Kevin O’Leary, the entrepreneur and “Shark Tank” television star, expressed concern over a “crisis emerging” in the United States during a recent interview on Fox Business. O’Leary, who works closely with small and mid-sized businesses, said he doesn’t see optimism increasing in the economy as some may suggest.
Despite reports of optimism in the data, O’Leary’s interactions with businesses across various states reveal a different reality — entrepreneurs are far from content with the prevailing economic conditions. Entrepreneurs and business owners continue to face economic pressures and rising interest rates. The possibility of further rate hikes looms, adding to their anxiety as they fear it could push certain sectors into deeper distress.
Small businesses, in particular, are struggling despite a slight uptick in optimism. The National Federation of Independent Businesses’ Small Business Optimism Index increased to 91 in June, a seven-month high but still below the 49-year average of 98. When questioned about the reported surge in small business optimism, O’Leary responded, “No. That’s not what I hear, and I live in the real world.”
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O’Leary said he believes these numbers mask a more significant issue caused by the Federal Reserve’s 10 consecutive interest-rate hikes since March 2022. The rapid and unprecedented speed of these hikes has put small businesses in a difficult position, leading to a surge in the cost of capital. This has caused a number of new and interesting trends to emerge, such as the increasing use of startup investing platforms like StartEngine, a company O’Leary owns a stake in. This year alone investors have invested over $84 million on the platform, with StartEngine raising over $17 million from retail investors in their own ongoing raise.
He emphasizes that small businesses are particularly vulnerable, unlike larger companies in the S&P 500 that have no trouble financing their operations. Small businesses represent 60% of the U.S. economy, making this liquidity crunch a concerning matter.
In the face of economic uncertainties and rising interest rates, investing in startups can provide diversification to an investment portfolio. Startups often operate in sectors that are not directly tied to the broader market’s fluctuations, offering a hedge against potential downturns in other investments. This diversification can help mitigate risks during turbulent economic times.
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All businesses are at risk of rising costs in servicing debt, but larger and publicly traded companies have the advantage of raising capital from the stock market. On the other hand, smaller and family-owned businesses may face the grim choice of shutting down, liquidating or entering bankruptcy.
O’Leary is taking a proactive approach, urging entrepreneurs to listen carefully and offering survival strategies. With cash flow becoming scarce for small businesses, O’Leary predicts that the situation will only worsen.
In an effort to assist struggling small-business owners, O’Leary is advocating for the use of the Employee Retention Credit (ERC), a valuable resource that many small businesses are overlooking. According to O’Leary, businesses are not applying and they’re eligible.
If small businesses did not claim the ERC in previous eligible quarters, they may still have an opportunity to claim the credit retroactively for those periods. The Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA), both passed in 2021, introduced changes that allowed businesses that received Paycheck Protection Program (PPP) loans to also claim the ERC. Previously, businesses had to choose between PPP and ERC, but now they can claim both, provided they meet the eligibility criteria.
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This article ‘We’ve Got A Real Crisis Coming Here — There’s No Cash,’ Says Shark Tank’s Kevin O’Leary, Urging Small Businesses To Apply For This Government Program To Survive originally appeared on Benzinga.com
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Source: finance.yahoo.com