Advertisement
Economic Forecasts

Big Firms Prosper as Small Business Struggles

Record corporate profits suggest that the economy should be booming. But small firms — the main engine for job growth — still have it tough, particularly at the bank.

Politics isn’t the only schism in the United States. There’s also a big firm/small firm divide, with each side experiencing a different economy. It’s a trend that will persist through the end of 2011 and probably into next year as well.

For big firms, money is easier to come by. Looking to expand into new lines or to hire? Corporations are sitting on cash, just waiting for the right acquisition. Many big companies are also finding cheap financing. Google raised $1 billion at 1.25% for three years. Banks are keener to lend to large businesses.

Advertisement - Article continues below

Many big companies are raking in robust profits — with gains of 15% for April to June. Companies that cut costs quickly, early in the recession, are benefiting. And a number of large companies are buoyed by strong sales in rising export markets, where demand for machinery, electrical equipment and more has offset declines in sales at home.

But for smalls, it’s a different story. They face a quite different financial climate. Most don’t have access to Wall Street funds, and bank loans are harder for them to get than for their bigger brethren. Tougher lending standards mean they need rock-solid business plans. And they’ll still pay much higher interest rates.

Advertisement
Advertisement - Article continues below

Many small firms, which are largely service firms — printers, restaurants, construction companies, retailers and so on — are fighting just to keep their doors open. Although some engage in manufacturing, few of them export. The financial, logistical and regulatory hurdles of selling overseas are too daunting. Thus, they aren’t tapping into the brisk growth of markets in emerging nations such as Brazil, China and India.

Advertisement - Article continues below

So with American consumers still clutching their wallets tightly in light of very high unemployment, small firms are being disproportionately hurt. During the 1980s, debt made up 84% of consumers’ income after taxes and inflation. In the past decade, the share hit 133%, fueling spending. Now it’s at 110% and continued declines suggest about $3.5 trillion going to reduce debt in coming years. That’s money that’s not spent on goods and services, and won’t support economic growth and increased jobs.

Moreover, most smalls must wait to see sales pick up before reinvesting for growth, and they remain gloomy. Nearly 70% of those surveyed by the National Federation of Independent Business say it’s a lousy time to expand. In another survey, only 19% expect to hire in the next 12 months. For many smalls, the recession isn’t over.

Big businesses, on the other hand, are more upbeat. They’re poised to jump into higher gear when growth looks ready to blossom. 87% of the Business Roundtable’s members — all large firms — see sales up in 2011. They expect to both buy equipment and hire.

In other recoveries, smalls’ struggles were less obvious and less dramatic. Big gains in government hiring masked some of the pain, while housing upswings, which typically follow recessions, cushioned the blow. This time, neither is present.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump has issued an executive order to suspend the collection of payroll taxes. How much will it save you?
August 9, 2020
What a Payroll Tax Cut Would Mean for You
Tax Breaks

What a Payroll Tax Cut Would Mean for You

If Congress can't pass another stimulus bill, President Trump says he will initiate a payroll tax cut by executive order. How much would that save you…
August 8, 2020
7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020

Recommended

Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)
small business loans

Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)

Small business owners are getting another crack at Paycheck Protection Program loans. Here are answers to some frequently asked questions about the lo…
July 21, 2020
8 Tips and Warnings on PPP Loan Forgiveness
loan forgiveness

8 Tips and Warnings on PPP Loan Forgiveness

Not having to pay back Paycheck Protection Program loans is a huge benefit for small-business owners. But there are a lot of rules that must be follow…
July 21, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
7 Ways PPP Loans Just Got Better
small business loans

7 Ways PPP Loans Just Got Better

The Paycheck Protection Program Flexibility Act makes a number of changes to the popular small-business loan program. See how your business might bene…
June 5, 2020