How the Sequester Will Affect New Jersey Small Businesses

The federal budget cuts, known as the sequester, that went into effect March 1st, still have many New Jersey small business owners awaiting the pinch. While it may take a while to feel the effects, here’s where you can expect to start seeing it.

One of the most obvious impacts will come from the approximately $92 million cut from the Small Business Administration (SBA), approximately $69 million of which will come from SBA loan programs. While this represents only a 5% cut, it comes at a time when most traditional bank loan programs are still shying away from small business investment.

Next, the sequester cuts will have a heavy impact on businesses which rely upon federal contracts, and not just defense contracts. According to Democrats on the House Committee on Small Business, approximately 44,000 federal non-defense contracts will be lost, amounting to approximately $2.2 billion dollars in lost revenue. It is also expected that more federal contracts will be awarded to larger businesses, which tend to be more stable, because of the cutbacks.

Another blow to New Jersey small businesses, will come from the approximately $2.9 billion in cuts to aid victims of Superstorm Sandy, as well as cuts to FEMA itself, which will slow the processing of claims.

Finally, cutbacks in federal spending have a ripple effect and a general psychological effect on consumer confidence. Small businesses are usually the first to feel these effects and often the least able to weather the storm. When big businesses experience difficulties in one market, they are often able to move resources to other, stronger markets, in this case overseas. Small businesses don’t have that luxury, and thus are also usually the first to fold when tough times hit.

If you’re a small business owner in New Jersey and haven’t yet started to feel the effects of the sequester, take heart. While the sequester will certainly have an impact, it will likely be countered by the general economic recovery.