Credit tightening, higher rates unlikely to impede small businesses

Small businesses don't directly compete for money in the world markets, but we are affected by interest rates: In the business-to-business sector, for example, many of our larger customers -- and suppliers -- are at the mercy of the money centers; in the consumer marketplace, who buys how much of what we're selling often is impacted by how consumers view interest rates.

That makes Diane Swonk's comments about the 2008 economy especially pertinent.

Swonk is chief economist and managing director at Mesirow Financial, a diversified Chicago-based financial services firm. With 2008 less than a month away, here are her thoughts on interest rates, the chance of a recession and the economy in general:

• "The economy looks better than it feels," Swonk says. It's like a relay race. Consumers are walking, which means the rest of us must "run harder to stay in the race."

More positively, Swonk expects "a fairly nice snapback -- if you can sludge through the mud of the first half" of 2008.

• "No recession," she says flatly. "The Fed will continue to ease. They don't want to, but they will."

Even so, "The turmoil will leave us battered. The good news is that the Fed will help us. The bad news is that we'll have to go through it."

• Interest rates probably are not a worry. "Small businesses haven't seen the credit tightening" that larger businesses are facing, Swonk says. "They don't play in that market."

On the other hand, Swonk notes, those "very small businesses that rely on home equity financing will find borrowing more difficult. You can't use your house as an ATM anymore."

Generally, though, small businesses are having an easier time borrowing money. The most recent Small Business Economic Trends Report from the National Federation of Independent Business notes that "credit conditions continue to look normal" on Main Street. Reports of a credit crunch do "not square up with reality for small business owners," the NFIB says.

• Swonk expects the dollar "to pick up a little" next year. In fact, she is "looking for a coordinated intervention" if the dollar continues to flail.

In the meantime, the weak dollar will continue to be a problem if you're into imports, but "If you're supplying to exporters, you're doing very well," Swonk says. Agriculture, oil and commodities are strong export sectors.

• Retail, where Swonk sees an "enormous bifurcation," is difficult. High-end retailers, including local art dealers and others who have an upscale niche, are doing "exceedingly well," she says. The middle tier is getting squeezed, with energy prices a big part of the reason.

• Property owners should look out for new local taxes. "Municipalities," Swonk warns, "are looking at raising real estate (tax) rates to make up for dollars lost to the housing slump."

© 2007, 121 Marketing Resources Inc.