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Death of Small Businesses

Published 09/25/08 Alexia Cameron - Print Article
E-mail - editor@economyincisis.org

Small American businesses are a dying breed. Banks slashing lines of credit are leaving a death spiral of small businesses in their wake.

The National Small Business Association (NSBA) released a survey this week stating that 67 percent of business owners polled reported being affected by the credit crunch in August, up from 55 percent in February.

"If there is a squeeze on banks, even if only on large investment banks, the repercussions can easily flow over into commercial bank loans," said NSBA President Todd McCracken. "Based on what history suggests, if banks have to pull back, they'll pull from small business loans first."

Cutting back on small business loans has a ripple effect on the economy at large. Small businesses employ over half of all non-government employees in the U.S. Larger businesses outsource jobs for smaller wages, devalue American workers and allow CEO’s to profit from decreased costs. The rich get richer and the poor get poorer.

While larger businesses shed employees this year, smaller businesses – companies with fewer than 50 employees – took on the slack. In August, as overall employment saw the loss of 33,000 jobs, small businesses added 20,000 new hires.

Now the current credit crunch is taking its toll on small businesses, forcing them to cut staff or ride out the economic downturn.

A very small percentage of small business entrepreneurs look to banks to fund daily operating costs. The rest approach banks for lines of credit in order to expand their companies. As small businesses are being deterred from loans, they are being forced to downsize like their large business counterparts. American jobs continue to be outsourced and smaller companies continue to flounder; where will half the American workforce find employment?

Source CNNMoney.com:

After 41 years in business, Hull Printing shut down its printing presses for good in March, laying off 19 workers and closing one of the oldest family-run businesses in Barre, Vt. The catalyst: Hull Printing's bank slashed its line of credit, kicking off a death spiral that led to the company's collapse.

While officials in Washington hash out the details of a proposed $700 billion bailout to address the financial-system crisis that began unfolding on Wall Street last week, business owners far from the financial markets' epicenter are already feeling the effects of banks' reluctance to risk new loans.

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