There has been a significant amount of discussion over the bailout in recent weeks. Many people wonder what it will mean for the economy, and especially what it will mean for businesses (specifically, the small businesses). The fact remains that while the bailout, in theory, should help to keep financial markets stable (and it seems it’s having a tough time doing that), the fact that the government will now have stake in huge lending institutions is not good news for many business owners. With this in mind, I’ve come up with several reasons why the bailout will hurt your business.

1. Taxes – Yes, the government has said that the bailout won’t raise taxes on the middle class, but I haven’t seen ANY mention of businesses in their discussion. If the government is going to take an even more active role in the US economy, and businesses specifically, then the money is going to have to come from somewhere. Obama has even stated that he plans on taxing the wealthy, which could have an effect on the big CEOs and corporations. Small businesses should remain relatively safe from any tax hikes as a result of this bailout, but you never know.

2. Consumer confidence – It seems that even though the bailout was passed, consumer confidence has been shaken to the core. If your business deals in any luxury service, or any type of non-essential product, then you could see your profit margins start to shrink. In tough economic times, it is a fact that across all socio-economic classes, spending is severely cut back. This bailout, while trying to avoid this fate, seems to have exacerbated the problem because of many person’s uncertainty in regards to government holding stake in financial institutions.

3. Stock market woes – If you’ve had a pulse the last few days, or been living anywhere with a radio or TV, then you know the stock market has been falling like crazy. This hasn’t been in direct response to the bailout (although it was when the bailout was defeated the first time it was voted on in congress), but it has been showing that either the bailout is completely ineffective, or it just made things worse. Essentially, I believe it’s a mix of both. The bailout is, in effect, the governments “OH NO,” panic button response to impending financial crisis. As a result of the government panicking, investors, consumers, and other lenders are panicking. The stock market lowering significantly has affected many businesses, not to mention the other issues brought about by a frightened market.

4. Government influence – We have started to abandon traditional American, laissez-faire, economic policies. While this could be either positive, negative, or a mix of both, remains to be seen. The fact remains, however, that there are definite downsides to increased government involvement in traditionally free markets. If the government is now holding stake in financial lending institutions, does it not mean that when a small business, or any business, goes for a loan that the government has to evaluate them? It’s not hard to argue that the government’s ideas for what is a reasonable loan, or a reasonable business may differ from those of traditional banks. This could result in more difficulties for businesses in certain industries.

5. Increased legislation – Spring-boarding off of government involvement, there will no doubt be increased legislation about all things financial. Many believe that the bailout is merely the tip of the iceberg in terms of a governmental overhaul of the way banks and markets function within the US. The government could pass legislation that, in effect, will place more stringent requirements on loans. While this is good, because look what happens when there is very little regulation, it could also be very bad. Many start-up businesses are extremely high-risk ventures. However, these ventures also have high returns and are often some of the best success stories. Imagine if Google needed a loan to start their business and was unable to get one. That would certainly be one less extremely successful American business in the market.

6. Political upheaval – This bailout has been the cause of a significant amount of unrest among ordinary citizens. One of my friends works for a senator and had to listen to hundreds and hundreds of calls from constituents who opposed the bailout idea. Since it has passed, there are several politicians who will be up for re-election and may see their poll numbers drop as a result of how they voted. In essence, the bailout has set the stage for a variety of other candidates to have a better chance for election simply because of citizen displeasure with the bailout. What this means for your business is that there will be new politicians, who may have different goals for the community, coming into office. This, again, could be positive or negative in terms of business outcome. However, there’s no denying that any time there’s a political shake-up, some business will always get the short end of the stick.

7. Fewer research dollars available – Businesses that are based on grants and investors are sure to be hit hard by this bailout. The government has just taken on a 700 Billion Dollar money sink, and will now have significantly less money to offer out to businesses researching alternative fuels, new technologies, educational practices, or any other type of area that requires significant financial backing. As investors have become much more cautious, traditional funding may be scaled back significantly. Once again, while the bailout has not specifically made these lending issues, it has done nothing to build confidence.

8. The presidential race – There is no doubt that the bailout, and tough economic times have had an enormous impact on the presidential race. Depending on your opinions, this could be extremely negative. While many business owners do believe in Obama, others feel more comfortable with McCain. Essentially, if you are a fan of McCain’s policies, then the bailout will certainly hurt you because it has effectively given Obama his lead in several key swing states. Without sounding like a broken record, it remains to be seen if this presidential race will yield an extremely positive change for the country, or a negative change for the country.

9. Wage issues – I noticed this past summer when gas prices where climbing ever higher, how it affected every aspect of business. My friend’s maid had to ask for more money per week because the gas prices were straining her ability to make the same amount of profit running her private service. In this same way, with these tough economic times, the government now holding stake in financial institutions more so than ever before, and the difficulty of obtaining loans, you may be faced with employees and potential applicants who simply want to be paid more. Increased wages, when coupled with any business that may be struggling, can do nothing but hurt profit margins. Wage issues often lead to job losses.

10. The credit crunch – The bailout itself didn’t cause the credit crunch, but it hasn’t really helped anything either. The fact remains that anything you want to do within your business will be significantly more difficult if you don’t have the funds up front to support it. If trends continue, a lot of businesses (both small, and large corporations) will see profits dwindle, and will have significant issues expanding without any capital to do so.

The Future (It’s Not All Bad)

This has been a mostly negative post, but there is hope for the future. In recent years, all we seem to hear about is potential economic recession. However, historically, we have had fewer ACTUAL recessions in the last twenty years than back in before the 1980s. The bailout still has time to prove to be the correct decision. Stock markets can certainly rebound, and there’s always hope of great business success stories like Facebook and Google. Hopefully, investors and lenders have learned their lesson about ventures that are too risky, without being completely afraid of ever taking a chance on anything. The best way to prepare your business is to think about your customers. While luxury goods will become less demanded, the essentials will still be needed, but at better prices. Companies like Wal-Mart shine in tough economic times. It should be the goal of many business owners to come up with great ideas on how to capture some of that market. America was founded on the backs of freethinkers and entrepreneurs. I see no reason why America won’t continue to prosper as long as those people exist in business.
 

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