The recent chaos in world stock markets caused by the effects of sub-prime lending in the US may seem a long way from the day-to-day issues affecting small business owners but if stock market jitters turn into a wider economic crisis it could be devastating for the small business community.
Share prices have recovered somewhat from the initial panic that saw virtually all of the gains in the first half of the year wiped out on the FTSE but markets remain volatile and disruption is expected for many months.
If it translates that banks around the world will be affected by the US sub-prime loan chaos – where higher risk mortgages are offered to people with high credit ratings and low wages and which are often then sold on to other financial institutions – businesses around the world can expect to see such companies far more reluctant to lend money.
That in turn can stifle investment, mergers and acquisitions and ultimately expansion, meaning small firms face scaling back growth plans and possible job cuts. If companies have less money, they do less business with other organisations and that eventually filters its way down to the small business owner.
Then there‘s the consumer side. Already hit by five interest rate rises in 12 months, any sign of job losses or slowdown in recruitment activity could further dampen spending on the high street, meaning firms relying on trade from customers, retailers or their suppliers could face tough times.
But there are reasons to remain optimistic, however. The stock markets have not gone into freefall and while share prices may slump for a while there remains confidence in the UK market.
The UK labour market is strong too. A recent survey by the CIPD revealed that 86% of companies intend to recruit staff this summer, although that was conducted before the recent turmoil on the markets.
And with this week‘s unexpected news showing inflation had fallen to 1.9% in July, hopes are growing that further interest rate rises may not be necessary and consumer spending will remain steady.
Small business owners would be best advised to carry on as normal, while ensuring they have enough cash to survive should the economy take a turn for the worst.
