Economists mostly agree that a U.S. default on its debt would be catastrophic for the global economy. But even if congressional leaders agree on a short-term fix—such as raising the debt ceiling for a few months while they hash out another plan—small-business owners will still take a hit.
Several business owners testified to the Senate Committee on Small Business and Entrepreneurship on Tuesday. They agreed that a temporary solution only raises the specter of another debt-ceiling crisis early next year—meaning economic uncertainty will remain, hurting consumer confidence over the crucial holiday-shopping season.
“Confidence is going to go away, and what has become a really energized recovery is going to stall, Charles Withee, president of Amesbury, Massachusetts-based The Provident Bank told the committee. “This is a manufactured problem, and that’s too bad. I’d like to see it end.”
A short-term fix would likely still cause interest rates to rise because foreign borrowers will be less confident in the United States’ ability to pay off its debt. That means small-business owners will have to spend more to pay off their loans, said Ronald Paul, CEO of Bethesda, Maryland-based EagleBank. Even a one percentage point increase in a small-business loan’s interest rate could mean tend of thousands of extra dollars in annual payments for some businesses, and could lead to less hiring or even layoffs.
"Consumer confidence is going to drop,” Paul said. “Value of homes is going down.” Home values matter to small-business owners, he added. because homes can be used as collateral for business loans.
Keith Griffall, CEO of Western Leisure, a Salt Lake City tour operator, said a temporary solution rather than a long-term one would also affect the travel industry and his business. Foreign and U.S. tourists would be hesitant to make travel plans if they worry the U.S. could be nearing another financial crisis or that another government shutdown may be right around the corner. They "will not trust making long-term travel plans when they can't be sure that this type of shutdown won't happen again in the near future," he said. "We need to assure everybody that this is something that isn't going to continue."