Poor Sales Hurt Small Businesses More Than Credit Woes

The Federal Reserve Bank of New York found that economic uncertainty and low sales contributed the most to small businesses laying off workers.

August 03, 2011

NEW YORK - Reduced access to credit hasn??t harmed small businesses as much as fewer sales and an uncertain economy, the Credit Union Times reports. The Federal Reserve Bank of New York found that small businesses suffered more during the 2007-09 recession from poor sales than from lack of access to credit.

According to the reserve??s report, "Why Small Businesses Were Hit Harder by the Recent Recession," positions dropped 10.4 percent at small businesses with less than 50 workers between December 2007 and December 2009, compared with 7.5 percent at bigger companies.

"Although tightened access to credit and adverse financial conditions also constrained small firms, a more pressing factor was the decline in new investment and associated financing brought on by low consumer demand for the firms?? products and services," the report??s authors wrote.

"Our examination of employment changes by firm size in each sector during the recession reveals that declines in small firms are larger than total sectoral percentage declines with the exception of manufacturing, which experienced a uniform impact across firm size," according to the report.

The Great Recession hurt more small businesses than larger companies, with 40 percent of the overall employment drop from small companies, compared with 10 percent during the recession of 2001.

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