The fight to survive: Sour economy is problem for small business

The survey also found that 71 percent of business owners have a "negative outlook" on the economy compared to 43 percent a year ago; confidence in their business' success dropped from a high of 81 percent a year ago to 70 percent now.

A separate survey done by the National Federation of Independent Business found that for the first time in 25 years, small business owners cited inflation as their single biggest concern, rising from 4 percent a year ago to 14 percent in April.

The survey of more than 1,765 businesses showed that for the first time in a decade, skyrocketing insurance costs were not the No. 1 concern.

As gas and food prices climb, consumers are bypassing small businesses and seeking out bargains in places like Costco Wholesale Corp., which reported a 32 percent jump in its fiscal third-quarter profit, surpassing Wall Street expectations.

"The bad thing that's happening to us, is the economy is driving people to shop at the big-box stores ... They can buy their staples and pick other things up so they don't have to use gasoline," said Cindy Baker, who has been a gift shop owner for 20 years, half at her current location, Collage, in Pittsburgh's bustling Strip District.

"This is the first time, even taking 9/11 into consideration, I can say I've really seen a pinch in my business," she said.

Just like airlines and car companies, some small business owners are shrinking and letting people go to survive the squeeze.

Last month, the Oklahoma City gas station owned for 22 years by brothers Harley and Hadley Hintergardt shut its doors for good because of rising gas prices. Harley Hintergardt said the station suffered because unlike big chain gas stations, they didn't have a convenience store or full-service auto shop to fall back on.

"We were the victim of high gas prices," Hintergardt said. "Everybody thinks that we were making the money selling at the pump at the gas station. And trust me, we were not." Small businesses, measured by the U.S. Small Business Administration as those with fewer than 500 workers, employ some 58.6 million people, more than half of the total U.S. labor force. In the past decade, they have generated between 60 percent to 80 percent of new jobs, and in 2004 all the new jobs.

While no data is available on how many small businesses have gone under in the past six months, federal officials are reporting a decline in the number of loans they guarantee, a consequence of both lower demand and tighter standards.

Experts say the shrinking demand indicates businesses are reluctant to take on debt and expand. Many entrepreneurs are hesitant to open new businesses.