As Recession Spreads, Small Businesses Start To Cut Jobs

October 13, 2008 by Douglas A. McIntyre

UnemplyThe credit crisis has been so severe that even the largest companies  in the US have had trouble getting access to the capital markets. Firms as large as GM (GM), Goodyear, and Gannett (GCI) have used credit lines to access capital which they could not get in the commercial paper market.

Small businesses are not so fortunate. Many were never large enough to use commercial paper and most do not have a line of credit.

As the recession takes hold and drives down demand for goods and services, most firms with under 100 employees face both lack of access to credit and falling sales. 

In the latest small business survey by American Express (AXP) many of those polled said they were starting to let people go.

According to MarketWatch, Of the 63% who said their firm "has been affected by the tightening of credit in the economy" — up from 50% in August — 12% of small-firm owners said they’ve been forced to lay off workers, 7% have been unable to make payroll, and 4% couldn’t fill customer orders.

Most of the troubled firms said they have shrinking revenue and, in a number of cases, owners have had to tap personal credit lines to stay open.

Unfortunately, the recession is almost certainly closer to its beginning than its end.

By some estimates, the US economy could loss another three million jobs before the economy bottoms. Small businesses still employ more people that large ones do. Without access to capital, riding out a storm without putting people out of jobs will be almost impossible.

Douglas A. McIntyre