By Emily Maltby; Wall Street Journal

Small businesses, known for jump-starting economies, aren't upholding their reputation.

During past recessions, small firms have been the forerunners in hiring and growth, and the harbingers of recovery. But this time, they are holding back, seemingly more than large companies.

The reservation appears to stem from a general uncertainty—felt by consumers and owners alike—about whether economic conditions will worsen again before they improve. Some 86% of small-business owners say they are concerned about a double-dip recession, according to a survey published by Citigroup last month.

"A lot of small businesses have direct [contact] with consumers," says Stephen P. A. Brown, director of the Center for Business and Economic Research at the University of Nevada in Las Vegas. "Consumer income just isn't back yet. Consumer sentiment about the future isn't back. And while everyone waits, everyone remains pessimistic."

Consumer confidence likely won't improve until jobs return, but businesses won't hire until consumers spend more, triggering a "vicious cycle" of unemployment and slow sales, says Mr. Brown.

Bob Brueckman, owner of a BrightStar Care franchise in Gambrills, Md., isn't prepared to expand until his cash flow improves. BrightStar, which provides in-home senior care, has brought in more customers during the recession because its services can be more affordable than assisted living or nursing homes. But customers, who are also cash-strapped, are delinquent payers. That makes it tough for Mr. Brueckman to meet payroll for his 100 employees.

"I'm trying to secure a line of credit in case I'm in a bind and can't get paid," says Mr. Brueckman, who hopes a bank will provide $120,000 to $150,000. "I'm not hiring and I'm not giving raises. I don't want to overextend myself."

Only 8% of business owners plan to increase staff, says the National Federation of Independent Business's Optimism Index, released in September. By contrast, 31% of large firms plan to hire, according to the Business Roundtable CEO Economic Outlook Survey of leading U.S. companies, also released last month.

Many small and mid-sized firms are still laying off employees. Employment data released Wednesday from payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers show that firms with less than 500 employees shed 28,000 jobs in the last month. By contrast, those with more than 500 employees shed 11,000.

This trend is unlike past economic blips, such as the 2001 recession that lasted from March to November of that year. Businesses with more than 500 employees shed jobs through that recession and for the next 22 months before hiring again, according to ADP. Mid-sized firms had them beat by only three months, hiring for the first time in July 2003. But the smallest firms, with fewer than 50 employees, started hiring almost immediately, and continued adding jobs fairly consistently through 2002 and 2003.

The NFIB and Business Roundtable reports, which asked about plans in the next three months and next six months, respectively, show that hiring isn't the only disparity between Main Street firms and large corporations. About half of big companies are anticipating more capital spending whereas only 16% of small businesses said the same. And two-thirds of big companies expect sales to increase while only 28% of their small counterparts shared that outlook.

Large firms, especially in the manufacturing sector, have been able to rebound faster because their operations require less labor and they can export to overseas markets like China, says Bill Dunkelberg, chief economist at the NFIB. But, he adds, big business growth may not help as much to boost employment, which is key to recovery. "Big businesses use assembly lines and robots," Mr. Dunkelberg says. "It's the barbershop and nail salon that are labor-intensive."

Even thriving small businesses are being cautious. EverSpark Interactive LLC, an online-search marketing company based in Atlanta, has seen "explosive growth" since it launched in late 2008, surpassing $1 million in revenue, says Jason Hennessey, director of search-engine optimization. Still, the firm has created a cash-flow forecast that assumes a 15% to 35% revenue drop in the next 18 months, he says. Although business did well through the recession, Mr. Hennessey wants to play it safe, should a second recession hit.

"This allows us the ability to be proactive rather than reactive," Mr. Hennessey says. "People are scared to spend, especially on Internet marketing where it's hard to guarantee results."

Such guarded behavior is prevalent amongst small-business owners from a breadth of industries. Many say they are worried about potential costs in the coming months, or even years, that could catalyze a second recession. Numerous studies have indicated that business owners continue to worry about higher taxes and health-care costs. Given the uncertainty, "small business is lagging in this story," Mr. Dunkelberg says.