What the Debt Ceiling Extension Means for Small Business Owners

You may have heard the term "national debt ceiling" in years past, and if you’ve turned on the news at all in the past few months, you’ve definitely heard it. Although the national debt ceiling extension may feel like something far removed from the day-to-day operations of your business, it can significantly impact your daily operations.

So what exactly is the national debt ceiling and what does it mean for you and your business?

The national debt ceiling is a legal limit set on the amount of money the government can borrow to finance its operations and meet its financial obligations domestically and around the globe. When the government reaches this limit, it cannot borrow more money unless Congress raises or extends the debt ceiling. If the ceiling isn’t raised and the United States can’t pay back its debts, the US global creditworthiness is affected as well as financial security abroad and at home.

Congress raised the national debt ceiling on June 3, 2023, which means the US can borrow more money, and will not default on its loans. However, the extension can still affect the economy and your business.

Now that we know what the national debt ceiling extension is, let’s look at how it can affect you and your small business specifically.

Access to Credit and Loans

As a small business owner, you rely on credit and loans to keep your operations running smoothly, hire help, and manage the ebbs and flows of your cash flow. But when the national debt ceiling is extended, it can create uncertainty in the financial market that impacts your borrowing options.

In an uncertain market, lenders are less confident, which means they want more protection for their investments by raising interest rates. This also triggers tighter credit conditions which can make it harder for you to obtain affordable financing for your business.

Therefore, whether you currently need capital or not right now, you may want to consider applying for credit to lock in available credit now when interest rates are still relatively low, as capital could become harder to come by in the future, and more expensive.

Having ready access to capital is critical in the event that the economy turns recessionary, and you need to ride out a dip in sales for a while. Remember the number one rule to business success is to stay in the game! And access to credit can make all the difference during challenging times.

Lower Consumer Confidence and Spending

Your business thrives when consumers have confidence in the market - which means they’re more likely to spend their money. Any uncertainty surrounding the national debt ceiling can impact how consumers feel about their spending habits. When customers are worried about the government's ability to manage its debt, they tend to tighten their purse strings. This, coupled with increased interest rates and current nationwide inflation, can result in reduced sales and revenue for your small business, affecting your bottom line.

When revenue is low or unpredictable it can be even harder to plan investments for your business, like hiring help, expanding your space, or signing service contracts.

However, you don’t have to follow suit. If you know you have a valuable service or product that will make it through national or global economic storms, you can use economic slow downs as the time to double down, and pick up great team members who otherwise would be off the market, and use slower times to build systems for when business picks back up. Remember, it’s all cyclical, and what goes down will go up again, and you want to use slower times to prepare.

Government Contracts and Spending

In 2022, the federal government contracted with over 60,000 small businesses. If your small business has contracts or partnerships with the federal government, the extension of the national debt ceiling might affect you even more.

Due to the debt ceiling extension and higher rates of inflation, government agencies may impose budget cuts or delay payments to contractors, impacting your cash flow. This can force you to make difficult decisions like cutting costs, reducing staff, or delaying payments to suppliers.

If you’re affected by cuts in government contracts, give me a call. We can discuss options to pivot your business and keep you moving forward while wisely managing your business’ cash flow.

Tax and Fiscal Policy

Changes in tax and fiscal policy can directly impact you as a small business owner. As the government seeks ways to manage the national debt, it may consider altering tax rates, deductions, or credits. I’ll keep you informed about tax and fiscal policy changes that may affect you, so keep reading these newsletters.

Ongoing Guidance for Your Business

We understand that being a small business owner means facing countless hurdles and uncertainties every single day, and keeping abreast of changes in the law and understanding how they affect you can be overwhelming.

But rest assured that you are not alone in your business journey. Our focus is to provide support and guidance as you navigate the complexities of being a business owner - from changes in the legal landscape to overcoming limiting beliefs that can hold you back.

Our goal is to equip you with the knowledge and awareness you need to make informed decisions that grow your business and bring you closer to your ideal work-life balance.

To receive personalized guidance for your business, give us a call. We’d love to show you the difference it makes when you have a business attorney as an ongoing part of your team.

Click the link to schedule your free 15-minute call.

--

This article is a service of Savone Law, PC. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices with your business throughout life and in the event of your death. We also offer a Business Review Session, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

The content is believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.