The year 2008 ended on a bleak note for all industry, specifically the small industries faced issues such as slow sales, frozen credit from banks, costs related to healthcare soaring and the credit card debts getting higher. What does 2009 hold :
- 2008 saw the cost of healthcare rising (by 5.7% per employee), and healthcare costs were the top issues for small and medium business enterprises. This year (2009) it is expected that healthcare reform takes center stage - President Obama is endorsing the forming of national health insurance fund that small businesses can have access to. These pools can negotiate better rates (as a collective) vs individuals. 2009 will see a beginning with more impact to be observed in 2010.
- As a fallout of the credit crisis, access to credit for even credit worthy businesses became an issue. Businesses responded cutting back on expansion plans , downsizing staff and focusing on other ways to increase the cash flow. The loan-guarantee program backed 30% fewer small business loans in 2008 than it did the year before. Banks profit not only from the interest on the loans they give, but by bundling these loans in the form of 'asset backed securities' which are traded to investors. With the value of many 'asset backed securities' dropping last year, the demand for this instrument declined, with no secondary 'Asset Backed Securities' market the banks stopped making even primary loans. This year (2009) it is expected that TALF (Term Asset Backed Security Loan Facility) which is instituted by the federal reserve, aims to make TALF (loan) available to 'Asset Backed Security' buyers, with the hope of spurring demand for 'Asset Backed Securities'.
- Tax cuts as a means of stimulating spending. Though the tax cuts were to expire this year (revert to pre bush era), president Obama will hold off on raising the taxes, instead would give tax break on income (the earners share only and not extended to employer share).
- Layoffs & hiring. Last year small businesses were the last to layoff. Last year large firm announced massive layoffs and these are expected to continue this year as well. While small businesses did not initially lay off until October when the recession became worse. From a small business point of view, layoffs mean, letting go of family members, relatives and longer working hours for the people that are left in the job.
- Credit card. Last year as the credit crisis worsened, card companies began to reduce exposure limits and increase interest rates to very high levels. The federal agency stepped in with new regulations safeguarding the credit user against certain credit card company practices of increasing rates on existing balances and charging late fee without notice.
- Commodities and Oil. Oil was on a roller-coaster last year seeing highs and lows in extremes. Iron & steel saw a surge in price by up to 30% while food grains also saw increasing prices. During the year a sharp decline in prices of corn, coffee and non-precious metals was also seen. this year these fluctuations are expected to continue while oil is expected to stabilize to more sustainable levels (for oil co's). Dollar is expected to fall against the yen and euro this year, due to low interest rates and the extensive U.S. government borrowing that will be necessary to cover the costs of the 2008 bailout packages. For companies that do business overseas, a falling dollar leads to increase in costs, and thus the price of raw materials in the U.S. tends to move opposite the direction of the dollar, which means more price hikes may be looming for commodities.
- The share of the dollar. Reduced credit availability (both consumer and institutional) and rising unemployment concerns, led to curtailed spending. So it may seem that Americans are for the first time saving & not taking more debt. Consequently holiday retail sales took a major hit as spending reduced. This year the story would continue and consequently we would see a large number of businesses (retail) shutting down, the ripple effect will impact store suppliers and also impact small businesses adversely.
