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Feeling the crunch: small business lending down but not out.

Suddenly your accounts payable number far outdistances your accounts receivable. So, what if you have the perfect idea for a new business, but lack the capital to get it off the ground and running? In the not so distant past, the answer was simple: get a loan to alleviate the problem. But what about now? With the sudden failings of banks and lending institutions forcing tighter credit restrictions, financing a startup can be a trying feat.

"There is definitely a problem," says Candace Daly, the Utah state director of the National Federation of Independent Business (NFIB). "The free-flow of money that we had for several years has nearly stopped. Even some of the businesses that had good, solid standing credit lines have either had their limits lowered or they have been stopped completely."

Daly adds that if a business owner does apply for a loan, he or she has to fill out more forms and information and wait longer in order to get approved. "Banks are scrutinizing things 10- or even 20-times more carefully now," she says. "There is just an overall lower level of credit available, and the credit that is available is much more difficult to obtain."

Another Option?

The small business owner, or potential owner, has difficult decisions to make about obtaining or retaining enough money to keep or start a company. Since bank lending has shrunk, where does one turn? One little-known option is the Utah Microenterprise Loan Fund (UMLF).

"The UMLF makes loans of $2,000 up to $25,000 for people who cannot access traditional bank or credit union loans," says Kathy Ricci, UMLF spokesperson. "We help people who one: are just starting; two: don't have enough collateral for a traditional loan and/or three: have credit history issues."

While Ricci says there are many people and companies out there utilizing these loans, there are still many others that may be turning to other, more desperate measures.

"Unfortunately, many of the available alternatives are frightfully expensive or not appropriate for the long-term health of a small business," she says. "Factoring of accounts receivable is one alternative that can work in the right circumstance, but owners should be extremely cautious about entering into these agreements. Sometimes leasing can meet a business' equipment needs, but it's pretty tough out there, and I would never encourage a small business person to turn to some of the predatory lenders such as payday loan outlets."

Another measure entrepreneurs take is blurring the line between personal wealth and running a company. "Many people have had to go with personal loans secured with their own personal assets," says Daly. "People are having to work every angle to see if they can secure credit, and I'm afraid sometimes that means risking things like a house or car--things that are personal in nature and not really the company's."

Dream On

Even with tighter loan restrictions minimizing available resources, the American dream is surviving. Many people are still optimistic they can find a way to make a small business feasible and profitable. The proof is in the numbers, according to District Deputy Director Steve Price of the Small Business Administration (SBA).

"It does seem to be a little harder to get the loan. Lenders are tightening up. But we had a record number of SBA loans in 2008, which ran through September," he says. "There is still the chance to get the money. Utahns did not see quite the same impact as some of what happened nationally because the state was more prepared."

Price says the SBA averaged 250 loans per month in 2008. While the number did go down some, the SBA had 210 loans in October. "Utah did not have any of those large banks fail, so things in this state are still encouraging even if access to credit is not as liberal as it was."

Ryan Overton, who owns and runs a small printing company, has felt the recent crunch on available credit. "I have had to put more and more of my company's expenses on my own credit cards lately because my company card reached its max and they wouldn't extend my limit," he says. "I have a couple of big orders that I need to fill, or I am done. Really, the only way for me to get some of the things I needed was to charge it myself and then hope and pray that the orders work out or I may be having to close up shop."

Daly says the federal government's bailout plan should help the small business owner. "Hopefully, when the banks and companies start seeing some of the money from the bailout, they will not sit on those funds and will make it available to the public once again," she says. "We are not really certain what direction the economy is going to turn, but if the program instituted by the government does what it is supposed to, then we should see lending policies become a little better again."

With a plan in action, newly elected leaders and new policies on the horizon, the future for some small businesses remains unclear. But for many small business owners and employees, and those that make their living dealing with small business, optimism reigns supreme.

"My hope is that with the rescue plan, we have seen the worst and it will get better," says Price. "I can't predict the future, but you plan for the worst and hope for the best. It is going to take a strong lending market again to get the economy going again and I think the leaders see that. The whole point of the rescue plans is so that small business owners could get back running they way the were. They should take advantage of the rescue plan--that is why it has been put in place."

Net Percent ("Easier" Minus "Harder")
Compared to Three Months Ago
(Regular Borrowers)


2003 -4 -5 -5 -2 -3 -5 -3 -3 -3 -3 -5 -3
2004 -2 -3 -3 -2 -3 -4 -4 -4 -3 -3 -3 -5
2005 -4 -3 -3 -5 -5 -3 -4 -5 -3 -4 -6 -3
2006 -5 -5 -6 -4 -5 -5 -6 -8 -3 -6 -6 -6
2007 -5 -5 -7 -5 -6 -5 -5 -7 -9 -6 -7 -7
2008 -7 -5 -7 -9 -8 -7 -9 -10 -11 -9

Source: NFIB Small Business Economic Trends Quarterly Report
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Title Annotation:Business Trends
Comment:Feeling the crunch: small business lending down but not out.(Business Trends)
Author:Black, Michael
Publication:Utah Business
Date:Dec 1, 2008
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