Small Business Loans and Recession

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The life blood of many a small business are loans that help them acquire products to sell and to otherwise expand their business. The problems we now face is that our current recession is being driven by serious credit problems in the housing sector. This means that loan money for short and long term borrowing needs of small businesses are simply not available.

Here’s the problem in a nutshell. Debt or loans, if you will, have increased at over three times what incomes have during the past five years. And that includes our small business incomes. Small businesses, on average, have seen increases of about three percent a year in their net profits while the amount of debt they have taken on has increased almost 10%. This rate of borrowing cannot be sustained over a long term. The economy simply won’t support it.

The unsustainable pace of the growth of debt means that we will enter a serious recession sooner or later. This means that we shall see a drop in consumer spending, inventories increasing, employee layoffs and a decrease in wages. The economy is slower to correct itself because both lenders and the government work hard to make sure that they can keep the up cycle running as long as they can. It’s really short term thinking.

Business cycles demand that there will be recession. Recessions happen because, like a forest fire, they get rid of old, dead, growth that accumulates during economic expansion. The problem is that often politicians, by being self-serving amd wanting to get reelected, serve to delay this natural economic process and insure that the inevitable recession is much worse than it should have been.

From a lender’s perspective, they are in the business to make money from loans to small businesses. They work hard to insure that small businesses keep borrowing, even when the business in question shouldn’t be borrowing. They hope that you not only max out your line of credit but your corporate and personal credit cards as well. Maybe, if they’re lucky, you’ll hock your home to them as well.

As small business debt ratios increase, it is important that you use credit for your small business with very great care and concern. You must avoid going down the path of bankruptcy and foreclosure. You don’t want to put yourself in a deep credit hole by taking on a new small business loan carelessly.

 

This entry was posted on Thursday, December 14th, 2017 at 8:44 pm and is filed under Business Loans, Recession. You can follow any responses to this entry through the RSS 2.0 feed.

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