Small Businesses Face Dire Times With Little Support

Three studies show just how dire small-business owners think the economy is getting, and one report shows how little their lobbyists in Washington are willing to do about it.

The Discover small-business watch released Monday shows a whopping 73 percent of small-business owners took home less pay in July, 58 percent rated the economy as poor, and 75 percent believe it’s likely or highly likely that the economy will slip into another recession, a belief that contradicts most economists, who believe a double-dip recession is unlikely.

But the 750 small-business owners surveyed for Discover by Rasmussen Reports were gloomier in July than they had been in June, and the poll’s confidence index reflects that, dropping to 83 in July from 86 in June.

“Even though cash-flow issues eased off in July, small-business owners still aren't feeling any positive effects from anything going on in the bigger economy,” said Ryan Scully, director of Discover's business card, which commissions the monthly research, in a release. “They'll be holding back their economic enthusiasm until they have tangible evidence that their bottom lines are improving.”

A Wells Fargo/Gallup survey released this morning also shows declining optimism among small businesses, and both Wells Fargo and its giant competitor, Bank of America, are touting their increases in small-business lending.

"Slower consumer-spending growth appears to be weighing on small-business confidence," said Dr. Scott Anderson, Wells Fargo senior economist, in a release. "Small businesses are scaling back on hiring and capital spending plans in the third quarter and remain concerned about the overall financial health of their companies."

The Wells Fargo poll conducted in July showed a confidence index of negative-28, the lowest in the 29 quarters the bank has been conducting the poll.

Still, the bank said its lending to small business grew 30 percent over the first quarter.

Bank of America, too, said it was lending more to small businesses. The nation's largest bank loaned $45.4 billion to these businesses in the first half of 2010, an increase of nearly $9 billion more than the same period last year.

But those two banks' increases in lending do not mean the credit picture for small business is rosy, as still another survey by Pepperdine University shows.

That survey shows a majority of private business owners, about three-quarters of them small-business owners, want to expand their companies. But they can’t get their hands on the cash to do so.

Small businesses simply can’t get loans, and John Paglia, the Pepperdine professor who conducted the survey, told the Los Angeles Times: "It's inhibiting growth opportunities."

Since Paglia talked with investors and bankers, he was able to get a fuller picture of just how tough it is out there for private businesses to pull down expansion capital. Lenders and investors were turning away 90 percent of loans to be secured by real estate owned by a company and 73 percent of loan requests based on company cash flow.

That’s just the picture a bill proposed by President Barack Obama is meant to change. Obama has proposed, and the Senate is expected to vote on, a bill that would funnel $30 billion in leftover money from the bailout of big banks approved during the Bush administration to small lenders so they could put that money in the hands of small businesses. The bill also includes tax breaks for small businesses.

But Republican opponents of the bill have painted it as a second bank bailout rather than aid to small businesses—which have traditionally done more than 70 percent of the hiring in the U.S.

Conspicuously low profile throughout that debate are the very lobbying organizations many small businesses support with their dues—the U.S. Chamber of Commerce, National Federation of Independent Business, and National Association of Manufacturers.

Bloomberg reports the three groups were largely silent last week when the Senate was debating the bill and Democrats were finally able to break a filibuster of it.

That may seem like a surprise—that the groups wouldn’t stake very public positions for or against such a bill that could directly affect many of their members—especially since they have been more than happy to take positions on such issues as health care and financial reform legislation and extension of the Bush tax cuts. Not surprisingly, many of those positions are in opposition to proposals by the Obama administration and the Democratic Congressional majority.

The NFIB has supported some tax breaks for small businesses in the bill, but was neutral when it was passed by the U.S. House of Representatives June 17. The group claimed sales were a bigger issue than credit when the Senate voted to end the filibuster. The Chamber, the biggest business-lobbying group, has supported tax measures, but doesn’t mention the loan provisions. The National Association of Manufacturers has remained neutral.

So why, in an election year at a time when small-business owners are clearly sending up distress signals, are these groups relatively silent on a key piece of legislation?

Here’s one thought.

Frank Knapp, president of the South Carolina Small Business Chamber of Commerce, told Bloomberg: “These groups are tied to big businesses. That’s all this is about.”

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Kent Bernhard Jr. is News Editor of Portfolio.com