My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

The Small Picture

How does the federal deficit affect your business?
Magazine Contributor
2 min read

This story appears in the June 2003 issue of Entrepreneur. Subscribe »

Although the national deficit often seems like a topic solely of interest to academics and policymakers, in reality, it has a significant impact on small businesses. After decades of deficits, the federal government had balanced its budget by 2000, leading many businesspeople to assume the deficit was banished.

But as the foreign capital flowing into the United States has fallen, and the administration's economic stimulus plans slash taxes, the deficit has mushroomed. According to Robert E. Scott, an economist at the Economic Policy Institute, a Washington, DC, think tank, as the deficit rises, it forces the value of the dollar down and could lead to a spike in U.S. interest rates. As the Center on Budget and Policy Priorities, a nonpartisan research organization in Washington, DC, has shown, "higher interest rates would raise the cost of borrowing for small businesses, making it harder for them to [buy] capital equipment and pay off loans."

What's more, programs designed to help entrepreneurs may be cut as the deficit forces governments to be more selective. "It's a struggle to keep valuable programs," says Garth Hickle, a member of Minnesota's Office of Environmental Assistance (OEA), who deals with small recycling companies. In the tighter fiscal climate, the OEA has reduced efforts to encourage recycling start-up firms and other waste-management entrepreneurs.

Meanwhile, as interest rates rise and the dollar weakens, consumers will be hit hard. "If the dollar collapses, you'll see a downturn that makes our current problems look minor, and consumers' incomes will drop," says Scott. With consumers' incomes plummeting, entrepreneurs might be unable to rebound from two years of national economic malaise.

More from Entrepreneur

Learn to be a better leader and develop successful marketing and branding strategies with Dr. Patti Fletcher's help.
In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Create your business plan in half the time with twice the impact using Entrepreneur's BIZ PLANNING PLUS powered by LivePlan. Try risk free for 60 days.

Latest on Entrepreneur