Wednesday, March 26, 2008

This is really sad to hear. As a small business owner, I know how difficult it is to get a small business loan. It is truly hard! This is unfair!!!!



March 25, 2008
Small Firms Find Credit Is Tightening
By ELIZABETH OLSON
Lenders’ credit woes are starting to take a toll on small businesses.
Though it may be too early to determine how hard small businesses will be hit, some national surveys show that the businesses are encountering more restrictions at lending institutions, making it harder to get the credit necessary to expand or, in some cases, stay afloat.
Last month, a Federal Reserve report found that a third of banks in the United States had tightened their lending standards for small-business loans.
Soundings of business owners themselves are mixed because credit availability is not uniform across the country. More than half of those responding to the National Small Business Association’s online poll two weeks ago replied “yes” when asked whether their business had “been impacted by the credit crunch in recent months.” But another group, the National Federation of Independent Business, said that more than a third of the members responding to its February survey said they were borrowing normally, and only 4 percent said there was a problem getting a loan.
The Small Business Administration has not said publicly that it is worried about a credit squeeze even though the number of business loans made through its main program, called 7 (a), has declined so far this fiscal year by more than 15 percent compared with the period last year. And the dollar value of the loans declined by more than 7 percent. The agency guaranteed some $20.6 billion in such loans in the last fiscal year.
This month, Steven C. Preston, the agency’s administrator, held a closed meeting with major bank executives at the White House to talk about small-business credit. The list of those attending was not made public, but Mr. Preston said afterward, “We know affordable credit is the lifeline of any business, and we also know banks have been tightening their credit standards.”
Mr. Preston has been meeting with banks around the country to remind them of federally guaranteed loan offerings, an agency spokeswoman, Christine Mangi, said.
But Congressional Democrats have argued that this is far from enough to help small businesses ride out a tumultuous economy.
“The S.B.A. should be a major instrument to help small business,” Senator John Kerry, the Massachusetts Democrat who is chairman of the Committee on Small Business and Entrepreneurship, said in an interview. Instead, he said, the agency has raised fees on loans and cut back on debt counseling for small businesses in economic trouble.
According to S.B.A. data, more than $1 billion in 7 (a) loans — the most basic and most used loan type — were delinquent on Dec. 31, 2007, compared with about $673 million a year earlier.
The administration “has been ignoring data on small-business economic conditions since at least October,” Mr. Kerry added.
Advocates for small business argue that it is a mainstay of employment, even in economic downturns.
“What’s significant here is that microenterprises continued to create new jobs even during the 2001 recession,” said Amy McKenna Luz, president of the Association for Enterprise Opportunity, a national organization for small businesses. When the auto, telecommunications and other major industries were laying off people, she said microenterprises (businesses with five or fewer employees) continued to add jobs — some 4.5 million from 2000 to 2005.
One small-business owner who has been running into problems obtaining new credit is Tate M. Linden, who opened his marketing consulting business three years ago. Last May, he said, he had no trouble obtaining a $35,000 line of credit for Stokefire, his branding consulting business in Alexandria, Va.
But when he went back several weeks ago to the same institution to add another $15,000 to his credit line, the answer was no.
“We just thought it would be as simple as making a check mark in the box because we have revenues coming in,” said Mr. Linden, 36.
When the economy slides, he said, businesses like his do well as companies clamor for expertise to refresh or turn around their image. So he had planned to double his three-employee staff now and then add another four to five people later this year in sales, project management and graphic design. But he halted his hiring plans when he got a formal rejection on grounds he already had “sufficient credit.”
Kathy D. Wheeler, chief executive of Community Business Partnership, a nonprofit organization in Springfield, Va., that trains entrepreneurs to start and expand businesses, said Mr. Linden’s tale “shows me there is a lending problem.”
Sirena C. Moore of Bristol, Pa., said she also had difficulty when she tried to get a line of credit for her company, Elohim Cleaning Contractors, which, she said, took in nearly $2 million last year from asbestos removal and cleanup of construction sites in the Philadelphia area.
“The bank said it wanted more credit history,” said Ms. Moore, 26, whose company started with $3,000 in revenue in 2002. “But I’ve never taken out a loan before and I don’t own a house. My car is paid because I bought it used.”
She applied for a $250,000 credit line, she said, so the “company would have a cushion, and I can actually take a real salary, which I’ve never done because I always have to make sure the crew is paid first.”
She added, “The banks are happy to give us a lollipop, but nothing when it comes to credit.”
The trade association for lenders has urged Congress to step in, noting that there is more demand for federally guaranteed loans when credit standards tighten.
“Loan volume is declining at an alarming rate,” Anthony R. Wilkinson, president of the National Association of Government Guaranteed Lenders, told a House of Representatives hearing on lending this month. “With each passing week of this fiscal year, the problem is getting worse.”
Commercial banks like Bank of America insist there has been no change in their lending programs. Even so, a bank spokeswoman, Tara Burke, said, “Obviously we are being prudent and ensuring that we take the right risks and get paid appropriately for the risks we take.”
Entrepreneurs who are being squeezed are trying to get smaller loans or looking for alternative financing. Ms. Wheeler of the Community Business Partnership says her group is processing more than twice as many weekly requests for microloans for start-ups as it did a year ago.
That program has been a target of Bush administration budget-cutting for several years, but Congress has always stepped in to save it.
While home equity lines of credit are dicier because of the drop in home valuations, many small-business owners are still using them as well as credit cards, even though they generally have higher interest rates than credit lines or loans.
Mr. Linden said he planned to explore a smaller federally guaranteed loan to shore up his credit line.
“There’s a big disconnect between what the big banks are saying on their television and radio ads about meeting small-business needs,” Mr. Linden said. “It really comes down to numbers, not relationships.”