The big business news last week was obviously the S&P’s downgrade of the US credit rating. We thought we’d start our Monday morning off with a review of some of the most interesting insights we found last week from business writers on how the downgrade is likely to affect your small business.
- Does Standard & Poor’s Deserve a Downgrade? (Harvard Business Review). Is the future for small business all doom and gloom as the result of the downgrade? Not necessarily so, says Jeff Stibel, our CEO. In Stibel’s opinion, rating agencies are merely guides to the health of an entity not necessarily a “hard and fast rule.” S&P has a history of making glaring missteps in the past, including giving high ratings to subprime securities that helped instigate the recent financial meltdown, and we shouldn’t necessarily look at them to define our future. The US still has strong fundamentals, remaining the largest economy in the world. The downgrade does highlight the reality that the US needs to curtail its debts. But probably just as damaging to our economy is to lose faith in our ability to recover and prosper in the future.
- The Impact of the S&B U.S. Credit Downgrade on Small Businesses (Business Insider). An expert in small business lending, Rohit Arora, CEO of Biz2Credit, believes that the US government’s ability to expand the economy will decline even more as a result of the downgrade and cuts in federal spending. He foresees slow job growth, a decline in consumer demand, and increased globalization, which will lead to a stagnant economy. Interest rates will go up, increasing the cost of borrowing. A weak dollar will increase the cost of oil and commodities. In order to survive this economic climate, small businesses will need to become more efficient, lean and competitive.
- S&P downgrades U.S. debt for the first time in history (Houston Chronicle). Loren Steffy, the business columnist for the Houston Chronicle, notes that the downgrade could have a long lasting effect on interest rates and continue to fluster the market in the short-term. There could also be a real negative impact on treasuries which could hit consumers’ debt, including mortgages and student loans. If that happens, consumers may stop spending which would further the economic decline. An important aspect as to how to how the downgrade will affect the health of the economy will be how the public perceives the country’s financial health.
- Downgrade Fallout? (Small Business & Entrepreneurial Council). According to Raymond J. Keating, chief economist for the Small Business and Entrepreneurship Council, the downgrade highlights not only the ever-increasing debt US is holding but also, and even more importantly, how stagnant the US economy has become. To fix the health of the US economy, a healthy job growth is needed as well as incentives for investors and business owners so that they can take risks on future projects. To help that come to fruition, Keating believes in tax cuts and reform, free trade and a cap on federal spending.
- Silicon Valley VC Tim Draper: “U.S. just dropped a notch” (VentureBeat). In Silicon Valley, views on how the downgrade will affect business lending and investing differ from one analyst to the next. Some analysts believe that if personal wealth of some angels are affected by the market downturn, then they will be less inclined to fund startups, at least in the next coming weeks. Some analysts have a rosier view, they believe the Silicon Valley is somewhat insulated from the rest of the country and is in a healthier economic state, allowing them to weather a shaky market for a couple of months. These analysts believe there will be some instability in the next coming months as consumers and investors react to a volatile market. But in the long-run, there will be little change to the status quo.
- Nervously Watching as the Economy Churns (New York Times). The New York Times surveyed a few small business owners to get their take on the downgrade. Some owners were uncertain about how consumers will react to the shaky market coupled with the downgrade. Even with high sales and profits, owners are reluctant to hire new employees or expand for fear that consumers may suddenly stop spending. They are willing to sit still for a short while and see how the economy plays out. Other owners have decided to go on about their business without any changes to their plans. Freelance entrepreneurs, however, are now fearful that their customers will back off on spending and they may soon be hitting the unemployment line.
- Bras, batteries and Bachmann:S&P downgrade is ripe for jokes. And to add some humor to the subject, the Los Angeles Times included an editorial piece highlighting how everyday Americans, comedians and Twitter users responded in their own unique way about S&P’s US credit rating downgrade. While Jon Stewart and Jay Leno pulled out witty one-liners about the S&P, one Twitter user offered his own take with the tweet “S&P downgrades Michele Bachmann to Sarah Palin.” One fired up broker hired a plane to fly across Manhattan with a banner that said, “Thanks for the downgrade. You should all be fired.”
[CC photo thanks to b00nj]