Small Business Finally Turns the Corner

It’s been a long, slow grind, but Main Street seems to be rebounding with little help from Washington.

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A Main Street sign

There have been bailouts aplenty during the last five years, but one group has been conspicuously overlooked: small-business owners. Now, they may finally be rebounding on their own.

A variety of emergency measures in Washington have directly helped overdrawn banks, big businesses, the unemployed, underwater homeowners and millions of others survive the worst economic downturn in 80 years. But those sundry aid packages filtered down to small business the way water works its way through granite.

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Credit has eased for most big companies and low interest rates have helped car and home buyers. But small-business owners still struggle to get approved for loans. Meanwhile, rising taxes and new regulations impose a higher burden on small-business owners than on many other constituencies.

The trouble with helping small businesses is that there are so many different kinds of them, located literally everywhere. That makes it difficult to craft policies in Washington that will have a meaningful impact on Main Street. But small businesses finally seem to be feeling the lift from a revived economy—and from their own endurance.

The optimism index calculated by the National Federation of Independent Business has ticked upward so far this year, after dropping at the end of 2012 as the "fiscal cliff" approached. NFIB surveys show that more small businesses are planning to hire, spend and build up inventories throughout 2013. "The gears at small businesses are expected to turn a bit faster in the coming months," forecasting firm IHS Global Insight wrote in a recent analysis. "Optimism is in the air."

That's important because firms with fewer than 500 workers account for more than half of all private-sector employment in the U.S.So what's good for small business is good for the whole economy. The surprising addition of 236,000 new jobs in the latest employment report—far more jobs than most economists expected—suggests small businesses may be hiring even more robustly than surveys indicate.

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Like many others, small-business owners are learning to shrug off the shenanigans in Washington, which used to send the economy into a tailspin when there seemed to be some direct impact on the business environment. "Business owners are learning to take control of their own destiny," says Leon Shapiro, CEO of Vistage, a peer-advisory group for business executives. "There are many parts of the Washington story they're not able to control. They've gotten very smart about how to drive business and growth in that environment."

Small businesses still face plenty of challenges likely to restrain growth and profitability. New austerity measures in Washington, such as the spending cuts known as sequestration, will slow economic growth this year and limit spending in many areas, which will affect businesses of all kinds. President Barack Obama's health care reforms, which mostly go into effect at the start of 2014, will require some costly changes at companies with more than 50 employees. Some firms seem to be deliberately limiting their own growth and hiring only part-timers, to keep personnel costs down and remain exempt from new health care rules.

Still, the resilience of small businesses seems to be a significant factor in several important trends. For one thing, antics in Washington aren't depressing the economy as much as they used to. Consumer spending remains strong and investors remain upbeat despite tax hikes at the start of the year, followed by the spending cuts that went into effect March 1. Some of the people buying stocks and pushing the Dow Jones Industrial Average to new highs have undoubtedly been small-business owners and their employees.

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Other trends will make life a bit easier for small-business owners and push optimism higher still. The rebound of the housing market—after six years of falling home values—will revive the fortunes of many contractors and the workers they employ. Economists, meanwhile, have been upgrading their forecasts for economic growth this year, as businesses and consumers turn out to be less vulnerable to Washington folderol than once thought. Small businesses will both power the economic revival and benefit from it.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.