July 25, 2010

New loan fund aims to fill small-business credit gap

A federal proposal would give community banks the incentive to loan more money.

By TONY PUGH McClatchy Newspapers

WASHINGTON - Carl Calhoun makes mattresses for a living, but lately he's been enduring more than his share of sleepless nights.

ECONOMY-
click image to enlarge

Carl and Emma Calhoun, owners of Body Rest Mattress Co. in St. Petersburg, Fla., are having a difficult time getting loans for their mattress manufacturing business. A $30 billion loan fund proposed by the Obama administration would make federal loans to banks cheaper as the banks in turn increase their lending to small businesses.

McClatchy Newspapers

Small business loans decline
click image to enlarge

As the president and CEO of the Body Rest Mattress Co. in St. Petersburg, Fla., Calhoun and his wife, Emma, are struggling to keep their 28-year-old company from becoming another casualty of the Great Recession.

They've laid off half their employees. They've cut the hours and benefits of those who remained. They've even tapped their home equity to pump more money into the business.

Yet without a six-digit bank loan to see them through, the Calhouns and their 31 employees face a very uncertain future.

"We know what we're doing," Calhoun said. "We just ran out of capital. It's only through the grace of God that we're here right now. And I'm not the only one."

He's right. Across the country, thousands of small business owners are fighting for survival and hurting for cash after getting the cold shoulder from banks over loan requests.

The Troubled Asset Relief Program poured hundreds of billions of dollars into big banks to help spur business lending during the recession, but the cash infusion hasn't prevented thousands of companies from closing their doors as banks have tightened their credit standards and purse strings.

The Obama administration is pushing a $30 billion Small Business Lending Fund to address the problem. The proposal, which passed the House of Representatives in June, would provide smaller community banks with government loans that become cheaper as the banks lend more money to small businesses.

Todd McCracken, president of the National Small Business Association, said the plan should help.

"But it's not a silver bullet," he said. "There isn't a silver bullet."

Credit is essential for small businesses to expand their work forces, purchase equipment and property and cover daily operating costs. For much of the past decade, the nation's big banks were generous providers.

From June 2008 to June 2009, however, the "credit crunch" saw small business loan balances fall 9 percent at banks that have more than $100 billion in assets. But overall lending only fell 4 percent.

In the second quarter of this year, small business loans fell to less than $670 billion from more than $710 billion in the second quarter of 2008.

That's bad news not only for business owners such as the Calhouns, but also for the economy. Small businesses -- generally described as those that have 500 or fewer employees -- account for half the nation's private-sector employers and have created a majority of the new jobs since the mid-1990s.

AS SMALL BUSINESSES GO

If the economic recovery is going to take off, most agree that small business hiring will provide the lift. Without credit for small businesses, however, that recovery appears grounded indefinitely.

Adam Lapsevich, the president of Digital Design Video Productions in Chagrin Falls, Ohio, wants to hire a video editor, two salespeople, a social media specialist and a comptroller/project manager, but he needs a $100,000 loan to make it happen, and the banks aren't biting.

"We've got talented people here in northeast Ohio who are looking for jobs. I'm talking $100,000, not a quarter of a million," Lapsevich lamented. "It's not like I'm selling hot dogs at a gas station. We've got a very hot product."

Digital Design creates online video-marketing campaigns for businesses. Eight months ago, at the height of the recession, Lapsevich was considering bankruptcy because business was down and the interest rates on the company's credit cards had reached 20 percent after several late payments. The company is now ready to expand, but banks may be holding Digital Design's recent struggles against it.

(Continued on page 2)

Were you interviewed for this story? If so, please fill out our accuracy form

Send question/comment to the editors




Further Discussion

Here at PressHerald.com we value our readers and are committed to growing our community by encouraging you to add to the discussion. To ensure conscientious dialogue we have implemented a strict no-bullying policy. To participate, you must follow our Terms of Use.

Questions about the article? Add them below and we’ll try to answer them or do a follow-up post as soon as we can. Technical problems? Email them to us with an exact description of the problem. Make sure to include:
  • Type of computer or mobile device your are using
  • Exact operating system and browser you are viewing the site on (TIP: You can easily determine your operating system here.)