Survival of Mom-and-Pop-style businesses is seriously threatened, particularly in the retail and manufacturing fields, the Small Business Administration said yesterday.
Frank B. Swain, SBA chief counsel for advocacy, predicted a "very high business-failure rate" in the next few months for small businesses, which he expects to lag behind the general economic recovery, not rebounding for six to 12 months more.
Swain yesterday released a report documenting the continuing erosion of small businesses. The number of businesses with fewer than five employes declined by 1.4 percent in almost every major industry between 1977 and 1979 compared with growth of 3.8 percent from 1975 to 1977, according to a report by the SBA office of advocacy.
"The vast majority of the decline of the smallest establishments is from involuntary dissolution, due principally to a larger scale of output required for successful competition," the report said.
The number of retail businesses with fewer than five employes declined 15 percent between 1977 and 1979, and the number of those in manufacturing decreased 13 percent during the same time, the report said.
In addition, bankruptcies of small businesses increased 32 percent between 1980 and 1981, and business failures grew 42 percent during the same time. Business failures--ending a business without reported losses to creditors--were the heaviest in construction (which had a 49 percent increase), services (27 percent), retail trade (41 percent) and wholesale trade (32 percent), the report said.
Small business' contribution to the gross national product dropped from 42 percent in 1967 to 38 percent in 1977, said Swain.
The report didn't have results of the effect of the current recession on small business, but it reported how small businesses are affected generally in economic downturns. Although small businesses' profits drop faster and more deeply during a recession than those of large firms, small businesses frequently maintain employment because it is more difficult for them to release workers, and many persons dropped from large businesses start their own.
The number of small businesses owned by women and minorities grew during the 1970s, the report said. The number of minority-owned firms grew 31 percent between 1972 and 1977, accounting for 5.7 percent of total businesses. The number of businesses owned by women grew 30 percent between 1972 and 1977, accounting for 7.1 percent of total businesses.