Small businesses don’t share optimism

CHICAGO – Someone forgot to clue small-business owners into the jovial mood that’s lifted the stock market 77 percent in a little over a year.

Despite an increasing flow of stronger economic data recently, small-business owners aren’t feeling it and are more pessimistic than at any time during the last four decades, according to a National Federation of Independent Business survey released last week that is the basis for a closely watched index of Small Business Optimism.

As a group, the businesses haven’t seen sales bounce back, and more are feeling compelled to lay people off than to hire new workers.

“Small businesses are suffering in every conceivable way,” said Clifford Schorer, a Columbia University professor of entrepreneurship. “And government doesn’t seem to know that growth comes from small business. Every new job created in the last 30 years came from small businesses,” he said, emphasizing how big businesses start out small.

The gloomy mood among small businesses has spanned 18 straight months, the longest stretch of pessimism in the 35 years that the federation has been doing the survey. During the sharp recession in 1981-82, small businesses were slightly more pessimistic, but it lasted only three months.

“We thought it would pick up because of the good numbers in the economy and stock market, but it’s been almost two years and it’s deteriorating,” said Bill Dunkelberg, the federation’s chief economist. A measure of 90 is weak, and in March the index worsened to 86.8 from February’s 88.

The dour attitude points to ongoing problems in the economy that other recent data might have missed. Small businesses employ about half of employees in the private sector and provide 44 percent of private payrolls, so they are essential to the economy, according to the Small Business Administration.

With about 17 percent of the work force unemployed or underemployed, the economy desperately needs small businesses to be the employers that often help in a recovery and “become tomorrow’s Apples and Googles,” Schorer said.

But Dunkelberg said that since July 2008, employment per firm has fallen steadily each quarter. It’s been the largest reduction in the survey’s history, and although the decline seems to be easing, 7 percent of the businesses are planning cuts. In addition, the latest survey shows businesses increasingly apprehensive about investing capital.

“The biggest problem has been no access to reasonable credit,” Schorer said. “The government cleaned up the banks and should have said, ‘Some of the money must go to small businesses.’ But small businesses don’t have a political voice.”

People who help small businesses get loans, such as attorney Sheldon Rosenfeld, have watched the companies deteriorate during the financial crisis that began in 2008.

In the early stages of the credit crisis, healthy businesses that needed loans were turned away by banks because banks simply weren’t lending, said Rosenfeld, who has been representing small businesses for 40 years.

As the businesses sought a willing banker, they went to multiple banks, and as each pulled credit reports, the businesses’ credit scores weakened. Given that process, credit scores often dropped more than 75 points, so solid businesses started looking weak on paper and couldn’t get the loans they needed, Rosenfeld said.

Now, Dunkelberg said, many businesses are so troubled they are not interested in borrowing money.

According to the SBA, small-business bankruptcies climbed to 61,000 last year from 20,000 in 2006, but economist Brian Headd said most failing small businesses simply fold without filing for bankruptcy.