Mister, can you spare a latté?

"Mister, can you spare a latté?" Continued...

Issue: "Not over till it's over," Nov. 1, 2008

To get commercial money flowing again, regulators are seeking ways to loosen lending. In an emergency move on Oct. 8, the Federal Reserve cut a key interest rate by half a percent. The institution is also considering extending business loans to mom-and-pops, and not just large corporations. Still, banks are operating cautiously: By Oct. 14, the gap between the rate of interbank lending and the rate of banks' buying U.S. government debt remained near a 25-year high, a sign banks are minimizing risk in their own portfolios.

In Georgia, risk-chopping lenders put at least one business under, said SBDC's Allan Adams. In August, the owner of a small gift shop outside Atlanta told Adams her bank, without warning, called due a $150,000 credit line, forcing her to liquidate her store in order to pay the debt.

"I had never missed a payment," she said.

In September, an SBDC director called Allan and said, "I've got a guy sitting here with a 750 credit score and he can't get a loan."

Credit strictures, Allan said, are often particularly difficult for mom-and-pops. Small concerns often depend heavily on a steady cash-flow cycle: Sell goods, cover overhead, buy inventory, sell more goods. Such firms often use credit lines to cover costs when business is slow or receivables go past due.

"Right now, businesses without deep cash reserves don't want to have a whole lot of receivables," Adams said. "If buyers keep extending the time they take to pay and merchants have to keep using credit to bridge that gap, they can find themselves in real trouble."

Credit trouble hasn't migrated to William Sharer's doorstep in Farmington, N.M., a sandy, scrubby small town in San Juan County. Sharer, a New Mexico state senator, owns the Credit Bureau of Farmington. He and his 17 employees sell credit reports to both businesses and individuals and also collect bad debts, mostly for medical facilities and utility companies.

Sharer is optimistic about the economy: "It is certainly possible that because I don't watch television, I don't know that the world is about to die," he said. "But it could also be that San Juan County's economy is strong while the rest of the world is f-alling apart. But certainly here, things are moving along."

Sharer said the economic downturn hasn't affected his bill-collecting so far. When gas was $4 a gallon, he felt the pinch, but now collections have stabilized again.

Chattanooga printing company proprietor John Dawson says his business is down-but still up. The 49-year-old father of six owns Diversified Companies, a printing, direct-mail, and marketing firm. He opened in 1992 as a mom-and-pop, with one employee who worked 12 to 16 hours a day. Year to year, Dawson said, his business grew 25 percent to 45 percent. But between 2007 and 2008, Diversified's balance sheet grew by just 20 percent-
down, but still up.

What does he make of his double-digit growth in lean times?

"The Lord has really blessed us," he said. While printing orders from his biggest client, General Electric, dropped 40 percent, orders for marketing, promotional items (such as custom hats and T-shirts), and digital printing increased.

Still, from his facility in an industrial section of the city off Highway 153, Dawson keeps a close eye on Wall Street. In early October, the Dow Jones Industrial Average seesawed and news anchors tossed around the word crash. "That was a scary week," Dawson said. "If the market crashed, how many people would I have to send home? It hurts when you have people you employ whose families depend on you and you have to say, 'We just don't have the work for you.'"

Dawson's 40 employees are safe for now. But uncertain economic times have Diversified on full alert, Dawson said. Fuel costs have spiked 80 percent since 2006 and the rising price of paper, Diversified's largest manufacturing cost, has socked Dawson six different times over the past two years.

SBA research shows that energy costs hit small businesses harder than larger ones because they don't by on a large scale or have as much to invest in new technologies. Electricity prices are up to 30 percent higher for small businesses. And while energy costs are only a small percentage of a larger business' expenses, small businesses spend more on energy per dollar of sales-more than twice as much in the food sector, for example.

Accumulated overhead increases are forcing Dawson to approach maintenance and expansion differently. "We're scrutinizing every purchase," he said. "Where in the past we might have gone out and bought a new delivery vehicle to replace an aging one, now we're more likely to try to maintain the ones we have. And if a certain area of our business grows, we won't necessarily go out and hire a new employee."


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