Bigger Hurdles Ahead For Entrepreneurs

By Andrew Beattie | August 20, 2009 AAA
Bigger Hurdles Ahead For Entrepreneurs

There are a few tough truths that any small business owner has to face. The first is an old one: even in the best of times the vast majority of small businesses fail. As if that challenge isn't scary enough, there are always new challenges being added to the mix.
Small Business Administration Loans Dry Up
The most recent has come along with the current economic trials and tribulations. CIT, a primary credit vehicle for small businesses and leading participant in Small Business Administration loans, teetered on the edge of bankruptcy in July after it failed to receive funding from the federal government. As a result, its lending to more than 1 million small businesses is drying up. Other lenders have followed suit by severely tightening lending to small businesses.

This mini credit crunch is going to hit a lot of the small business survivors that depended on short-term credit to fund inventory and other operations. This isn't really their fault, so business owners might be forgiven for wondering just what the banks spent all those bailout tax dollars (CIT received $2.3 billion in December) on - it sure wasn't small business owners. (For more on the bank bailouts, see Liquidity And Toxicity: Will TARP Fix The Financial System?)

Proposed Payroll Tax Looms
On top of the credit crunch in small business lending there are proposed payroll tax additions to pay for the massive public healthcare system currently in the works. Critics of the plan contend that it's likely to squeeze existing small businesses. It may also set up another barrier to deter entrepreneurs well into the future.

It's a tough balance for the government to strike. After all, entrepreneurs play an extremely important role in the economy. They disrupt the status quo, preventing monopolies while also bringing new and useful products to market. They do this by identifying places where their capital, both in cash and sweat equity, can create or improve upon a market or product. Sometimes (or often if you're a glass-half-empty type), they're wrong; or they may even be right, but at the wrong time. Then they fail, joining the majority and losing both the capital and sweat they risked.

In return for the uncommon risk they take on, however, these entrepreneurs have a shot at uncommonly high rewards. Their willingness to take these risks and occasionally succeed feeds economic growth. (Read about some famous CEOs who built their fortunes from the ground up in The CEO Dream Team - Walton, Schwab, Marcus And Blank.)

Of course, the entrepreneurial spirit that made America "the land of opportunity" won't fade easily. Of the two hurdles, CIT is a minor one. Many strong businesses will find bankers at Wells Fargo and other big banks eager to take over their financing should CIT fail to stabilize. The payroll tax represents a bigger legislative risk that may or may not come to pass. As it stands, it's difficult to see how Congress will deal with the fact that taxing small businesses for employing people may encourage them to employ fewer people.

But entrepreneurs are nothing if not persistent. Many motivated people will still help America's economy despite the lack of appreciation and outright barriers set in their way. To adapt Thomas Jefferson's phrase, "The economy must be refreshed from time to time with the blood of entrepreneurs and lawmakers." (To read more about running a business in a recession, see Keeping A Small Business Afloat.)

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