Small Business Could See Trouble If Congress Doesn’t Raise the Roof

According to the Constitution of the United States of America, Article 1, Section 8, Congress has the power “to borrow money on credit of the United States.” Congress has since established an agreeable number on somewhat of an autopilot system and has increased this cap on debt 74 times since March 1962. This number called the debt ceiling is the total amount of debt the federal government can legally borrow.

Currently, with the outstanding recent increase in our Nation’s total debt, some members of Congress are unwilling to vote for an increase to the debt ceiling without some sort of agreement on spending cuts. This is where the problem begins.

On May 16, we passed a milestone and our debt ceiling of 14.2 trillion dollars. Currently we are spending against federal workers pensions until an agreement can be made in Congress to increase the debt ceiling, drastically reduce spending or default on payments.

This agreement does not come without a deadline. Timothy Geitner, US Treasury Secretary, has named August 2nd of 2011 the date America will no longer be able to pay its bills. This will cause the country to default on it’s debt obligations which include payments of debt already borrowed. Not only would America be defaulting on its debt, it would be defaulting by 2 billion dollars a week.

In the short term, Social Security, Medicare, and military salaries would not get paid. (These are usually retroactively paid, but could cost a fortune in terms of interest and penalties.)

Soon after these late payments can and WILL drop America’s credit score. This decreases our international credibility and makes the US a far less attractive option to the international financial market including those countries that lend us money.

Historically, the international community and its’ lenders let us borrow money because we pay our debts— we are secure borrowers. The less timely and smaller the payments, the higher the interest rate becomes. If these investors believe the US will default on some of its future payments, they will demand higher interest rates on our Treasury Bonds (T-Bonds.) Fifty-two percent of our Treasury Bonds are owned by private banks and corporations in the US, these higher interest rates will trickle down throughout the economy, forcing an increase on bank lending rates, credit card rates as well as personal and business loans.

According to a study conducted by Pepperdine University, only 17% of companies with less than 5 million dollars in revenue got loans in 2010 and small business financing has dropped 14% from March 2010 to March 2011. March 2010 wasn’t exactly prime lending time either.

With the drop in availability of funds and the possibility of such high interest rates, you should have the experts handle your business financing.