Interest Rate Increases Flatten Small Firm Sales

 

Sales activity for small firms in California is depressed, reports a recent survey of small businesses in the state, and high interest rates are the reason.

The Small Business Index, compiled by the Foothill Group Inc., a commercial financing company based in Los Angeles, remained below the 100 level throughout the first quarter of 1981 as the prime rate hovered near record heights.

"Our index tracks the sales activities of a variety of small businesses," says Foothill's Wayne Counts. "But whether the company manufactures sporting goods equipment or publishes books, the story is the same: The high cost of money, and the fluctuations in the rates, are troubling California's small businesses."

Since roughly 10% of all small businesses in the country are located in California, Counts say it's likely that the index "indicates what is happening all over the country." And while small companies are learning to live in this "high interest rate environment," Counts notes, this is hardly a guarantee that their sales activity will improve. "Clearly," he says, "small business is an area in which monetary policymakers should look before they act."