In America, SMEs are in crisis

When you think of America you get a sense of grandeur. Even from a business perspective. But no Apple, Amazon, Meta, General Motors or Microsoft: half of US employment is made up of small and medium-sized businesses. Despite the central bank’s recent interventions, it’s not looking good.

Government liquidity that helped support many small businesses through the ups and downs of recent years has dried up. US SMEs have run out of pandemic bailout funds, and deferred loan payments are now due.

“It’s the perfect storm,” said Ami Kassar, CEO of Multifunding, a consulting firm on loans to small and medium-sized businesses, without much optimism. “Companies are growing fast and demand is stagnating. It looks like another pandemic, but this time it’s economic.”

According to Kasser, 20% of US SMEs face a severe cash flow crunch that they cannot afford. This meant that hundreds of companies had to close or declare bankruptcy. Although inflation is slowing, labor costs are still high. And interest rates will have to fall further before they make a tangible difference to the cost of borrowing. Meanwhile, sales are firming as consumers cut back on their discretionary spending following the post-Covid upsurge, reducing business owners’ profits.

During the health emergency, US entrepreneurs have shown initiative and resourcefulness, but their financial problems could represent a risk of recession if a significant number of SMEs close or increase the number of layoffs in order to survive. Along with the consequences for corporates (yes in this case) “the layoffs of small businesses can spread to medium-sized companies and create a cascading effect from there,” underlined economist Ryan Sweet of Oxford Economics.

An example: Coventry Creations, an SME that sells candles, oils and rejuvenating sprays, saw an 85% increase in sales in Ferndale, Michigan in 2021, amid the pandemic, thanks to federal subsidies and savings set aside by Americans. Paralysis. The dramatic increase in demand led the company to hire 13 more people to add to its existing 17 employees. But in 2023, revenue is down 30% compared to two years ago. It’s evidence that Americans, struggling with inflation and their bank accounts now drained, have moved toward more essential and less discretionary purchases.

Discipline: Coventry Creations has closed most of its stores, has debts of 600 thousand euros and is behind on payments to suppliers and other creditors. “My husband and I stopped eating out, going to the movies and taking vacations,” said Jackie Smith, owner of the business. “It’s a constant vigilance to make sure we don’t fall.” Not all companies in America are so enlightened.