3 Ways the Debt Ceiling Hits Small Business

NEW YORK ( TheStreet) -- The deadline for raising the debt ceiling is swiftly approaching, and while headway was made with Tuesday's so-called Gang of Six plan, created by a bipartisan group of six senators, most doubt the proposal will be passed as is.

The debt ceiling is the amount the U.S. government is allowed to borrow at any given time. It's capped at $14.3 trillion, a figure the U.S. has essentially reached. Congress needs to approve a raise to the debt ceiling by Aug. 2 or risk defaulting on debt, services and benefits for U.S. citizens.
As the deadline ticks nearer for a default on U.S. debt, small-business officials find cause for hope and alarm.

Such votes occur regularly, but this year Republicans have dug in on several underlying issues, alarming economists and rating agencies such as Moody's ( MCO) and Standard & Poor's as the deadline ticks nearer. Of course there are also reasons for small businesses to be concerned about the default.

"The consequences of that are what concerns our members -- the potential for higher taxes and how does that impact government services over the long haul? They want Washington to have some fiscal responsibility," says Bill Rys, tax counsel at the National Federation of Independent Business.

>>>Likely Debt Debate Result: Spending Cuts

Here are three ways the outcome of the debt ceiling debate could directly affect small businesses:

1. Getting a loan will be even tougher.
As if getting a bank loan isn't hard enough these days for small businesses, if the government places a large cap on spending or, in a worst-case scenario, the debt ceiling does not get raised, new loans will be even tougher.

"The bottom line is the raising the debt ceiling is as inevitable as taxes and death," says Jeff Stibel, CEO of Dun & Bradstreet Credibility.

If the debt ceiling doesn't get lifted, "this would be a cataclysmic even for small businesses," Stibel says. "What's going to happen is U.S. credit is going to get downgraded, which means access to credit is going to get much harder and interest rates are going to skyrocket."

To get a bank loan "will be harder and the terms would be so onerous that it just won't be palatable," he says.

Federal spending last year amounted to approximately 24% GDP -- a level not seen since World War II, the National Small Business Association says.

"If we continue to run high deficits, increased interest rates and constricted credit will negatively impact small businesses' ability to garner financing, the lifeblood of every small firm," it says.

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