Small Businesses Still Suffering

Small businesses create most of America's new jobs. But in the wake of the financial crisis, they're suffering considerably more than bigger firms--and their problems will likely keep unemployment figures high for some time to come. While small businesses tend to account for about half of all job losses in a recession, a new report by London-based Capital Economics shows that this time around in the U.S., they've been responsible for about two thirds of the employment drop--an unprecedented amount. The reason: lack of credit. Since October 2008 business loans are down by 17 percent and still falling. While firms of all sizes are feeling the pinch, small firms are much more dependent on bank loans than bigger ones, which can issue stock or debt to raise money.

The lack of credit is making it tougher for small businesses to invest in much of anything--machinery, inventory, or workers. And while recent surveys indicate a growing sense of optimism among America's top multinationals, many of which get 60 percent or more of their revenue from overseas, small businesses have yet to benefit much from the recovery. That's bad news for employment; small firms were responsible for an especially large share of job gains in the early stages of the last recovery, in 2002-03. "The bottom line is that unemployment will be slow to go down, and firms will continue trying to get more out of existing workers," says Capital economist Paul Ashworth. Looks as if mom-and-pop shops are in for some lean years.

Small Businesses Still Suffering | News