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The Survivors

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November 19, 2009 – Comments (2)

I like the second letter in Mish's post.  The small business person had a good advisor who told him to forget expansion, get rid of debt and "hunker down."  I have heard a few stories of people going broke because of expanding in 2007, and I am sure there will be more of these stories as people use the last of their resources to try and keep going.

I have gone on about all these silly businesses that straddled themselves with debt, not even for expansion, but to buy back their stocks at bubbled prices.  I suspect some of those companies will be in trouble because of the added debt load.

Talking with a friend who is a small business owner, he said the only reason they are surviving is because they avoided debt and when they did have debt they had a plan to pay it back in a reasonable length of time and stuck to it.  He says some competitors are hurting enormously because of their debt loads.  He's going to make less money this year, but has no problems maintaining his life style.  In the good years the extra income went to household debt reduction.

2 Comments – Post Your Own

#1) On November 19, 2009 at 5:40 PM, chk999 (99.98) wrote:

that straddled themselves

I think you mean saddled.

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#2) On November 19, 2009 at 5:48 PM, davejh23 (< 20) wrote:

Many small businesses, even those with no debt, are barely holding on right now.  Many have increased advertising, because that's what you do in a recession, right?  However, some of these businesses that were successful for a few years probably never would have cut it in the first place without massive debt-fueled consumer spending.  Many of these relatively new businesses will fail, and many businesses that were expanding rapidly the last few years will contract rapidly...possibly fail due to unmanageable debt.  I know one local businessman that sells construction products that expanded into several new states with 50+ new locations during the housing boom.  He was nominated for entrepreneur of the year, but now they're closing locations and laying off employees left and right.  No debt was taken of for the expansion, and the company is large enough that they should be able to survive the downturn in construction, but he could have been sitting on tens of millions of dollars in reserves right now instead of owning lots of practically worthless commercial space.

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