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Study: Recession Cost Small Businesses $2 Trillion

Deep losses have left small-business owners decidedly pessimistic and unlikely to hire, survey finds.
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Despite a brief surge in optimism earlier this year, less than one in 10 small businesses believe the recession is over, says a new study.

The Quarterly Economic Pulse Survey, conducted in July by financial services market research firm Barlow Research, reveals that 14 percent of small businesses are less than 50 percent confident they'll still be in business by August 2011. One in seven is estimating their chances of survival by the flip of a coin, and just one in three said their financial condition is improving – down from nearly one in two in the second quarter.

If the numbers are any indication, small businesses have reason to be gloomy: They've lost an estimated $2 trillion in profits since the recession began in December 2007. That's an average loss of $253,000 for each of the 8 million U.S. businesses with sales between $100,000 and $10 million. (Larger companies have been less affected and so are recovering faster, says the survey.)

"We should not expect significant job creation in the near term from this segment," says study author Bernie Kuechler, a Barlow Research analyst. More small businesses are planning to decrease rather than increase full-time employees, he said.

The news comes as Congress has left any help for small business loans on hold until September. The Senate failed to resolve a procedural dispute on up to $30 billion in cheap capital for community banks before the House left for its summer recess July 30. The Senate bill also would increase the maximum size on Small Business Administration loans – something some small businesses were counting on in order to hire.

Despite a good cash flow, the limit on an SBA loan for Leeds, Ala.'s Bama Icee Distributors is $2 million. But the company, owned by Tag Holley and his wife, needs $3 million to buy more Icee machines to grow their business.

"All the banks are willing to loan, quite frankly, is what the government is willing to guarantee," Holley told the Denver Business Journal. "We're raring to go. We could easily expand by 10 to 15 workers in less than 12 months.

But, he added, "until you have money to grow your business, you're sure as heck not going to hire anybody."

Last updated: Aug 10, 2010

COURTNEY RUBIN

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.




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