Why the Real-Estate Slump Could be Killing Small Business Hiring

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7 September 2010 0 views No Comment

A lot of theories have been circulated for why small businesses aren’t hiring — the bank lending crunch, emotional nervousness about the economy, high taxes, low sales. This week, noted Case Western Reserve University professor Scott Shane weighed in with his theory: It’s all about the residential real-estate collapse.
Shane gives several reasons why the real-estate bubble’s pop has paralyzed entrepreneurs. Among them:

1) A disproportionate amount of the products and services small businesses sell are tied to home sales. Independent realtors, small contruction contractors, interior decorators, decor boutiques…they all take the hit when home sales slow.

2) Many entrepreneurs have historically used their own home as their business-funding piggybank. With many homes now devoid of equity, there’s less cash cushion with which to take a risk and put on a new hire.

3) Banks’ lending was choked off in part because of their mortgage-loan problems. So just when the home-equity piggybank ran dry, banks also balked at loans.

I’ve interviewed Shane before and found him a very knowledgeable source. His theory makes solid sense, and reveals how home sales ripple through the broader U.S. economy.

What do you think? Is real estate the man behind the curtain in the small-business hiring slump? Leave a comment and let us know if your own home-equity situation has impacted your hiring decisions.