After months of intransigence, President Joe Biden finally seems to recognize that raising the debt ceiling requires compromise — just like everything in life. On Tuesday, Biden met with congressional leaders in an attempt to hammer out a deal.
While neither Republicans nor Democrats will get exactly what they want, it’s vital for small businesses that the final agreement reins in reckless spending, as proposed by the Limit, Save, Grow Act, which recently passed the House of Representatives. Returning spending to pre-pandemic levels — in recognition that the pandemic is over — and limiting future increases will help small businesses overcome the one-two punch of persistently high inflation and a lack of access to credit.
Biden and congressional Democrats’ decision to ignore bipartisan warnings about inflation and jam through trillions of dollars of unnecessary spending blowouts in 2021 and 2022 have bid up prices and diluted the currency already in existence.
As a result, inflation surged to its highest level in 41 years and has stayed persistently elevated. Inflation has increased by more than 15% over President Biden’s term, and real wages have declined for 25 straight months, significantly reducing Americans’ living standards.
Inflation disproportionately hurts small businesses, which tend to have smaller profit margins than their big business competitors. Job Creators Network Foundation’s nationally representative SBIQ poll of small business owners finds that a record-high half of small businesses now say that inflation is their top concern. This number has increased by 50% since early 2021 as prices have spiraled higher and higher.
In response to this historic inflation, small businesses have been forced to raise prices just to remain profitable. But customers are cost sensitive, and if they refuse to pay the higher prices, small businesses no longer have a market for their goods.
“I’ve had to keep some items off the menu entirely because they are no longer profitable to sell,” says Florida restaurant owner Dina Rubio. “I’ve needed to make product substitutions, like making mojitos with lemons, even if the taste is not as good.” At GrandDaddy’s Hot Chicken in Nashville, the minority owner Tommy Buchanan notes that the price of a 40-pound case of chicken tenders has doubled, forcing him to take wings entirely off the menu.
The Federal Reserve’s aggressive interest rate hikes to respond to this inflation have reduced access to credit. Silicon Valley Bank, Signature Bank and First Republic Bank have already collapsed due to falling asset values in this rate environment. Other banks are teetering.
As a result, small businesses face tightened lending standards and more expensive loans, impeding their ability to survive and thrive. Community banks, which provide 60% of small business loans, are disproportionately impacted because depositors are moving to bigger banks in a perceived flight to safety. According to our SBIQ poll, 59% of small businesses are concerned that bank failures and instability will negatively impact their business.
Janna Rodriguez, a daycare owner in New York, needs a $2 million loan to expand and extend her daycare business. But all she hears from banks is “no.”
She says if she can’t expand, she’ll be forced to close because her current set-up isn’t profitable. Same story for Stephen Martin, who runs a cleaning business in Duluth, Georgia. He needs a loan of $20,000 to $50,000 to purchase new equipment but can’t find one. “It’s not an environment meant for small businesses to survive,” he says.
Bipartisan compromise that reins in federal spending can address the twin threats of high inflation and lack of access to credit imperiling small businesses and their hiring plans.
A debt ceiling deal that ends reckless spending can empower small businesses to return the nation to the shared economic prosperity we enjoyed in 2018 and 2019.
Alfredo Ortiz is president and CEO of Job Creators Network and author of The Real Race Revolutionaries: How Minority Entrepreneurship Can Overcome America’s Racial and Economic Divides.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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