Unemployment Rate Hinges on Small Businesses

By Martha Dalton

Atlanta – Month after month, Georgia's employment rate has hovered around 10 percent. Economists and lawmakers agree that small and medium sized businesses need to start hiring for that number to drop. But they don't necessarily agree on how to get there. WABE's Martha Dalton reports.

Some government officials have blamed banks for not lending enough to small and mid-sized businesses so they can hire. In Georgia, small businesses depend on small, regional banks for loans.
Raymond Hill teaches finance at Emory's Goizueta Business School. He says for many banks, it's not practical to lend because they still have bad loans on their books:
"Economists refer to the present situation as pushing on a string,' until banks rebuild their balance sheets, there's gonna be a lot less appetite for lending of any sort."
Hill says any financial uncertainty interferes with lending practices. He says Washington lawmakers confuse things when they pass sweeping reforms, like the new health care law:
"If you pass a health care reform bill that leaves a great uncertainty about what small business costs are going to be 3 or 4 years down the road, that's not good."
And, he says, the same is true about the financial reform bill:
"The alternative would've been to pass a simple, easy-to-understand set of rules, rather than say, Oh, gee, we're gonna pass some general principles, and we're gonna create the rules over the next three years."
Hill says uncertainty causes lenders to assume less risk.
Daryl Hulsey is a consultant at the University of Georgia's Small Business Development Center.
He says hiring will resume when consumer demand increases:
"If consumers start spending, and that begins kind of a cycle that is gonna trickle down to small businesses and larger businesses too."
And, he says, only then will the unemployment rate start to fall:
"Businesses will start to hire when they feel comfortable about the future of the economy. They're not going to make the capital investment for people, equipment, etc. until they feel comfortable that the future looks brighter for them."
Both Hulsey and Hill agree that the recovery will take time time for banks to work through bad lending decisions. And time for consumers to rebuild their net worth before they rebuild their confidence in the marketplace.