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As Inflation Spikes, We Need to Help Small Businesses Survive

Thomson Nguyen by Thomson Nguyen
June 17, 2022
in Industry Opinions, Small Business
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As Inflation Spikes, We Need to Help Small Businesses Survive

As Inflation Spikes, We Need to Help Small Businesses Survive

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The worsening state of inflation is the top concern of many small businesses across the United States. With no signs of letting up any time soon, inflationary pressures are starting to set in, and business and banking leaders are taking notice.

In an Economic News Release by the U.S. Bureau of Labor Statistics, the Consumer Price Index rose 8.5% for the 12 months ending in March—the highest 12-month increase since the period ending in December of 1981. Paired with Federal Reserve Chair Jerome Powell’s comments on interest rate hikes coming in as soon as this month, concerns around inflation and supply chains have only intensified.

What Does Inflation Mean for Small Businesses?

Small business owners today are looking closely at their expenses as they navigate higher inflation, supply chain shortages, and labor issues—a triple threat for even the most profitable of businesses. These issues pose a massive threat to the security of their companies in the US economy. The prices of both materials and labor are rising rapidly because of shortages and strong demand, causing businesses and organizations to raise prices and pad their bottom lines. Suppose a company refrains from raising prices; then it will see its profitability suffer compared to others in its industry, even if it gains sales.

Bottom line: small business owners can either see their margins shrink and start losing money, or they can raise prices to offset those higher costs.

But will hiking their own prices result in consumers looking elsewhere for their goods and services? Maybe initially. Front-loading rate hikes will have an impact on consumer sentiment, but across macroeconomic cycles, people continue to rely on small businesses for essential goods and services.

So, will raising prices solve the issue? No. It is only part of the solution. While raising prices is a necessary reaction to inflation, businesses will still need more capital upfront in order to cover business expenses and operational costs as they make these price adjustments to manage inflation hikes. This is partially because wages will need to increase in tandem with cost of living, and partially because the inflation spikes that affect businesses also affect the goods and materials those businesses need to purchase in order to create or cultivate their product lines. Inflation is sending the age-old dynamic of needing to spend money to make money into extremes.

The amount that needs to be spent in order to make money is raising along with inflation, making it harder and harder for business owners to keep up with their business expenses. Now more than ever, businesses must have access to stable and ongoing financing to stay afloat and on an upward trajectory.

The History of Inflation Hikes and How Not to Repeat It

This is not the first time massive hikes in inflation have caused businesses to struggle. In the early 1980s, this country saw 4 million Americans lose their jobs as businesses crumbled during back-to-back recessions that happened in tandem with massive inflation hikes. Inflation—and the challenges it causes—is not new, but the few safeguards that have been put in place to circumvent the dire outcomes of inflation are not enough.

We live in an economy that is dependent on small businesses and entrepreneurs, and it is vital that our 60 million freelancers, small businesses, and up-and-coming entrepreneurs have access to capital. As noted, one has to spend money to make money, and as inflation rises, we need to move quickly to democratize banking and ensure that everyone has access to the upfront funds that they need to grow. Otherwise, we risk repeating history.

The good news is that financial experts indicate that inflation will slow during the latter half of 2022 as the Federal Reserve raises interest rates and takes other steps to fight it. Although these fiscal policy changes are made to impact broader macroeconomic trends, these changes do ultimately affect small businesses. It is our hope that as inflation rates reduce, those small businesses and entrepreneurs that we help survive through these challenging times will thrive moving into 2023.

Tags: Federal ReserveinflationSmall Business
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