ICYMI: NBC News: "Small businesses brace for 'catastrophic' scenario from looming debt ceiling crisis"

Today, NBC News reported on small business owners like Rosemary Swierk, the president of Direct Steel and Construction, who are worried that a default could have "potentially catastrophic" effect of their businesses. "It could be the straw that breaks the camel's back… This level of uncertainty is very, very difficult to navigate and manage," said Swierk.

NBC News reports that "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." It also cites a small business survey that found "65% of small businesses believe they would be negatively affected by a default, and 77% said they were already concerned about being able to get loans."

Under the Biden-Harris Administration, nearly 12 million Americans have applied to start a new business. But House Republicans are threatening a catastrophic default that would hurt small business across the country and undo the historic economic progress we've made under the President's leadership.

President Biden has made clear that Congress must meet its basic constitutional responsibility to prevent default—just as it has done 78 times since 1960, including three times under the previous Administration.

Read the full story below:

NBC News: Small businesses brace for 'catastrophic' scenario from looming debt ceiling crisis
As small businesses fret, lawmakers in Washington are showing few signs of making progress toward a deal to raise the nation's debt ceiling.
[Shannon Pettypiece, 5/11/23]

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.

"It could be the straw that breaks the camel's back," said Swierk, whose company builds restaurants and office space to multimillion-dollar government buildings. "This level of uncertainty is very, very difficult to navigate and manage."

In the event Congress doesn't raise the nation's borrowing limit before the Treasury is projected to run out of money, as early as June 1, Swierk expects her company's government-funded projects to screech to a halt. Direct Steel's private-sector work would also be in jeopardy, as businesses would struggle to get loans and face surging interest rates for any money they would be able to borrow. At the same time, economists expect a default would tip the U.S. into a recession, causing consumers to pull back on their spending.

But while small businesses fret, lawmakers in Washington are showing few signs of making progress toward a deal to raise the nation's debt ceiling with less than a month until the Treasury Department says it will be at risk of running out of money to pay all its bills. President Joe Biden and congressional leaders met Tuesday in the Oval Office to discuss how to head off an impending default crisis.

Democrats and Republicans have been at a stalemate over raising the debt limit. Republicans say they are unwilling to raise it without significant spending cuts, which Democrats say shouldn't be linked to the U.S.'s ability to meet its financial obligations.

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.

That lack of lending would prevent some companies from covering short-term costs, like payroll, as well as force them to put longer-term expansion plans on hold, said Todd McCracken, the president of the National Small Business Association. Those whose revenues drop because of a government default would be less likely to be able to borrow money to stay afloat.

Businesses have already been struggling to borrow money after banks pulled back on lending following the collapse of Silicon Valley Bank and several other regional banks. A small-business survey released last week by Goldman Sachs found 65% of small businesses believe they would be negatively affected by a default, and 77% said they were already concerned about being able to get loans.

"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. In addition to that, they're also still dealing with inflation that continues to increase, and they're dealing with workforce challenges."

McCracken said he's advising business to hang on to their cash to weather a default and to consider taking out loans now while they still can in case they need the money and credit markets seize up in the coming weeks.

"What businesses should do is make sure they hang on to as much of their cash as possible and diversify where that cash is," he said.

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.