accountant (CPA) to issue financial statements and attend debt exercise meetings. However, financial lending institutions have faced high loan failures and are currently finding personal guarantees signed by small business owners to be semi-worthless. The small business owner protected himself by transferring all of his assets to his spouse, who did not sign a personal guarantee. This leaves the bank with a bad loan and a worthless personal guarantee. For more security, banks may in future ask for personal guarantees to be signed by both the spouses. One troubling sign is too many small businesses and the owners are not well capitalized (i.e. they don’t have a lot of assets, but they do have debt and a decent lifestyle). As larger companies build up assets over time and drastically cut costs and lay off work forces, smaller companies have minimal assets and minimal liquidity and can quickly lose costs and work forces as large businesses. or have not been cut dramatically.
Wall Street and the US government are lending and giving relief to Wall Street companies, but Wall Street and the US government are not lending or giving relief to Main Street companies. As larger companies are starting to obtain funding from financial institutions and bail-in funds from the US government; Small business lenders like CITs get little or no attention from Uncle Sam. The CIT is one of the more important lending institutions for small businesses (The CIT Threat by Donna Childs). Small business lenders and regional banks are getting hurt the most of all financial institutions at this time. In future these institutions will have to raise their lending standards to lend money to small businesses. Qualifying for future loans from Main Street companies requires small businesses to make major adjustments to their business models, including building assets and strengthening the business and owner’s financial position (as their larger counterparts have).
Third, the economy is still in a recession and growth will not be the glory days of yesteryear. “What matters is the contours of the recovery,” said David Rosenberg, chief economist at Gluskin Sheff (The Best Five-Month Run from 1938 by Kopin Tan and Andrew Barrie), meaning the economy still has time to improve. There is a long way to go. The markets may have “corrected” by 50% between March and July 2009, although the business environment has not improved or improved much. Continued pressure on economic recovery and growth over the next several years includes unemployment hovering around 10% and rising, the US savings rate rising over the past 12 months, corporate America continuing to leverage and the US government taking on private markets. is included.
With unemployment rising further past 10%, as well as a rise in the US savings rate, uncertainty about future employment and income puts pressure on consumer spending. Consumer spending at the local level directly affects small business performance. Decreased consumer spending puts pressure on the existence of small businesses. “The Recession Is Over, We Need a New Kind of Recovery” by Daniel Gross (Newsweek August 3, 2009) 5 million jobs are expected to be created by 2011, although the economy has lost 6.5 million jobs since December 2007 have been lost Consumer spending could put a financial strain on local small businesses due to uncertain employment over the next several years. As corporate America continues to de-leverage itself, it pays down debt instead of making purchases and growing its workforce. Reduced purchases affect small businesses and reduced purchases can affect small business revenue. The US government’s involvement in large corporations should be more troubling than the news reports. Our pride in being a market-based economy and democracy has been transformed into America being socialist without much protest. Yes, we are socialist because the government owns private enterprise. As taxpayers complain that the government at least can’t do anything right or efficient. Now that we are using more taxpayer resources for Wall Street companies and not Main Street companies will have a significant impact on the future of Main Street. Mr. Gross says it costs the US government $92,000 in government spending or $145,000 in government tax breaks to create one job. The average job in the US pays 1/3 to 1/2 less than this amount. The jobs created will first affect large businesses, with the expectation that it will trickle down to smaller businesses. At least Main Street will still have its pride (even if it is forced into bankruptcy). Small businesses need to be aware of this environment and understand that there are many challenges ahead in the recovery over many years.
Finally, there are many challenges facing small businesses in the years ahead. Urgent action is necessary to develop their business model and strengthen their financial position. Business owners should expect to relinquish more equity and potentially reduce their ownership in order to survive the rest of the downturn and try to survive through the recovery. Small businesses must remain vigilant during a potential economic recovery in order to continue operating.
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