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

(Continued from page 1)

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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
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"I've weathered the storm, and things are picking up, but in order for things to pick up a little faster, I need to get a couple of salespeople out there," Lapsevich said.

It's not uncommon for small companies to have cash-flow and credit problems, because they typically use their credit to exploit opportunities, said McCracken of the small business group. With stricter lending standards, however, a maxed-out credit line or a few late payments can make a small business appear to be a bad loan risk.

"All these external forces have combined to make some businesses look worse than they really are, and we have to make sure that this whole situation doesn't cause these otherwise successful businesspeople to fail. And it could," McCracken said.

Carl Calhoun, 61, left a career in banking to purchase his mattress company in 1982. Emma Calhoun, the company's vice president and chief financial officer, gave up a teaching career to help him run the business.

When he approached his bank of more than 20 years seeking a loan of $250,000 to $300,000, Calhoun said, he was told to put up some of his own money in order to increase sales. So he borrowed against his home equity, hired more salespeople and expanded his sales territory from the West Coast to the East Coast.

The plan worked, he said. Sales increased 30 percent. His customer base of hotels, universities, medical facilities and retail outlets increased 20 percent.


To maintain the new accounts, however, he needed the loan to pay his beefed-up sales staff and his suppliers. After waiting two months for a decision, Calhoun said, he was told that the local branch wouldn't decide on his request; corporate bank officials from out of state would make the call.

"They didn't know anything about our business," Calhoun said. "The local people knew us. They'd been dealing with us for over 20 years."

As more months went by without a decision, Calhoun lacked the cash to buy raw materials, which made it hard to fill orders.

In the absence of loan money, the Calhouns have used management skills and business savvy to maintain sales and keep their dream alive -- stepping up sales to assisted living facilities, jails and cruise ships. They're promoting a new line of nonallergenic, eco-friendly "green" mattresses.

But their bottom line still depends on one thing -- the ability to borrow working capital.


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