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More debt is not the answer to small business troubles

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Melanie Stetson Freeman/Staff/File

(Read caption) Staff at a family-owned jellies and jam company in Amesbury, Mass., organize boxes of orders to be shipped or picked up. Despite what Washington says, more debt is the last thing most small businesses need right now, Cornwall writes.

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Once again we hear from Washington the same solution they seem to have for any and every economic issue — more debt.

This time the problem that they debt solution is being applied to is small business exports.  In a report just released by the Office of Advocacy of the SBA we are told that if only we could make more debt available to small businesses they would be able to export more products outside the US.  The study says that smaller small businesses are in particular need for more governmental help with credit.

Most surveys of small business owners tell us that the weak economy and sluggish sales are their biggest problems, and not the availability of debt.  Very few small business owners say that they are having problems getting the credit they need in recent surveys by the NFIB.

Tight credit is not their problem.

A recession (or however you want to characterize the current economy) that has lasted five years with continued double digit real unemployment and ongoing economic uncertainty has created tight wallets among consumers. 

Add to this the complete confusion over the impact of ObamaCare and other new regulations, increasing taxes, and an attack on free markets and we can see why small businesses are so cautious right now.  Many of those who have survived the last five years are just a bit shell shocked right now and in no mood to take a risk on preparing for expansion.  They are not building inventories, not investing much in fixed assets, and not growing their workforces.

More debt is the last thing most small businesses need right now.  Sure interest rates are low right now, but they are artificially low.  Small businesses do not have the financial statements to support increased debt.

I thought one of the lessons of 2008 was that we should not be encouraging banks to give credit to those who really can’t afford it.  And yet here we go again recommending that we find policy solutions to encourage banks to issue more debt for the smallest — and most fragile — small businesses.  Not good policy and a lousy business decision for banks to make.

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I have written before about why entrepreneurs in the US are not engaged in international commerce.  American entrepreneurs are just not comfortable dealing in international markets and often don’t even consider exporting products.  Americans don’t travel abroad as much as people from other parts of the world.  We don’t speak second languages.  It is an issue that has roots in our society and culture — not in the amount of credit available to small business.

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