How Budget Cuts Might Affect Small Businesses
Q. How will small businesses be affected?
A. In several ways. First, companies that have contracts with the government may lose business because agencies may cut all or parts of some programs. Or they may delay some work.
There's also likely to be an impact on small businesses that don't have contracts, but that do business with contractors. Some of these small businesses are subcontractors. Others are suppliers who can lose business if contractors and subcontractors pare their expenses. An example: Corporate caterers are likely to get fewer bookings for parties.
If people who work for the government or federal contractors lose their jobs or are furloughed, companies that target consumers â¿¿ retailers, restaurants and service providers like hairdressers â¿¿ can be hurt.A study by researchers at George Mason University and the economic forecasting firm Chmura Economics and Analytics estimated that small businesses across the country would lose more than 950,000 jobs as a result of the budget cuts. More than 157,000 of those job losses would come from federal contractors, with the rest from subcontractors and companies that cater to contractors and their employees. The university is located in northern Virginia, near the nation's capital and home to many government contractors. The study was led by George Mason professor Stephen Fuller, who has studied the impact of public policy on the local economy. It's not known how many small businesses would be hurt, or how much revenue they would lose. The Small Business Administration says that there are about 130,000 small companies that have federal contracts. Q. Which small business contractors are most vulnerable? And where are they located? A. It's too soon to know which companies will suffer cuts in their contracts because government agencies are still trying to determine how much their programs and contracts will be cut. But small businesses that are primary contractors or subcontractors with the Pentagon are expected to be at risk. The law calls for the Pentagon's budget to be cut 8 percent and domestic agencies' budgets to be cut 5 percent. The Defense Department has by far the greatest number of contracts, with $360.9 billion in primary contracts in the fiscal year that ended Sept. 30. In the previous fiscal year, small businesses were awarded nearly 20 percent of primary defense contracts, according to the most recent information available from the Small Business Administration.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts