A U.S. debt default could wipe out small businesses. So what can we do? | US Small Business
T.the United States debt crisis what we’ve never seen since 2011 When Barack Obama confronted the Tea Party. No one knows if the federal government will default on its debt by the end of this month. But if Democrats and Republicans can’t agree on a compromise, it will have a huge impact on small businesses across the country.
According to one survey, about 65% of SMBs believe they will be adversely affected by default. Recent reports From Goldman Sachs. This is very bad news.Percentage of SMEs 45% of total Q1 2022 private sector employment figures.
The first small businesses affected will be those that have direct contracts with the federal government. tens of thousands of small businesses received more than $154 billion in federal contracts in fiscal 2021. This is about 27% of total government contract spending in the same year. And that doesn’t include small businesses that are indirectly funded by big construction companies, or other companies that subcontract work for government funding. If Janet Yellen is forced to put interest and debt payments first and foremost, those federal contracts would be suspended and the cash flow impact on these small businesses would be severe.Remember: Nearly half of small businesses I have I have 3 months of cash on hand.
In addition, there are also small businesses that provide services to government property.report from Kato Institute It is estimated that the federal government owns or leases over 350,000 buildings and properties nationwide. These facilities are important sources of income for countless small businesses that provide construction, maintenance, security, cleaning, electrical, landscaping and other types of services, all of which are subject to disruption. Employees who commute to these buildings every day rely on nearby businesses for lunches, dry cleaning, yoga, happy hours, and other products and services. Those companies, already reeling from the number of employees working remotely, would be hit hard by a stay-at-home order.
Then there are government functions. Individuals and small business owners rely on many areas of government services. They have applied for passports, questioned the IRS, and are awaiting regulatory approval and loan guarantees from the Small Business Administration. These and many other critical government services could come to a halt if funds were to be diverted.
These are all immediate consequences of what happens when governments have to avoid loan defaults. The long-term effects are even more devastating. If this situation continues, credit and financial markets will become volatile, forcing banks to limit lending to the safest (and usually) largest customers. That means many SMEs seeking loans will be kept waiting or denied. A Goldman Sachs survey found that 77% of small business owners surveyed are already concerned about their ability to get loans.
according to White House, a default of more than three months could trigger a severe recession with up to 8 million jobless. The stock market, where small business owners pledge large amounts of retirement money and collateral, could collapse.
All of this has never happened at a worse time for small businesses.Management optimism – determined monthly National Federation of Independent Business Operators – is already at a 10-year low. Bankruptcies have also increased eerily. A research firm reports The number of applications has increased by 20% compared to a year ago. If the shutdown is extended, the numbers will get even worse.
If you are a small business owner, what can you do?
It sounds obvious, but my best clients are always thinking ahead. So the first thing you need to do is prepare. A federal default or government shutdown may never happen, but that doesn’t mean we won’t have to prepare for it by the end of the month.
That means hoarding cash, checking credit information (including credit cards), and communicating with customers, suppliers, employees, and partners. In the event of a closure, no one should be surprised by your actions such as delaying payments. They need to understand that this is something that can be forced on you, and they should know this well in advance. The more you tell them about your plans, the better they’ll be able to plan, and the more appreciated they will be.
And while this probably offers no consolation to companies at this point, it deprives them of an important lesson that diversity matters. If your business is too dependent on one particular customer (i.e. the federal government), diversifying your customer base should be your priority once this issue is resolved. Too much reliance on one source of income is too risky, and even the federal government will pay its bills on time or not at all.
The silver lining in this dangerous and avoidable situation is that it will take time before things get really, really bad. Yellen has warned she will default on her debts by the end of May, but at least she has the option to fund key parts of the government. And quarterly tax payments – expected by mid-June – It could help prevent disaster a little more. However, this does not prevent managers from now thinking about the consequences and preparing for this event. Even if it gets away this time, given the harsh environment in Washington, we shouldn’t be surprised if something like this doesn’t happen again, and soon.
Summarize this content to 100 words T.the United States debt crisis what we’ve never seen since 2011 When Barack Obama confronted the Tea Party. No one knows if the federal government will default on its debt by the end of this month. But if Democrats and Republicans can’t agree on a compromise, it will have a huge impact on small businesses across the country.According to one survey, about 65% of SMBs believe they will be adversely affected by default. Recent reports From Goldman Sachs. This is very bad news.Percentage of SMEs 45% of total Q1 2022 private sector employment figures.The first small businesses affected will be those that have direct contracts with the federal government. tens of thousands of small businesses received more than $154 billion in federal contracts in fiscal 2021. This is about 27% of total government contract spending in the same year. And that doesn’t include small businesses that are indirectly funded by big construction companies, or other companies that subcontract work for government funding. If Janet Yellen is forced to put interest and debt payments first and foremost, those federal contracts would be suspended and the cash flow impact on these small businesses would be severe.Remember: Nearly half of small businesses I have I have 3 months of cash on hand.In addition, there are also small businesses that provide services to government property.report from Kato Institute It is estimated that the federal government owns or leases over 350,000 buildings and properties nationwide. These facilities are important sources of income for countless small businesses that provide construction, maintenance, security, cleaning, electrical, landscaping and other types of services, all of which are subject to disruption. Employees who commute to these buildings every day rely on nearby businesses for lunches, dry cleaning, yoga, happy hours, and other products and services. Those companies, already reeling from the number of employees working remotely, would be hit hard by a stay-at-home order.Then there are government functions. Individuals and small business owners rely on many areas of government services. They have applied for passports, questioned the IRS, and are awaiting regulatory approval and loan guarantees from the Small Business Administration. These and many other critical government services could come to a halt if funds were to be diverted.These are all immediate consequences of what happens when governments have to avoid loan defaults. The long-term effects are even more devastating. If this situation continues, credit and financial markets will become volatile, forcing banks to limit lending to the safest (and usually) largest customers. That means many SMEs seeking loans will be kept waiting or denied. A Goldman Sachs survey found that 77% of small business owners surveyed are already concerned about their ability to get loans.according to White House, a default of more than three months could trigger a severe recession with up to 8 million jobless. The stock market, where small business owners pledge large amounts of retirement money and collateral, could collapse.All of this has never happened at a worse time for small businesses.Management optimism – determined monthly National Federation of Independent Business Operators – is already at a 10-year low. Bankruptcies have also increased eerily. A research firm reports The number of applications has increased by 20% compared to a year ago. If the shutdown is extended, the numbers will get even worse.If you are a small business owner, what can you do?It sounds obvious, but my best clients are always thinking ahead. So the first thing you need to do is prepare. A federal default or government shutdown may never happen, but that doesn’t mean we won’t have to prepare for it by the end of the month.That means hoarding cash, checking credit information (including credit cards), and communicating with customers, suppliers, employees, and partners. In the event of a closure, no one should be surprised by your actions such as delaying payments. They need to understand that this is something that can be forced on you, and they should know this well in advance. The more you tell them about your plans, the better they’ll be able to plan, and the more appreciated they will be.And while this probably offers no consolation to companies at this point, it deprives them of an important lesson that diversity matters. If your business is too dependent on one particular customer (i.e. the federal government), diversifying your customer base should be your priority once this issue is resolved. Too much reliance on one source of income is too risky, and even the federal government will pay its bills on time or not at all.The silver lining in this dangerous and avoidable situation is that it will take time before things get really, really bad. Yellen has warned she will default on her debts by the end of May, but at least she has the option to fund key parts of the government. And quarterly tax payments – expected by mid-June – It could help prevent disaster a little more. However, this does not prevent managers from now thinking about the consequences and preparing for this event. Even if it gets away this time, given the harsh environment in Washington, we shouldn’t be surprised if something like this doesn’t happen again, and soon.
https://www.theguardian.com/business/2023/may/21/us-debt-default-crisis-small-business A U.S. debt default could wipe out small businesses. So what can we do? | US Small Business
