Why Small Business Owners Are Hesitant to Hire

From CNBC:

Many small business owners aren't hiring or expanding because the outlook for the economy, or their own companies, is uncertain.

That raises the question of whether small businesses will give the economy the boost that it needs. Economists say that in past recoveries, small companies were the first to hire. When the economy was improving, they were more nimble than large companies because they didn't have the bureaucracy that can slow the hiring process. Their hiring helped propel the economy forward.

The economy is growing, but that growth has slowed — and so has the pace of hiring among business with less than 500 employees. The U.S. economy grew at an annual rate of just 2.2 percent from January through March, according to government figures. That's down from the moderate 3 percent growth during the last three months of 2011...


Small business owners don't want to take chances because they can see how troubled the national economy is, says Paul Merski, chief economist with the Independent Community Bankers of America, a banking trade group.

"If you go through the litany of economic data, it is just not giving small businesses the confidence to hire, to expand," Merski says. "They don't see the future return on that (expansion), or the future cash flow to take on additional debt." One sign that small businesses may be poised to do more hiring is that they would take out loans to fuel expansion.

But it's not just that companies aren't applying for loans.

"Small businesses haven't even tapped their open lines of credit," Merski says. "I hear from community bankers saying, `I wish I had loan demand."

Wells Fargo & Co. is seeing the trend firsthand. "More people are paying down their lines of credit than are drawing down on them," says Mark Bernstein, head of the bank's small business division.

The Great Recession is still fresh in the minds of many small business owners. "Who would expect small business people not to be a little bit cautious after this experience?" Bernstein says...

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Link: http://www.cnbc.com/id/47278193