If banks start lending again, will it help?
With the credit markets gummed up, everyone is holding their breath and waiting for banks and other lenders to re-open their money spigots. But for many small businesses the funds may be too little, too late.
Until recently, GiGi Stetler's 35-employee business -- RV Sales Broward in Fort Lauderdale, Fla. -- was booming, hitting sales of more than $20 million in 2007.
In 2008, the business "crashed," she said. Sales plunged to $11 million, and three months ago she let go of the bulk of her staff and now only employs nine. A decline in sales and the tightening of credit was the double whammy for her business.
"We can barely pay the electric," she laments.
Stetler's hoping the credit markets will open up soon, but even if they do she worries about what banks will think when she hands over her financials for the past 90 days. That's what lenders will want to see before they pony up a loan, or line of credit.
It's a Catch-22 situation that will plague more and more small businesses in the United States the longer loans are hard to come by and the longer the recession drags on, according to Steve Bloom, past Atlanta chair of small business counseling service SCORE.
"From the bank's standpoint, they don't give money to people who need money," he explained.
Will President Obama's proposed economic stimulus plan help?
No one really knows yet how the billions in proposed funds from the government will or won't trickle down to small companies like Stetler's in the form of easier credit, he said.
However, since so many firms are in the same boat, Bloom expects underwriting requirements could potentially change, focusing more on a company's history of success and relying mainly on a good credit background.
But the longer the lousy economy persists, the more of a chance there is that entrepreneurs like Stetler may have trouble paying their bills, which in turn will hurt their credit records, he said.
Stetler is angry.
"The banks decided to pick up their marbles and go home," she said. "Lenders financed us to buy inventory from manufacturers, and those lenders pulled out of our industry when things started getting tough."
As a result, customers were less able to get loans to buy her RVs.
Now Stetler is hoping she can hang on until credit starts to loosen up, and before things get really bad.
That's just what Bloom suggests small business owners everywhere should be doing right now -- rethink your business plan, make adjustments in products in services and adapt to a bad economy, he advises.
"More millionaires are made during times like this. Competition gets less," he explained.
Indeed, millionaires will be made, but many long-time, successful businesses will also fall.
How many of you are in this Catch-22 situation? How are you coping?
