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Credit Crunch Won't Pick on Anyone Its Own Size


Small businesses may be hardest hit.

Each day that the engine of economic growth -- credit -- is prevented from flowing freely, the crisis worsens - and its effects on the broader economy keep piling up.

Even as Congress rushes to pass the latest iteration of the bailout plan -- or emergency rescue plan, or stimulus plan, or whatever it happens to be called to make it sound politically expedient and palatable to confused and frightened Americans -- the economy is grinding to a halt.

After years of fudging the numbers to make growth look stronger than it actually is, policymakers may have to finally accept the fact that recession is inevitable. Weekly jobless claims rose to a 7-year high, new car sales are tumbling, and the stock market is gyrating wildly on an almost hourly basis.

The recession they promised wouldn't come is just around the corner.

There's a long-held belief that economic slowdowns allow small businesses to thrive, since larger competitors are scaling back and hunkering down to wait out the storm. Meanwhile, entrepreneurs -- who are typically less risk-averse than big companies -- can seize on the opportunity to expand, open new stores and comb through the ranks of unemployed to hire skilled workers on the cheap.

Banks are apt to rein in lending during a downturn as defaults on existing loans rise and cash becomes pricier. Credit standards tighten, loan amounts fall and lenders scrutinize applicants more thoroughly before extending loans. Still, small businesses are usually able to find enough money to continue their existing business strategies, at the very least - albeit with the higher risk associated with tough economic times.

The credit crunch, however, is throwing that assumption out the window.
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