Obamacare’s Impact on Small Business Finance

obamacare impact on small business

It should come as little surprise that following the “fumbled” launch of President Obama’s signature health care initiative, the Affordable Care Act (ACA), his ratings have sunk to a new low.  According to a recent Washington Post/ABC News poll, 55 percent of Americans disapprove of the way the President is handling his job.  This represents his lowest ratings ever.  Moreover, 63 percent disapprove of the implementation of Obama’s much ballyhooed health care law.

The Affordable Care Act (“Obamacare”) is more than just a source of political bickering.  Debate over the legislation led to the government shutdown in October, which hurt small businesses significantly.  The law has been the center of political debate since President Obama came into office.  It’s an issue so volatile that it led to the shutdown, which had the unintended consequence of hurting small companies in three ways:

  • Hindering small business loans
  • Raising cost structures
  • Slowing job-creation

The Obamacare Impact on Small Business

The impact on the flow of capital to small business owners was somewhat of an unexpected consequence of the shutdown.  My company’s Biz2Credit Small Business Lending Index (additional coverage here) for October 2013 reported a 20 percent drop in small business loan approval rates at big banks.  Meanwhile, smaller banks granted less than half of funding requests.

The popular SBA 7(a) loans and other lending initiatives available through the Small Business Administration were at a standstill for three weeks because the agency was closed.  The delay has caused a backlog of SBA loan approvals that will likely last through the end of the year.  Even non-SBA loans stalled because bank loan officers require income verification from the IRS in order to approve funding requests.  Because the data was not available to lenders, non-SBA loans slowed.

Desperate for capital, many small business owners turned to high interest funding from so-called alternative lenders (cash advance companies, accounts receivable funders, etc.). High interest loans add to the cost of operation of any business and negatively impact the bottom line.

Increased Insurance Costs

Meanwhile, it is apparent that Obamacare is causing an increase in insurance costs.  Millions of Americans have had their insurance policies cancelled because they did not match ACA requirements.  This is in sharp contrast to the President’s famous promise:

“If you like your health care plan, you can keep it.”

The replacement costs for the cancelled policies are turning out to be much higher than expected.  Again small business owners are squeezed.

Not only are premiums more expensive, they are also less comprehensive.  Co-pays and the costs of prescription drugs are rising significantly in many cases.  Entrepreneurs are not just business owners; they are individuals with families who are covered by health insurance policies.

Economic Uncertainty

Any economist will tell you that markets dislike uncertainty.  To say there is uncertainty surrounding the implementation of the Affordable Care Act would be an understatement.  Small business owners, particularly retailers, are already nervous about their 2014 prospects.

Because consumers are unsure how much they will have to pay in the form of increased insurance costs, they may be more cautious in their 2013 holiday spending.

This is bad news for the economy.

Hindered Job Creation

Lastly, the fumbled start of Obamacare is hurting job-creation.  I speak to dozens of small business owners on a weekly basis.  Many of them are refraining from hiring full-time workers. They are also looking at ways to scale back workers’ hours to part-time status and hiring free lancers to fill the voids.  These tactics are being implemented to keep the number of employees below 50.

In this way, the Affordable Care Act is a job-killer.

When people ask me my thoughts about Obamacare’s impact on small business, I point to the three areas:

  • Financing
  • Cost structures
  • Job creation

So far, the launch of the new government health law has negatively impacted small businesses, which drive both the growth and new hiring in the U.S. economy.

Obama Photo via Shutterstock


Rohit Arora Rohit Arora, CEO and Co-founder of Biz2Credit, is one of the country's leading experts in small business finance. Since its founding in 2007, Biz2Credit has arranged $800M in small business loans and has helped thousands of entrepreneurs. Rohit was named Crain's NY Business "Entrepreneur of the Year 2011."

4 Reactions
  1. Hi Rohit,

    Uncertainty is devastating. And that’s one thing I find so worrisome about the Obamacare rollout — that it leaves people in a state of not knowing.

    Not only that, but you can’t rely on answers you get from the state websites or the Federal website, even if you manage to get through without it crashing on you. It’s like asking the IRS a question. Sure they’ll answer it, but you can’t rely on the answer. That’s worse than no answer, because you can go down a certain path and make decisions and plans only to find out after the fact that the answer you got is wrong. And by the time the mess is sorted out, you’ve incurred penalties and it ends up costing you more. Yikes!

    – Anita

  2. From here, everyone can probably see how this program has really done more harm than good. Sure, it’s goal may seem ideal. But it forgets the fact that everything is interconnected. It can also impact loans and new job creation. It has also raised the costs. How the business sector can recover is still a big question.

    • Hi Aira,

      There are still a lot of supporters of Obamacare. Some keep insisting that once the website works people will see how much better off they are — or so they claim. But the number of supporters among everyday citizens who don’t play politics is dwindling by the day, because they feel they were lied to and they are not finding themselves better off.

      Our own insurance was renewed but the premium jumped almost 25%, in anticipation of Obamacare — and we haven’t made a claim in years. We are healthy and have a Health Savings Account, so we pay for our own small expenses. Knock on wood that continues. But still, once you start looking at your own situation and see yourself not better off as was promised but with more expense, the “bloom is off the rose,” as they say.

      Add to that the unintended consequences on the economy as Rohit describes, and it begs for a fix of some kind. Unfortunately, it’s no easy fix.

      – Anita