How Current Inflation Will Fuel Small Business Growth

The value of money is always in flux, so inflation is always occurring. It’s only a problem when consumer demand for goods, services and real estate outpaces the supply.

The pandemic created the perfect storm: Every single variable that can cause inflation came into play during 2020. Because most businesses shut down and infection-related lockdowns disrupted those that didn’t, production plummeted, unemployment skyrocketed, and spending slowed to a crawl. Global efforts such as government stimulus delayed the impacts of the storm, but inflation is finally catching up.

By signing the Inflation Reduction Act, President Biden is delivering on his promise to build an economy that works for working families and small businesses. The legislation seeks to reduce high inflation rates by controlling the cost of goods, services, and commodities. It will help the Fed tackle inflation by reducing the deficit and it will also offer targeted tax relief for those in need.

By reducing inflation, this act offers a variety of potential benefits for small businesses.

Lowering Costs for Small Businesses

The Inflation Reduction Act will reduce costs for small businesses by maintaining lower health care costs, increasing incentives for investments in energy-saving technologies, and strengthening the resilience of supply chains.

By keeping healthcare costs low, small businesses can save money and remain competitive in their markets. Overall, about 13 million Americans will save an average of about $800 annually on their health insurance premiums compared to what they would pay without the Inflation Reduction Act. This investment will continue to spur new business starts and job creation, as entrepreneurs may take the leap of starting a business without the risk of going uninsured.

Incentives for investments in energy-saving technologies are being increased to encourage more people and businesses to invest in green solutions. Small businesses can receive a tax credit that covers 30% of the cost of switching over to low-cost solar power – lowering operating costs and protecting against the volatile energy prices that are currently squeezing small businesses. Small business building owners can receive a tax credit up to $5 per square foot to support energy efficiency improvements that deliver lower utility bills. And small businesses that use large vehicles like trucks and vans will benefit from tax credits covering 30% of purchase costs for clean commercial vehicles, like electric and fuel cell models.

Strengthening the resilience of supply chains is an increasingly important issue as businesses strive to manage risk, protect their operations, and prepare for potential disruptions. As the global economy continues to become more interconnected, supply chains have become larger, more complex, and reliant on factors outside of a company’s control. The existing traditional methods of risk management are still essential, but a more holistic approach is needed in today’s complex and highly interdependent global environment.

Economic Opportunities for Small Businesses

The Inflation Reduction Act is an important step forward in aiding small businesses to create more job opportunities and increase wages. With this reduction in inflation comes an increase in purchasing power, allowing businesses the resources needed to increase the number of jobs available.

Pre-revenue startups create jobs and support economic growth through research, discovery, and innovation. This bill levels the playing field and will help spur high-impact R&D, by increasing the refundable research and development tax credit for small businesses. Small businesses may use the credit to further reduce payroll taxes and several other business expenses annually, allowing them to have more financial flexibility. This tax credit can be used for a wide range of costs, such as employee wages and salaries, group health care coverage, retirement plan contributions and more.

The Clean Energy and Sustainability Accelerator, created by the Act, seeks to facilitate the deployment of clean and sustainable technologies across the country. It is designed to provide resources, financial assistance, and guidance to those looking to adopt zero-emission technologies such as renewable energy sources, electric vehicles, and other innovative solutions.

The Act significantly expands the Rural Energy for America Program, which supports rural small businesses and agricultural producers with clean energy and energy efficiency upgrades. The U.S. Department of Agriculture estimates that this expansion will reach more than 41,500 small businesses and farms. The Act also provides more than $9 billion to assist rural electric cooperatives, which serve more than 21 million businesses, homes, and farms.

The Act provides essential tax incentives for small businesses to ensure their success and growth in today’s competitive market. Qualified small businesses can access lower tax rates that will further reduce their burden of operational costs. Through this legislation, small businesses can access capital more easily by reducing regulatory burdens and improving their creditworthiness.

Lowering the Deficit to Fight Inflation 

The Inflation Reduction Act is more than fully paid for and will drive deficit reduction over the course of the coming decade. This will be the largest ever one-year decline in our country’s history and will leave the deficit lower than projected before the passage of the American Rescue Plan. And numerous leading economists and commentators have argued that, by building on the deficit reduction we have achieved to date, the Inflation Reduction Act will help ease inflationary pressure.

When small businesses operate with more price stability, it will be easier for entrepreneurs to plan and grow their businesses.