Small Businesses Don’t Care About Debt Limit Politics; They Want to Avoid Financial Uncertainty

Small Business Majority
4 min read6 days ago


By John Arensmeyer, Founder & CEO, Small Business Majority

We all know that the pandemic significantly impacted small businesses. More than three years later, small businesses remain optimistic and are slowly working to recover and return to pre-pandemic business operations. But the looming threat of the government defaulting on its debt has re-engaged uncertainty and stifled plans for expansion.

The recent banking turmoil, accompanied by rising interest rates, has also created an environment of worry for smaller businesses already struggling to obtain equitable access to capital. Our survey has found that more than one in three small businesses in our network reported that their financial institution indicated it was planning to restrict lending due to developments in the banking industry. If our nation defaults on its debt, loans–including loans from the Small Business Administration–might become more expensive and harder to access as private lenders will be forced to increase their interest rates and tighten lending. Small businesses are already working from shoestring budgets and small revenues: they should not be forced to pay higher interest with the least amount of income. Capital is the lifeblood of a small business, but a default creates pain points for entrepreneurs like Pallavi Pande, owner/founder of DTOCS LLC in Portland, Ore., who thrives on stability to plan and forecast.

Small Businesses Share Concerns with Recent Banking Closures, Access to Capital Challenges (SBM survey, 2023)

If the debt ceiling is not raised, in the first month alone, the federal government would be forced to cut spending by $125 billion, according to a new report from the U.S. Senate Committee on Small Business & Entrepreneurship. Unfortunately, history shows that during times of financial crises funding for critical small business programs are often the first to be cut. This is scary for the millions of entrepreneurs who rely on a number of these federal programs as a resource for growing and expanding their business.

A default could have fast-cascading consequences for small businesses that depend on government contracts. An estimated 40% of the government’s operations could be impacted if the debt limit is breached. Also, it would almost certainly undermine their ability to pay employees on time. This is déjà vu for small business owners like Small Business Majority Board Chair LaJuanna Russell, the founder and president of Business Management Associates, Inc. in Alexandria, Va. LaJuanna endured losing thousands of dollars during the 2019 government shutdown. While the shutdown was definitive and anticipated, it is still minor compared to what could happen if our government defaults on its debt.

Stopping payments to government contracts will also curb the spending of federal employees who are worried about their paychecks. These workers buy goods from local, small businesses and will be less inclined to do so if a default lasts longer than a few weeks. Owner of Shamrock Productions in Farmington, Minn., Chris Navratil, recounts how too many small businesses didn’t survive the pandemic because of diminishing customers who never returned. “It’s frustrating that Congress and the Administration can’t come together to avert the default,” said Chris. “If they can’t raise the debt limit for the U.S., then consumer confidence will go down, spending will come to a halt, and businesses will go under along with people being laid off from their current jobs.”

Furthermore, small business owners and consumers alike are hesitant to spend or contribute to benefits like retirement while the government remains deadlocked on increasing the debt limit. This is an even bigger challenge for minority and women small business owners who are likely to save less funds for retirement than their white counterparts. This community, which already faces challenges in building retirement options, could see the fastest loss in savings.

It is important to note that we shouldn’t just raise the debt limit now. Instead, we need to mitigate financial uncertainty for small businesses through substantial debt limit reform. Moreover, we must reject any legislative efforts that would undercut essential small business programs such as those seen in the “Limit, Save, Grow Act,” which includes cutting nearly $2 billion in funding for the State Small Business Credit Initiative and additional dollars for other essential capital programs.

Members of Congress are currently being irresponsible by allowing the game of debt ceiling brinkmanship to continue. Congress must consider a default’s impact on small businesses and quickly identify a path forward to finding an immediate solution that will drive long-term economic growth and reinvigorate small business confidence. More than 10 small business organizations have joined us in this ask. We urge Congress and the Administration to listen.



Small Business Majority

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