Voting against recession...

What does that really look like? Let's evaluate.

What happens during election years that impacts business growth and the economy??

It is such a hot topic going into the final few days before we find out who will lead the country over the next four years.

Traditionally, election years bring worry for the U.S. business landscape, resulting in swings that can be tracked to discretionary spending and investments.

Trade credit—extension of credit between one company and another for goods or services—can also bear the impact of this economic volatility.

If we look at the influence of past political cycles, we can view trade credit and business growth impacts from a distance and make some predictions based on past outcomes.

Potential shift in economic policies like taxes, tariffs, and regulations inspire caution. The desire to protect liquidity might mean more cautious extension of terms. In 2016, anticipation of policy change to corporate tax rates or international trade agreements impacts saw companies restricting credit terms in some cases, waiting to see what a new administration would mean.

??? In 1980, interest rates were soaring, and the US was in recession. A new administration under Ronald Reagan offered a change leading to tax cuts and deregulation, but companies remained hesitant with trade credit in that year, as they awaited a direct shift and impact from new policies.

In 1992 the Clinton administration inherited a contracting GDP that turned to growth with new deficit reduction plans and policy implementation. The boost encouraged looser trade credit restrictions, resulting in growth over multiple sectors.

In 2000 we saw the downfall of the dot-com bubble around election time, leaving tech regions like California reeling from the impact of increased business bankruptcies. Lending was restricted, as was trade credit policy, while the Nasdaq index dropped nearly 80% in a two-year period.

??? The financial crisis in 2008 involved a tight economy and many credit restrictions. Trade credit was heavily impacted, with both lenders and businesses pulling back tightly to prevent loss. The Obama administration brought in stimulus and policy to restore confidence in a gradual impact. Businesses did begin to extend credit again, though the economy was slower to stabilize than many desired.

The 2020 election faced COVID-19 pandemic impacts to every area of the economy. Extreme caution was practiced in trade credit as retail and hospitality experienced volatile impacts. Tightened credit and limited terms were used to protect revenues against widespread defaults. We began to see a trend of more companies turning to trade credit insurance here in the US as a plan to protect against the unknown.

What does this all mean for trade credit, specifically?

Caution in trade credit is trending as policy on dynamic things like tech regulation, the environment, and trade relations are examined and debated. Each party’s approach could significantly impact willingness to extend trade credit. The biggest impact tends to touch small businesses at this time. They typically rely more heavily on trade credit for cash flow. Without the leverage or cash reserves to weather major policy shifts, small businesses are often more vulnerable to feeling the shifts in their day-to-day business.

Not knowing what to expect in the next administration can be frustrating for companies. Using caution, keeping flexible policies, and staying up to date on developments will help mitigate risks while maintaining growth during uncertain times. Being ready to quickly adapt to new economic policies can help a business capitalize on post-election stability, while those remaining overly cautious may miss growth opportunities. Exploring risk mitigation partners like trade credit insurance can make sense to maintain growth with less risk during these times of opportunity.

Analyzing historical trends and preparing for policy shifts help businesses make informed decisions with trade credit, whether the forecast is a challenging or prosperous economy.

What appears most evident is that businesses who adapt quickly and minimize risks most effectively will find themselves in the ideal position for growth and to capitalize, regardless of administration or policy change impact to the economy.

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