Why the debt ceiling debate won’t stop America’s small businesses

September 9, 2011

— John Krubski is an entrepreneur and the architect of The Guardian Life Index: What Matters Most to America’s Small Business Owners. He is currently working on his next book, “Cracking the America Code: How to Get US Back on Track”. —

As recently as April of this year, the Amex Open Survey announced that “For the first time since 2006, growth has surpassed survival as the number one priority for entrepreneurs… Perhaps further evidence that economic recovery is reaching Main Street, more than one-third (35 percent) plan to hire, the highest level since the fall 2008 survey.”

Just a few short months later, the headlines were filled with gloom and doom about the impending, “unprecedented” default of U. S. debt, followed quickly by predictions of a “double-dip” recession.

The truth is that, for America’s small business owners, the debt issue is an old tune, perhaps with a few new lyrics. We began as a debtor nation – dependent on a creditor country across the sea – and printed a currency without much prospect of making good on either its value or the debt incurred. In fact, the “continental dollar” printed during the Revolutionary War was worth one penny by the end of the war. Thousands of tradesmen and farmers were literally left holding the empty bag of the American government’s promises. Eventually, our national finances straightened out. However, until that time, the many small businesses that funded the Revolutionary War had to rely on themselves to figure out a viable route to survival.

More than two hundred years later, it’s still the same story for America’s entrepreneurs and owners of small enterprises. After the market crash of 2008, a key “national problem” was the availability of credit. As money for loans became more available, the problem then became “qualifying for loans.” However, as many small business owners know, the only way to get money from banks is to prove in the application process that you don’t need it in the first place.

Now, with the downgrading of America’s credit rating, the concern is not just about the availability or the qualifications, but about the cost of borrowing. Throughout this very public national “crisis,” it is important to realize that credit has never been the typical small business owner’s major concern or strategy for making his or her business work. To the contrary, most small businesses that stand the test of time rely on their own resources, live within their means and effectively adapt to changing circumstances.

The first and second of these – relying on yourself and living within your means – are the key attributes that make it possible for a small business to survive infancy and continue through even the hardest times. If you start your business with the assumption that you aren’t going to get help from anyone else, your model automatically requires a commitment to living within your means. It becomes not only a mindset, but a powerful strategy for success.

Big businesses, on the other hand, are capital-oriented. For them, borrowing and indebtedness in the form of stock and bond sales are the natural order. Their dependence on funding via debt instruments, versus revenues and profits, is an ingrained component of their business plans.

Another reason that small businesses are more likely to be insulated from credit crunches and the cost of capital is that an increasingly greater percentage of these businesses are woman-owned. Women entrepreneurs are more likely to self-fund their enterprises, less likely to look for loans and more likely to anticipate being rejected if they do apply for credit. That bodes well for our future because, according to the Guardian Life Research Institute, women-owned small businesses will generate more than half of the 9.7 million new small business jobs expected to be created, and roughly one-third of the 15.3 million total new jobs anticipated by the Bureau of Labor Statistics by 2018.

At the end of the day, while the national dialogue is being dominated by gloomy statistics and debt ceiling controversy, America’s small business owners have – as always – self-reliantly sustained their enterprises, started new companies and created new jobs. We should never lose sight of their vital contributions and their foundational importance to the U.S. economy.

One comment

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It remains true that the banks do not lend unless you can show you don’t need the money. The difference today, however, is that they no longer advance funds against confirmed letter-of-credit. They seem to have forgotten how business is done and do not have a mindset to even try to figure out that they are the ones that are wrong. It’s too bad because their attitude influences politicians who also don’t know. It’s a good thing small business continues to exist.

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