Credit Crisis for Small Businesses
As lenders tighten their fists and consumers tighten their belts, businesses from small restaurants to industry leaders such as AT&T are getting squeezed. Some are cutting inventory as they struggle to find financing to buy new merchandise. Others, unable to get loans to cover payrolls and operating costs, are laying off employees or closing their doors. Even businesses that have healthy revenue and are up to date on their payments are having their loans called in or their interest rates raised.
The National Small Business Assn. reported that 67% of small businesses said in August that they had been affected by the credit (Dickerson, 2008). The number of small businesses using bank loans was at a 15 year low and 32 % said their loan terms were getting worse (Dickerson, 2008).
Start-ups, manufacturers and construction businesses are in a particularly bad bind, said Scott Hauge, president of Small Business California (Dickerson, 2008). Business owners who took out home equity lines of credit to supplement their budgets are hitting a wall as banks begin freezing or restricting the funds. As vendors tighten their credit terms, businesses are being pressured to cover their loans more quickly. Meanwhile, clients are trying to delay payments as long as possible.
Some 72% of small business owners seeking loans say it is harder to borrow money now, according to a September survey released by Discover Financial Services (Cyndia, 2008). Two popular sources of credit -- home equity loans and credit cards -- have been drying up for months.
So what are the credit alternatives for small businesses? SBA loans. The kind of loan is made by a bank, which receives a guarantee from the SBA that some of the money would ...