Small Businesses Face Uphill Battle in New Political Climate

Small businesses are feeling the pinch just one month into the new administration. The changes have been swift and significant, with funding freezes, tariffs, and a crackdown on diversity efforts. These changes have left many small business owners scrambling to adapt. David Funk, the founder of Zero Emissions Northwest, a consultancy based in Spokane, Washington, was taken aback when his $65, 000 invoice was rejected by the U. S. Department of Agriculture. The reason? A halt on projects funded through the Inflation Reduction Act due to Trump’s “Unleashing American Energy” order. This has led to job losses, canceled projects, and more job losses. Funk had to furlough all three of his employees. Many of his clients are now stuck with equipment they can’t finance on their own. Funk noted that some of his clients, who voted for Trump, are now realizing the direct impact of these policies on their businesses. Shaundell Newsome, the founder of Sumnu Marketing in Las Vegas, is also feeling the uncertainty. His agency’s internships, which are sustained by a Labor Department grant, could be on the chopping block. Newsome is still planning to make his next hire in March, but he’s concerned about funding for the rest of the year, including a summer program for high schoolers. He shared that there is a lot of confusion about what’s real and what’s not real about the federal directives. If the funding doesn’t come through, he’ll have to make tough business decisions. Both Funk and Newsome share a sense of urgency. Not getting paid due to a canceled contract or a paused contract has the same result: they’re not getting paid. While small businesses remain optimistic about the future, the National Federation of Independent Business’s latest survey found that uncertainty has hit its third-highest level on record. Many businesses are curtailing plans to invest, wary of tapping into cash reserves should economic conditions deteriorate. Meanwhile, major tech firms are personally courting the president’s favor, hoping for deeper tax cuts and deregulation. But small businesses, which employ nearly half the U. S. workforce and account for over 43% of economic output, typically have less lobbying clout or margin to adapt to federal policy swings. Richard Trent, executive director of Main Street Alliance, a coalition of more than 30, 000 small businesses, criticized the “oligarchic acolytes” who he said appeared to be in Trump’s “inner circle” and called for a more “nuanced conversation where everyone’s included. ” The current administration’s business-friendly reputation was a leading factor in its return to power. During the first three years of the Biden administration, the U. S. averaged 443, 302 monthly business applications, compared with 282, 362 in the equivalent period of Trump’s first term. Many entrepreneurs recall the current president’s earlier time in office favorably. The NFIB’s optimism index soared at the time, buoyed in part by Trump’s tax cuts, and interest rates and inflation both remained historically low until the pandemic hit. Some small-business owners are taking steps to insulate themselves from the potential negative impacts of recent White House efforts. Beatrice Barba, owner of Tabor Place, an e-commerce line of children’s goods in the San Francisco Bay Area, is looking to purchase $200, 000 worth of her regular inventory ahead of Trump’s promised tariff. But in recent weeks, she has opted to gamble on less cash-intensive measures. She’s reduced the order to $100, 000 to avoid having the products sit idle for too long, and while some of her other items need to be restocked — at an expected $50, 000 cost — she’s holding off for now. Barba said she suspects Trump’s 10% additional tariffs on China could change or go away in trade negotiations. Barba said there are ways the administration could help small businesses directly, such as by offering loans to build more U. S. factories so companies like hers could rely less on components made overseas. She’d also like to see tariff exemptions for employers of fewer than 50 people. The full effects of Trump’s economic policies remain to be seen. In a note to clients this month, JPMorgan analysts posed the question, “Is this a business friendly administration? ” They highlighted the potential economic drag created by abrupt, sweeping changes to U. S. policy, including mass deportations that the White House is looking to ramp up. The impact of moves like these could be magnified “through a tightening in labor markets that constrains Fed easing, ” they said, flagging the risk that more uncertainty could delay interest rate cuts. The longer steep borrowing costs persist, the more Main Street entrepreneurs could suffer a disproportionate squeeze, said Joe Seydl, senior markets economist at J. P. Morgan Private Bank. Small businesses tend to be more leveraged than larger businesses. They tend to borrow more at the short end of the yield curve, rather than the long end, and they tend to have significantly less cash holdings. Corrine Hendrickson, owner of a day care center in New Glarus, Wisconsin, said she has “an extra layer of concern because I don’t have access to capital. ” She began scrambling upon learning of last month’s funding freeze, unsure if she could sustain her business without the Child Care and Development Block Grant that subsidizes care for a number of her clients. Hendrickson said the subsidies resumed on Feb. 1, soon after the White House lifted its funding freeze following a court ruling that halted it. But she’s nervously watching as Republicans pursue deep spending cuts to accommodate Trump’s agenda, with one proposal calling for potential cuts to the Supplemental Nutrition Assistance Program that helps fund the healthy meals Hendricks provides. Hendrickson said she’s also worried that the child care grant itself, which is run through the Department of Health and Human Services, could be on the chopping block. Hours after his confirmation as head of the department this week, HHS Secretary Robert F. Kennedy Jr. hinted at firings in a televised interview. An HHS representative said in an email that “there are no current cuts, pauses, or disruptions to the Child Care and Development Block Grant. ” Still, Hendrickson said she’s wondering, “Do I continue to do this, or do I look for a different job? ” She added: “It really just makes me nervous that I will be able to maintain my program and my business, and my life’s work. ”

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