The current Capitol slug festival is more than just a rowdy headline, it could quickly impact Main Street if left unresolved.
For many US consumers, raising the debt ceiling is usually just one piece of legislation passed. But in a sign that we are living in unusual times, the US government is now facing the default of the Congressional Budget Office (CBO). Estimate It could arrive as early as June 1st.
This update from the CBO’s last July forecast comes under the following circumstances: report Written by The Wall Street Journal And other news outlets argue that any solution is far from secure. While there have been grumblings and skirmishes in Congress over raising the debt ceiling in the past, such measures have historically been passed, requiring the Treasury Department to seek limited, “temporary” measures. Therefore, these discussions typically have less impact on small and medium-sized businesses (SMBs).
However, there are no such guarantees as this is not a normal situation. The White House outlined What could be the implications for businesses of all sizes if the cap is hit and the government is unable to service its debt? SMEs typically face higher lending risks, and higher interest rates can reduce borrowing capacity as financial institution (FI) loan extension costs increase.
A debt ceiling could sway global markets as countries could reconsider investments in the event of a debt default, and lead to a long-term decline in consumer confidence.This can lead to even more dismissal and further economic contractionturning recession fears into reality.
Hints about how debt ceilings have been reached and the resulting defaults could further impact small businesses are detailed in our work with PYMNTS and Enigma.Main Street Health Q1 2023It exemplifies the reliance of Main Street small businesses on credit in managing cash flow shortfalls.
Rising interest rates on default could be particularly relevant for more than half of small businesses that rely on credit and other loans, including personal mortgages, to keep their businesses afloat.credit already done depletion triggered by Collapse Silicon Valley Bank, etc. local bank Nine percent of small businesses reported having more trouble securing their last loan than they had last time. So the debate about extending the debt ceiling could not come at a worse time for small businesses seeking loans.
There are several alternative sources of financing for SMEs that could soften the blow of lending in the event of default. Buy now, pay later A platform intended only for business. In addition, the Small Business Administration recently lifted a moratorium on the approval of new small business lending companies, including allowing certain nonprofits to make loans.
There is no crystal ball in deciphering the debt ceiling debate, and negotiations could very well continue into the 11th hour. But if a government defaults, companies of all sizes could have to prepare for a serious credit crunch.