A trio of new reports provides more evidence that small businesses, considered by many to be an engine of economic growth, could have a tough time pulling the country back to prosperity.
For the first time in eight years, monthly employment at small businesses has declined, dropping by 25,000 jobs in October, according to the latest ADP Small Business Report.
Lending standards for small businesses have been tightened at 75% of the 55 domestic banks polled for an October survey by the Federal Reserve Board. That's up from 65% in July and 50% in April.
At the same time, an Oct. 30 report by the Kauffman Foundation showed that, contrary to conventional wisdom, start-ups rely primarily on bank credit for capital in their first year rather than on networks of family and friends.
Although brand-new firms aren't job machines -- 60% of the start-ups in the Kauffman study had no employees in their first year -- small businesses do account for most of the net new jobs in the United States and much of the innovation, according to federal statistics.
Tighter credit isn't going to make it any easier to increase the ranks of small firms, a growing challenge given the large numbers of new entrepreneurs expected to pop up as major corporations shed thousands of jobs.
"Newbies are going to have a hard time. It doesn't bode well for the economic recovery," said William H. Crookston, a USC professor of clinical entrepreneurship and a former entrepreneur.
His business students, whose job hopes have been dimmed by the meltdown at major financial institutions, are increasingly joining the ranks of entrepreneurs by creating what he calls "vest pocket" businesses.
These ventures, with modest revenue goals of less than $50,000, are meant to help the student entrepreneurs weather the economic storm and potentially grow later, he said.
The souring economy is not helping the prospects of these or any other would-be business owners.
"How fast this thing is over is really the question," Crookston said.
Among the observers who expect at least another eight months of falling employment is Joel Prakken, chairman of Macroeconomic Advisers.
The St. Louis firm creates the small-business employment report, as well as a version that looks at firms of all sizes, with the outsourcing and technology firm Automatic Data Processing Inc.
"We may just be getting into some pretty sour numbers here, even for small businesses," he said.
