SmallBizResource Blog -- Economy

Small Businesses Sing The Bailout Blues

Posted by Gayle Kesten Tuesday, Oct 7, 2008, 01:45 PM ET

While the innocent angels on Capitol Hill debate, ahem, the greed on Wall Street, small-business owners on Main Street are understandably PO'ed about the financial rescue package -- even though they fully understand that something had to/someone has to give.

While the package is aimed at restoring confidence in the battered U.S. financial system and boosting banks' ability to lend, business owners are bracing themselves for much less promising results, says Diana Ransom, who writes the "Starting Up" column for smSmall Biz. And those less promising results will likely include:

1. A tax hike. After all, someone has to front the bailout's costs. And since so many resources will start getting pumped into beleaguered public companies, many important measures, such as immigration and health-care reform, may take a back seat, says Matthew Arnold, founder of Matthew Arnold Architecture & Design.

2. Higher prices and lower profits. At least in the short term, you can expect a higher government deficit -- which could lead to more inflation, triggering higher prices and potentially fewer profits, says Mark Luscombe, a principal analyst for the tax and accounting group at CCH.

3. Sapped productivity. If companies are forced to pay higher taxes, they'll be compelled to cut back elsewhere, resulting in fewer orders and lost sales, according to an International Monetary Fund report (PDF). That, of course, means businesses will have less money to reinvest and grow.

4. Unfair competition. Say, for example, you have two financial companies. One decides to make risky but profitable bets while the other company participates only in conservative deals. Bailing out the risky company is like giving it a pat on the back for making bad choices, says Gary Harpst, CEO of Six Disciplines. "Small businesses don’t get rescued or protected from their bad business decisions."

Harpst's point echoes one made on bMighty.com's rANT blog: "As owners and managers of growing businesses, we totally get the short end of this stick. We're responsible, so we didn't take advantage of the easy, no-credit-check-required cash floating around. We knew we couldn't pay back those loans, so we didn't take them. And now that the fecal matter has hit the fan, how much of that [multibillion-dollar] bailout do you think is going to come our way? My guess is: Zero. Instead, we'll be paying to take care of the greedy fatcats who recklessly led us to this point. If we don't pay with higher taxes, we'll most certainly do so via inflation and a devalued currency."

Good times.

What do you think?

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