As the nation heads into the New Year and hopefully a better economy, the devastation suffered by small businesses over the last year is coming into sharper focus.
Thousands of once healthy small firms are barely hanging on. Although Congress and President Obama promised to step up aid, lawmakers dawdled on a number of key measures that they failed to pass before adjourning for the holidays.
Meanwhile, small businesses continue to crash and burn.
For the 23rd consecutive month, small companies cut jobs in December, according to the latest employment survey by payroll-processing firm Automatic Data Processing. The 25,000 jobs lost last month bring the total yearly loss to 1.8 million small business jobs.
In all, small businesses accounted for about 40 percent of the 4.7 million positions cut by firms in total, according to the ADP survey.
On the plus side, the number of private sector jobs fell by just 84,000 in December, marking the smallest monthly decline since March 2008. Some economists estimate that the private sector could start generating new jobs soon.
The Labor Department’s monthly report due Friday is expected to be even rosier. It counted only 18,000 private sector job losses in November because it factors in public sector jobs. But nothing is set in stone.
As I noted last week, chief financial officers said in a recent survey by Duke University and CFO magazine that executives expect to reduce their domestic workforce by 1.6 percent next year.
No matter how you slice the numbers, small businesses are bearing the brunt of job losses at this point and suffering disproportionately in the downturn.
Small business bankruptcies, for example, increased by 44 percent nationally for the year ending on September 30 compared with the previous year, according to a survey by Equifax, a credit reporting agency.
Those figures may not reflect the true extent of the distress because many small business owners filed for personal bankruptcy instead of through their businesses. On that score the situation may be even grimmer.
More than 1.41 million households filed for either Chapter 7 or Chapter 13 bankruptcy last year, a 32 percent increase over 2008, according to the National Bankruptcy Research Center, which tracks bankruptcy data from November to November for its report.
It is the highest level of consumer-bankruptcy filings since 2005, which was the last year households could file under more lenient bankruptcy laws.
The increase includes a marked upturn in the last year of Chapter 7 (liquidation) filings, which have increased by more than 42 percent compared with this time last year, while Chapter 13 (rehabilitation) filings have increased by only 12 percent, according to the center.
The trend continued apace in December. There were 113,274 filings, up one-third from last year, making it the 12th consecutive month in which 100,000 or more bankruptcies were filed, according to the center.
It’s no wonder that President Obama hastily convened a jobs forum in November and emphasized the role small companies play in economic recoveries. As things now stand, small businesses may actually lag in job creation because such factors as tight lending standards and weak consumer spending are working against them.
Congress and the president have not been oblivious to the problems and have taken a number of important steps to get aid to Main Street.
For example, the Small Business Administration’s flagship 7(a) lending program guaranteed 37 percent more loans in the fourth quarter of 2009 compared with a year ago. The program processed 12,393 loans totaling $3.8 billion, according to preliminary data released Monday by the agency.
That’s up from 9,070 loans, totaling $1.9 billion, processed in the fourth quarter last year. But it’s still far off the pace before the recession began. In the fourth quarter of 2007, the agency guaranteed more than 20,000 small business loans.
Just before Christmas, the president signed an appropriations bill that extended the 90 percent guarantee on 7(a) loans and the elimination of borrower fees on both 7(a) and 504 loans through February 2010.
The SBA has reportedly cleared up a backlog of more than 1,000 loan requests that were delayed pending passage of the measure. Still, SBA lending represents just a drop in the bucket.
As I noted in an earlier column, the most recent Treasury Department data showed the nation’s largest banks reeled in their small business lending portfolios by 4.3 percent during the first 10 months of 2009, shrinking credit by $11 billion.
Lawmakers took an important step to expand credit available to small businesses by introducing legislation in both the House and Senate to increase the amount credit unions can loan to businesses to 25 percent from 12.25 percent of total assets.
The bills also would increase the total loan amount to $250,000 from $50,000 before the extension of credit would be considered a member business loan. These loans are clearly geared toward small firms.
The Credit Union National Association, the industry’s primary trade group, estimates the move will increase small business lending by $10 billion in the first year and help create more than 100,000 new jobs.
But passage is by no means guaranteed. Theses measures have been introduced before and lobbyists for big banks, such as the National Bankers Association, have shot them down every time.
Congress’s recent track record on other issues doesn’t instill a lot of confidence that things will get done quickly. The House and Senate were unable to agree on the extension of several expiring tax provisions before adjourning for the holidays, even though they would provide critical aid to struggling firms.
The bill provides for more than $5 billion in individual tax relief and more than $17 billion in business tax relief through 40 different provisions, all of which expired Dec. 31.
Congress also failed to act on the federal estate tax, which has now officially expired for the year. Lawmakers were supposed to adopt a short-term extension. Without it, they are “setting the stage for a very likely messy fix,” according to the National Small Business Association.
When Congress returns from recess in mid-January, lawmakers must move these key small business measures to the top of its agenda, or thousands of additional jobs will be lost and the tidal wave of business bankruptcies will continue, putting the weak economy at risk for a double-dip recession.