Silver Linings in Recessionary Clouds
March 1, 2009
When customer traffic is slow, money tight, and tales of doom and gloom abound, focus on the good things that are happening during this tough economy. Yes, there are some positive aspects to difficult times that can help your business survive and grow.
Money is tight, but if you can qualify for loans, borrowing is cheap. Interest rates are hovering at historic lows.
- The prime rate, a rate on which many commercial loans are based, is 3.25%. It was double this rate (6.5%) on January 22, 2008, and went as high as 8.25% on June 29, 2006.
- The interest rates on home equity lines of credit (HELOCs), a financing tool used by many small business owners, was around 5% in early February 2009.
Last summer it looked as if $5 a gallon gasoline was here to stay. This had a tremendous impact on the bottom line of businesses, especially those that needed to do extensive traveling. Energy costs were rippling through the economy in surcharges by carriers of all types. For example, many restaurant owners were paying surcharges on all food and beverage deliveries.
That black cloud has passed, at least for the time being. Prices have dropped dramatically and most surcharges have disappeared. The cost of travel is again affordable.
Last summer, inflation topped 5%, but by December it had declined to 0.9%; the average inflation rate for all of 2008 was 3.85% (the historical average rate of inflation ranges between 3% and 4%). Inflation pushes up the prices of goods and services; with inflation down, prices are not rising as fast as they had only a year ago.
Despite campaign promises by President Obama to raise the tax rates on "wealthy" Americans, the top tax rates, including rates for capital gains, remains unchanged. The American Recovery and Reinvestment Tax Act of 2009 did not increase these rates. The top individual income tax rate of 35% and the top capital gains rate of 15% are set to remain in effect through 2010, unless Congress makes a change before then.
The new law does, however, create a positive tax breakóit increases the exemption amounts for the alternative minimum tax (AMT) for 2009, an alternative tax system that can affect many small business owners. Since most small business owners pay tax on their share of business income on their personal returns, this temporary AMT fix provides some tax relief for small business owners.
If you can survive, you can expect to have a greater market share when the recovery comes. Competitors will have gone out of business, leaving you to satisfy renewed customer demand.