Small Bizs Feeling the Chill

The New York Times:

Some small companies say they are no longer able to get loans from newly cautious banks as credit tightens across the country, and even those who do qualify are increasingly reluctant to borrow and expand, fearful of overextending themselves in the midst of the financial crisis.

Alan Petrucci, whose small factory near Chicago makes metal molds that other manufacturers buy to form plastic parts, says his bank recently offered him an additional loan. Though orders for his molds are still plentiful, Mr. Petrucci says he will borrow only to upgrade existing machinery, not to expand.

“We are bracing for the downturn that is coming,” Mr. Petrucci said. “It is coming; there is no question about that.”

Mark Snyder, another businessman, is more optimistic, but his bank refused two weeks ago to grant another loan to his fledgling medical supply company near Denver. So he turned to a commercial lender, which has offered credit – at 30 percent a year. Mr. Snyder does not want to borrow much at that rate. “We desperately need more capital to grow our sales,” he said.

Small businesses in America – the 27 million companies employing fewer than 500 people and in most cases fewer than 20 people – account for half of the nation’s output. A downward swing, whether caused by expensive borrowing or pessimism, could weaken the economy and shrink employment. Small businesses employ 40 percent of the work force, the Census Bureau reports, and they outpace large companies in generating new jobs.

Photo by Kevin Moloney.