What Does This “Bailout Package” Mean to You as a Small (or Tiny) Business?

Last weekend, I watched the news on this nebulous ‘bailout package’ nearly 24/7. It seemed so big, so important, yet I just didn’t get it. HOW could pumping this amount of money into Wall Street have ANYTHING to do with me, or you, our Sparkplugging readers.

I started to understand when one of the Representatives being interviewed said, “I got a call today from the owner of the largest car dealership in my district. He told me that he didn’t have enough cash to make payroll this week, and that this was the first time in his life that he was unable to get a credit line to cover his cash flow shortage.”

I hadn’t realized that the trickle effect of these banking problems were flowing so far ‘down the pipeline’, so to speak. I’d heard the phrase ‘banks hoarding cash’ for as long as I can remember in relation to the Great Depression, but I never stopped to think about what something like this could do to my life or my business today. I’m no economic or finance wizard - I’d go so far to say it’s one of my weaker traits as a business owner. But this credit crisis has forced me to take a crash course in understanding just what all of these economic factors mean to me.

I decided to ask a few people I really respect for their thoughts on the issue, and their answers were both varied and extremely helpful:

Anita Campbell is the Founder & Editor in Chief of SmallBusinessTrends and host of Small Business Trends Radio, and is @smallbiztrends on Twitter.

How is the bailout affecting ‘real’ small businesses?

Present Wall Street crisis aside (I’ll get to that in a moment), the U.S. economy during 2008 has been weak, and growth has slowed.  But although the ‘R’ word has been thrown around a lot, not everyone agrees we are in a recession.

Some sectors have done poorly but others hardly seem to have been touched - so far.  I’ve lived through several recessions and the current times are not as bad as others were.  Still, I’d hardly call this a robust economy.

Small businesses in real estate-related sectors seem to have been hit the most:  realtors; home builders; construction companies; mortgage originators.  And of course there’s a ripple effect among small businesses:  lawyers who do real estate work; suppliers to new home builders; and so.  But again, other sectors of the economy have not been hit hard.  For instance, some technology companies report  doing better than ever.

How do you think this bailout plan will affect us in the future?

The bailout is something that would have a much much bigger impact on us if it were NOT done.

The bailout for the current Wall Street crisis looks to be necessary to protect our entire financial and banking system.  The system needs liquidity — banks and corporations need money to operate.  If we don’t have that, then the entire financial system collapses - we could have bank runs, a tremendous tightening of credit leading to job losses, and other actions that put a chokehold on business expansion and the economy. And there are dire predictions that the stock market would crash.  If any of that were to occur, then everyone gets hurt.  For instance, small business owners and staff who have retirement funds invested in IRAs, SEPs, 401Ks could see their retirement funds disappear.  Also, credit card companies may start pulling back, REDUCING credit limits.  I don’t know about you, but I rely heavily on credit cards as a kind of credit line for my business.  So I would hate to be rudely surprised by having my credit limit cut drastically.

Jamila White runs eCommerce Diva and her firm Jamila White and Associates, Inc., as well as an online bath products site jblossom.com, and is @EcommerceDiva on Twitter.

How is this bailout/economy already affecting small businesses?

The current financial crisis is already affecting small business owners’ access to capital. A few months ago, the US Small Business Administration put a freeze on backing SOHO loans (”Small Office Home Office”) — loans aimed at the smallest of the small businesses, which usually are less than $20,000.

When you look at the big picture, the hypocrisy is unbelievable. Here you have small businesses, which are *creating* jobs in this bad ecomony when big businesses are not, getting shut down on access to capital, and then you have the SBA essentially out of money to back loans for small businesses. You have Congress drafting legislation, the FDA Globalization Act of 2008, that would shut down thousands of small, honest, hardworking, mom and pop beauty businesses by levying annual fees of $12,000 per year. If passed, this would have a huge negative impact on my business, j.blossom, which makes natural bath and body products for young girls. Tiny one- and two-person businesses are fighting for their right to exist, yet our government can find $700 Billion to bail out corporate behemoths whose own greed is the primary cause of their downfall? It’s not right, and it makes me angry.

How do you see the bailout changing things for us in the future?

I think people underestimate the cutbacks that will come as a result of the $700 billion bailout. Budgets are going to get slashed when citizens need services the most. I think the SBA is going to have further cutbacks on services to small businesses, and access to capital is going to continue to get even tighter, both SBA-backed loans and other financial resources.

Donna Maria Coles Johnson founder and CEO of the Indie Beauty Network and host of The Indie Business Radio Show, and is @indiebusiness on Twitter.

How is the bailout affecting ‘real’ small businesses? (Donna has defined them mostly as solo businesses that are doing less than $1M a year in revenue).

Credit is already nearly impossible to come by for small businesses. Members of the Indie trade organization I lead (700+ members) are telling me, for example, that their attempts to purchase manufacturing supplies using their Wachovia credit cards are being declined even though they have credit on the card, are not even close to maxing it out and have not missed any payments. I’m sure that will continue. How can they run their businesses if they can’t purchase supplies?

How do you think this bailout plan will affect us in the future?

The biggest problems are not that my and your business will be affected, but that our children’s businesses will be affected. It’s hard enough to start a business even with adequate assets and good credit. My children and theirs will be saddled with this one way or another, but I find it inexcusable that the rush to “solve” the problem is going to send my descendants the message that, no matter how hard they work to build a lasting business legacy, it will constantly be at risk of being demolished at worst and undercut at best, by the very government that is assigned the task of promoting it.

Donna has written more on of her thoughts on the “Bad Bailout” on her Indie Business Blog.

While all of these small business experts have sometimes highly contrasting opinions, I see that all of them make some very valid points. In the end, I honestly think we won’t know the real truth about what this bailout plan will do for Americans and American businesses until after we do it, or don’t do it [scratch that, it just passed]. It will be interesting to see what happens both in the upcoming days as this legislation moves through Congress, and in the months down the road, as we have time to see the plan in action.

But being the ‘glass half full’ person that I tend to be, even if the worst happened, at some point, we will recover. The Great Depression ended - so will this recession someday.