Small business owners are facing massive credit restrictions from their banks, according to an article in Reuters.com. Businesses are dealing with banks terminating business credit lines, cutting home equity lines, and putting a stop to credit line leniency. What is a small business to do? Many small business owners feel that banks are still very afraid of taking lending risks with small companies and they feel that banks are pulling back from giving small companies access to much needed credit lines.
The article also mentions that the President of the National Small Business Association (NSBA) warns that if credit does not become available soon, American entrepreneurs will not have the money to expand their businesses and ultimately fall by the wayside. Especially since many small companies use lines of credit to pay employee salaries.
In “Recession Realties,” an article published in the Nov/Dec issue of Essentials, which will hit mailboxes in mid-November, Richard Caudle, president of Rock ’N Learn, admits having to use a line of credit for the first time because of the decline in the economy. Well, how about you? Have you dipped into your line of credit to help absorb costs at your company? Also, has your bank decreased or eliminated your line of credit all together? Let NSSEA know your thoughts.
Until the money starts to flow more freely from the financial institutions, the economy will stay stagnant. What we have observed in New England is that the banks have been consolidating and getting their own financial houses in order first. Creativity, ingenuity and a little bit of luck is what it takes in these economic times.
I recently applied for a loan to open a second store in a location with 3 times the population of my present store and no competition. The bankers were the only ones that ever had negative comments and after refusing my original plan said they would consider a smaller request if I would invest 40%. I politely said if I had that much laying around I would “bootstrap” it and not deal with them at all. The two most profound comments were, “How are you going to pay us back if you fail?” and “Don’t you know we are in a recession?” Totally frustrating after all the bailouts and government loans to the big boys.