“It could be the straw that breaks the camel’s back,” the president of Direct Steel and Construction says.
WASHINGTON — Over the past three years, Rosemary Swierk, the president of Direct Steel and Construction, has navigated Covid shutdowns, rising inflation, a spike in interest rates and worker shortages. Now, she’s facing a government default that she fears could have “potentially catastrophic” effects on her business.
The most direct consequence of a default for small businesses would most likely be a significant pullback in bank lending in the chaos expected in financial markets. Banks would be less willing to give businesses loans, and any loans they would issue would be at significantly higher interest rates, economists predict.
“There’s already a pretty significant credit crunch,” said Joe Wall, the national director of Goldman Sachs 10,000 Small Businesses Voices. “We’ve had interest rates rise, we’ve had a crisis spread throughout at least a handful of regional banks that has impacted lending to some extent, and the cumulative impact of that is obviously having a significant impact on the small-business community.
Some companies have also been considering whether to put off significant business decisions amid the uncertainty, which could have a ripple effect throughout the economy if companies pull back on hiring or expansion plans, he said. Small businesses would most likely be hit the hardest by a default, and they would be likely to feel the effects even before it occurred because of tightened lending from banks, said an official with the Small Business Administration. In 2011 when the U.S. last came close to a default, small businesses’ banks pulled back on their lending amid even the threat of a default and consumer confidence fell, the official said.
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