Small businesses in the United States are facing a looming crisis, according to Shark Tank host Kevin O’Leary, Chairman of O’Leary Ventures and one of the stars of the popular TV show Shark Tank. The cost of capital has skyrocketed, making it difficult for small businesses to secure funding. In this article, we’ll take a closer look at the challenges facing small businesses in the US and discuss what entrepreneurs can do to survive and thrive in this difficult environment.
Rising Costs of Capital
According to Shark Tank host O’Leary, the rapid rate hikes that have occurred in recent months have put many small businesses in a tough spot. Companies with 5 to 500 employees, which represent over 60% of the US economy, are finding it increasingly difficult to finance their ventures. While the S&P 500 companies have no trouble financing their businesses, small businesses are struggling with the rising cost of capital.
The National Federation of Independent Business (NFIB) Small Business Optimism Index, released in June, showed that small business confidence rose by 1.6 points to 91 points, which is a seven-month high. However, Shark Tank host, O’Leary warns that this data does not tell the whole story. He communicates with entrepreneurs all throughout the country that are having trouble raising operating funds.
Inflation and Labor Market Concerns
The June jobs report offered a mixed picture of the US economy. While employers added fewer-than-expected jobs, the unemployment rate ticked down to 3.6%. Wage growth came in stronger than expected, fueling expectations for another rate hike at the end of July.
Inflation is also a major concern for small business owners. The consumer price index, which measures a basket of goods including gasoline, healthcare, groceries, and rent, is expected to show that monthly prices rose 0.3% in June. The Federal Reserve’s target rate for inflation is 2%, thus the expected annual increase of 3.1% is significantly more than that.
Inflation was the biggest problem for 25% of small business owners in May, up two points from April. Nearly a quarter of business owners are worried about the quality of their workforce, and nearly half are having trouble filling unfilled positions. Owners of small businesses aren’t optimistic about future economic health for several reasons that create uncertainty. There are still supply chain issues, including worker shortages, inflation, and threats of tax increases from Washington.
Fed Rate Hikes
The Fed will be looking for signs of easing inflation in the June inflation data. After 10 consecutive rate hikes over the course of 15 months, during which the benchmark federal funds rate rose from near-zero to its highest level since 2007, the Fed paused the tightening effort in June. The Federal Reserve has hinted in the weeks since then that further rate hikes are possible in response to persistently high inflation.
As of Tuesday afternoon, the likelihood that the Fed raises rates by a quarter of a percentage point during its meeting on July 25-26 has increased to 94.9%. O’Leary expresses concern that a further increase in Fed interest rates could make matters even worse for small enterprises.
Employee Retention Credit
The Shark Tank host wants government officials to provide guidance to help small firms weather the coming economic storm. He’s promoting a program that these small firms aren’t participating in: the employee retention credit. There is an impending crisis, he says, and he wants every lawmaker on Capitol Hill to tell his or her constituents to apply.
Eligible businesses can deduct 70% of their qualified earnings from their 2020 and 2021 federal, state, and local taxes from January 1, 2020, through June 30, 2021. Eligible businesses can start reaping the benefits of this right away by paying less in payroll taxes.
How Small Businesses Can Survive and Thrive
Small businesses can take several steps to survive and thrive in this difficult environment. First, they should apply for the employee retention credit, which can provide much-needed working capital. Second, they should focus on improving their supply chain and reducing costs wherever possible.
Third, they should consider alternative financing options such as crowdfunding, peer-to-peer lending, and invoice financing. These options can provide small businesses with access to capital that they might not otherwise be able to secure. Fourth, small businesses should focus on building strong relationships with their customers and providing exceptional service.
Conclusion
Small businesses in the US are facing a challenging environment, with rising costs of capital, inflation, and labor market concerns. However, entrepreneurs can take steps to survive and thrive in this difficult environment. By applying for the employee retention credit, improving their supply chain, reducing costs, exploring alternative financing options, and focusing on building strong customer relationships, small businesses can weather this storm and emerge stronger than ever before.
FAQ
What is the employee retention credit?
From December 31, 2020, to June 30, 2021, an eligible company can take a tax credit for certain employment taxes equal to 70% of the qualified earnings they pay to their employees.
What are some alternative financing options for small businesses?
Some alternative financing options for small businesses include crowdfunding, peer-to-peer lending, and invoice financing. These options can provide small businesses with access to capital that they might not otherwise be able to secure.
How can small businesses reduce costs?
Small businesses can reduce costs by improving their supply chain, exploring alternative financing options, and focusing on building strong relationships with their customers.
First reported on Fox News
