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Four Things That Scare Small Businesses This Halloween

By News Creatives Authors , in Small Business , at October 30, 2021

While the worst of the economic nightmare caused by the COVID-19 pandemic are past us and the economy has rebounded, there are still major economic concerns for small businesses. As Halloween is here and just two more months remain in 2021, now is a good time at what’s scaring small business owners.

High Gas prices

The average price of gas in October 2021 has risen to $3.38 per gallon, about $1.14 more per gallon than in October 2020. Rising gas prices impact the economy in many ways. What happens when gas prices go up? Often, consumer spending falls. Higher gas prices means that consumers have less money in their pockets to spend. For instance, a commuter will typically use the same amount of gas each week to get to work, regardless of price. Naturally, there will be less money to spend when people are paying more money for the same amount of gasoline usage. As fear of inflation grows, some people may cut back on their spending on other goods ands services, which can negatively affect small businesses.

On a macro level, oil price increases are generally thought to increase inflation and reduce economic growth. Higher transportation costs tend to increase the costs of distributing items. Small business owners, including moving companies and shipping firms, are hurt when gasoline prices go up, and in 2021, gas prices have risen significantly. Further, small companies that have vendors and suppliers that routinely deliver goods or services necessary for daily operations will see their cost of goods sold increase.

Supply Chain Disruptions

According to a New York Times report, “How the Supply Chain Broke, and Why It Won’t Be Fixed Anytime Soon,” many products are in short supply. The disruptions go back to the early stages of the pandemic. Many of the world’s manufacturing is done in China, Taiwan and Korea, which faced slowdowns in production when workers missed time because they were sick or were prevented from going to work. Likewise, shipping companies cut their schedules as they anticipated a global drop in demand. They were wrong.

As Americans worked from home or collected generous unemployment benefits, they shopped in record numbers online. Small businesses that were unprepared for these developments and did not have online ordering and delivery capabilities lost ground to online retailers like Amazon. Complicating matters is the stark reality that there is a shortage of shipping containers and in the waters off California, millions of consumer products are sitting outside U.S. ports. Retailers can’t make money if they don’t have merchandise to sell.

Unfortunately, there is no way to predict how long the supply chain disruption will remain. It could indeed last into next year… or perhaps longer.  

Labor Shortages

Finding adequate workers was a problem before the pandemic hit. The economy was at or near full employment for much of the Trump Presidency. The labor shortage has only gotten worse. Many companies, particularly restaurants, have closed because they cannot find employees. Generous unemployment benefits provided disincentive to go back to work when they could make just as much money (and sometimes more money) just by staying home.

The free time that people had on their hands gave them plenty of opportunity to reevaluate their lives and reconsider whether or not they would work as hard as they did before. Some workers in the economy are reevaluating their work-life balance, as well as their financial situations. Thus, it is now harder than ever to find low skilled residents. This is a frightening prospect for many small businesses.

According to Economist Lawrence Summers, “The Biden administration’s juiced-up unemployment benefits have created a record labor shortage…If we give people more money for not working…then they’re going to stay on the sidelines.”

To address this issue, small business owners have no choice other than to offer higher wages to attract workers. This leaves entrepreneurs with a choice: raise prices to offset the higher labor costs and risk losing sales or cutting into their own pockets by eating the increased costs themselves.

Challenges Securing Capital

Capital is vital to the growth of small businesses. Now that the government’s Paycheck Protection Program (PPP) is over, business owners can no longer expect “forgivable loans” that ultimately did not have to be repaid. The approval rates of small business loan requests has dropped at big banks. In September, just 14% of loan applications were approved at big banks. This represents a drop of almost 50% from pre-pandemic highs at the largest lending institutions. Last month, small banks approved 19.5% of loan requests, a far cry from February 2020, when more than half of requests were granted.

Related: With PPP Ended, Small Business Must Look For Other Sources of Funding

Fortunately for small businesses, the SBA is looking to ramp up its other lending programs. Further, smaller banks are becoming more active in small business lending because they are partnering with FinTech firms to enable online loan applications and digital processing. Technology continues to be a great equalizer in many sectors of the economy, particularly in small business finance. Technological advances enable transactions to be processed quickly, efficiently, and securely, which helps both borrowers and small business lenders.

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