Small companies ended 2008 with a laundry list of troubles, with sales slow, bank lending frozen, and health care and credit-card costs soaring. Here's what to expect in 2009 on
Small companies ended 2008 with a laundry list of troubles, with sales slow, bank lending frozen, and health care and credit-card costs soaring. Here's what to expect in 2009 on 7 key issues.
Health care: Still on the critical list
Last year: The cost of providing health insurance to employees continued to skyrocket, jumping by an average of 5.7% per employee after a 6.1% hike in 2007, according to a study by consulting firm Mercer. A survey by the National Federation of Independent Businesses found that health care was the number-one concern of small business owners, prompting the NFIB to become a major backer of an advertising campaign calling on the presidential candidates to make health reform a priority.
This year: President-elect Obama has endorsed a sweeping reform plan that would create a new National Health Insurance Exchange to allow more businesses access to insurance pools. Such pools can both negotiate for better overall rates and offer relief to small companies that might otherwise see their premiums soar because of a single sick employee. In Congress, various bills are kicking around, but these may end up being swept aside by the recent "Call to Action" issued by Sen. Max Baucus (D-Mont.). It echoes Obama's plan, but with the added wrinkle that coverage would be mandatory. That's a controversial measure, but one that health experts say is key to keeping premiums low - and it could help get insurance companies on board. Most observers expect health-care reform to wait until after an economic stimulus package is dealt with, but not too long after. The forecast: Smaller reforms are likely in 2009, followed by a full-on throwdown over a major health insurance overhaul in 2010.
Credit crunch: Hope on the horizon
Last year: Amid a housing market collapse and widespread credit crisis, banks clamped down on credit lines. Many creditworthy small business owners who previously had no problems securing loans found themselves unable to get the money they needed. Expansion plans were put on hold, and downsizing staff became a popular way to trim costs. The SBA's flagship loan-guarantee program backed 30% fewer small business loans in 2008 than it did the year before.
This year: Banks profit off the money they lend not only by directly collecting interest payments, but also by selling on to other investors bundles of their loans. Those bundles, called "asset-backed securities" (ABS), often include small business loans. Last year, as the value of many asset-backed securities collapsed, so did investor demand for them - and without a ready secondary market for their loan bundles, banks stopped making loans.
The Federal Reserve's solution to the problem is TALF, which stands for Term Asset-Backed Securities Loan Facility. The initiative aims to ease credit markets for consumers and small businesses by making government loans available to ABS buyers. The hope is that if those investors start buying again, banks will resume making loans.
Bankers and the Small Business Administration estimate that about half of the loans made through the SBA's flagship 7(a) loan guarantee program are then resold as securities. SBA-backed loans are among the assets the government will let investors use TALF money to buy - but private business loans not backed by the SBA won't be eligible. TALF is set to launch in February. Experts say it's a step in the right direction, but most expect small business lending to stay slow until other economic fundamentals start turning around. "Businesses need TALF to kick in," says Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders. "But the SBA needs to come up with enhancements to make it really work."
Last year: Thanks to Joe the Plumber, it turned out that more than 97% of small business owners - including Joe himself - would see no change in their income taxes as a result. Meanwhile, many Americans took home a one-time tax "give back" though the $600 stimulus checks mailed out by the IRS last spring. This Year: With the economy now officially mired in recession, Obama is likely to hold off on raising the top tax rates until 2010, when the Bush tax cuts are set to expire on their own. Instead, Obama is working on his own stimulus plan, one top adviser David Axelrod has will include "a portion" of the, as the NFIB has lobbied for, are less likely to find a place in any recovery plan. The problem with a payroll tax break, says Urban Institute economist Bob Williams, is that "you're putting money in the hands of people who are more likely to hang onto it" - a point Obama's new budget chief, Peter Orszag, himself made in arguing against a payroll tax holiday in 2001.
Layoffs and long hours ahead
Last year: As unemployment claims mounted in 2008, small businesses were among the last to shed staff. For most of the year, while big companies underwent massive staff reductions, ADP's monthly report on its national employment estimates showed cumulative headcount growth at the nation's smallest companies, those with 50 employees or fewer. But in October, the weak sales market finally caught up to the small biz segment, which is now also showing losses.
For small companies, cutting employees often means laying off friends and family. It also leaves remaining the staffers with expanded workloads - many small business owners say they're working longer hours, thanks to the ongoing recession.
This year: American Bridal owner Shirley Tan, who recently cut her staff of 32 down to 24, expects layoffs to pick up after the lull of the holiday season: "2009 is going to be very rough for many people," she predicts.
Employment analysts expect the labor market to remain rocky. After the 2001 recession, it took four years for job levels to peak again, according to the Economic Policy Institute. In its latest member poll, the National Federation of Independent Businesses found that more companies plan to cut staff than to hire. But when the economic tides start turning, expect small companies to be the bellwether: Small businesses, typically the most agile in tough times, are traditionally the first to start hiring again.
Credit cards: No quick fix for soaring rates
Last year: As soon as the credit crunch hit, card companies began lowering credit limits and hiking interest rates - often to nearly usurious levels in excess of 20%. The Federal Reserve and other agencies stepped in with newregulations banning some of the most egregious practices, such as boosting rates on existing balances and charging late fees without notice. But the new rules won't go into effect until July 2010, and will still allow card companies to suddenly and dramatically hike rates for future purchases.
This year: Rep. Carolyn Maloney, D-N.Y., called the Fed action a "strong first step," but said she and Financial Services Committee Chairman Barney Frank still plan to push forward with a "Credit Cardholders' Bill of Rights" to further strengthen credit card protections and speed up implementation to 2009.
A similar bill passed the House by a 312-112 vote last September, but never came up for a vote in the Senate; it will now likely be up to Sen. Chris Dodd, D-Conn., whose own credit card reform bill died in committee last summer, to push for more immediate reforms. In the meantime, there's not much to do about rate-jackingother than bear it and look for other sources of capital.
Last year: Gasoline had a year of record highs and record lows, surging in the heat of the summer, falling 60% through the autumn, and landing at a 4-year low in December, to the delight of holiday travelers.
Meanwhile, other commodities were also on a cost roller coaster in tandem with the economy. During the summer, steel and iron prices surged more than 30%, prompting manufacturers to reevaluate their production processes or explore new manufacturing locales, while food business struggled with skyrocketing costs for grain and other supplies. But as the economic tide turned, the prices of many raw materials fell sharply, including non-precious metals, corn, and coffee.
This year: Gas prices may level off in 2009, analysts say, as oil supplies remain high relative to demand.
Several economists believe the dollar will fall against the euro and the yen in 2009, thanks to low interest rates and the extensive U.S. government borrowing that will be necessary to cover the costs of the 2008 bailout packages. For companies that do business overseas, a falling dollar increases costs, and the price of raw materials in the U.S. tends to move opposite the direction of the dollar, which means more price hikes may be looming for commodities.
Struggling for buyers' dollars
Last year: As the economy slid into recession, consumer spending slowed, crunched by reduced credit availability from credit-card companies and widespread employment concerns. For the first time in decades, Americans are saving instead of taking on more debt. But that newfound thrift led to a bleak holiday season for small retailers around the country, and a year of slow sales. Numerous small companies have already gone out of business, and consumer spending is still a top concern for those remaining, according to the National Federation of Independent Businesses.
This year: Retail analysts expect a rash of shutdowns in the coming 12 months. While many of those that go under will be large chains, the damage will ripple to the stores' suppliers. Fledgling businesses will also face a hard road: Recent data shows consumer confidence at an all-time low. Because the job market looks to stay grim for quite some time, consumers will continue to be cautious about their spending habits.
Loboutin n Cash, please elaborate either in this forum or via PM.
I always like to hear about how others are recession proofed.
Yes, I am nosey, thanks.
Your, welcomed, I love nosey people they are the ones that benefit the most from what I do. Those who are sick N tired of being sick N tired and are nosey enough to seek out something new. Click this link here to see how I've recession proof my income.
I am doing childcare in my home for extra money. If the woman qualifies for government assisted childcare then I get paid by the state. It helps. My neighbor put me on it. She is a blessing.
I am worried about health care. Even if I wasn't an entrepreneur, I'd be worried about it, the way the administration is taking it...but that is beside the point. I am just happy to know that if I am really desperate, I have a reliable source for personal loans.
rising cost is due to greedy people....the cost to have health care shouldnt be that high...the cost to get well shouldnt be high its all a game so that the rich can get richer
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