Small Businesses Take Hit In Credit Crunch

As Lenders Run Away From Risk, Startups Suffer From Lack Of Loans

(CBS)  Adriana Martin started a fitness-training spa for mothers out of her Florida home. Now, she wants to expand.

"Something that really takes my business to the next level," Martin said.

She's looking for $50,000 to help produce and promote DVDs. But so far the banks haven't come through, CBS News correspondent Anthony Mason reports.

"Its very frustrating, because I have a great dream," Martin said. "I think I have a great idea."

Yolanda Goldwire wants to grow the medical billing business she also started at home. But she needs $25,000 to open an office and hire employees.

"I went to Wachovia, Bank of America, Community Bank," she said.

They all turned her down. She says they told her: "Either that my business wasn't open long enough, didn't have established business credit. Or they just didn't have the funding."

It's the fallout from the mortgage mess. Lenders are running away from risk, and according to the Federal Reserve, more than half of the banks in the country have tightened up their lending standards for small businesses.

"Is it harder now to start a business right now because of this?" Mason asked.

"I would say definitely," said Jennifer Brin of the Florida Women's Business Center.

Brin says loans just aren't there for start-ups.

"They're not even there for an established business who are just right now for the first time experiencing a struggle," she said.

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Couric & Co. Blog: Learn more about the untold story of the credit crunch.

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It's small businesses that power the U.S. economy. They create 70 percent of the new jobs.

Martin said: "And I really can't contribute to the economy the way I wish I could, because of this situation."

Martin and Goldwire are still hoping to get loans, because otherwise, as Goldwire says, "we may shut down."

In this credit crunch, many young businesses are struggling to stay fit enough to survive.

[naucoming4u]

This article emphasizes one of the main catalysts for the downturn in the economy. When small businesses are unable to purchase equipment to run their business, many other larger businesses (especially those that cater to small business), suffer. Thus, downsizing/lay-offs occur as a result further adding to a weaker economy.

I work for a major high tech company who thrives on small business as their bread-and-butter. Lay offs have already occurred at my company, and surely many more will follow. I feel sorry for my colleagues who have lost their jobs, as well as everyone else. But sadly, because of the greed of a few, (mostly within the financial/mortgage sector), hundreds of millions of Americans are suffering.

What is a country to do? Especially if it wants to remain a country!

[naucoming4u]

But all is not lost for small businesses. There are people with money, willing to invest in you and your business. Granted, they may not have a big name of a financial institution, but who cares! Money is money. And venture capital can be far better than big bank money for many small businesses.

As long as the small business owner has a well written plan, a well polished "elevator pitch" (30-second presentation)... then asking for money comes much easier, and investors are more willing to listen and consider lending money.

"Your Business" is a great 1/2-hour show on MSNBC, usually airs on Saturday and/or Sunday. Great show to watch and very educational for small business owners or those wishing to start a small business.

Good luck!

[afmca]

I hope the small business owners realize that it is the Bush administration and their policies over the last 8 years that has caused this credit crunch. They left the banks to police themselves and their greed almost caused a global collapse. When you vote in November forget the Republican propaganda and vote for a party that produced the last surplus, tries to enforce pay as you go, and really cares about the people that would frequent your business. The Democrats deserve your support in 2008.

[beehive21-2009]

You need to know more,than,just asking for $$$, get it on offer employees incentives etc., just keep inventing . its the American way.

[kennergirl]

You need to know more,than,just asking for $$$, get it on offer employees incentives etc. posted by beehive21

I don''t quite follow what you are saying. Business owners can''t ask for money but should offer incentives to employees? In having a small business you have to spend money to make money whether its for employees or supplies to do a job. Being inventive is one thing but sometimes it does all come down to the green. Having it helps a lot more than not.

[andor3]

"And venture capital can be far better than big bank money for many small businesses."

venture capital money is poison for most businesses. First, the VC investors want a big chunk of equity in your business in exchange for their investment. Then they begin to put unrealistic and damaging pressure on for high growth rates so they can quickly sell their share of your company at a profit. They do not care about normal, patient, organic business growth. VCs have killed many small businesses.

[joe1022joe]

The two businesses you showcase in the above article aren''t "small" businesses, they are "micro" businesses. Each of these businesses will have to grow mightily before they qualify for the name "small business." Micro-business loans are loans that are below $100,000 and Small-business loans are below $250,000. The Office of Advocacy for the Bush Administration''s Small Business Administration has identified well over 400 banks that are Micro- Business friendly. The author(s) and editor(s) of this article either didn''t do their homework or their intention was to futher a doom-and-gloom attitude that they assume helps Obama in November. You see, bias in journalism involves not merely favoring one candidate over another in editorial writing, but also in how many articles address a particular candidate or in subtly skewing an article by what is included or what is left out -- such as this article.

[tootall10142]

If i were the banker i wouldve laughed these people out of my office.there isnt any cushion for the business to fall back on ,no real collateral,real estate .how manty people really care if they are fat after child birth? ill tell you just look down the street. or on a subway. Bad investment for bank if economy was up.

[tootall10142]

dotto joe 1222

[mcvet]

but also in how many articles address a particular candidate or in subtly skewing an article by what is included or what is left out -- such as this article.

Posted by joe1022joe at 07:37 AM : Jun 26, 2008

The FASCIST mind?? A thing of beauty indeed!! THis pathetic Nazi starts off by saying you MUST be big to claim to be small. Now if that isn''t enough from his Nazi Youth Group, he goes on to claim that the story is just support for Obama. HE completely distorts and ignores the FOCUS of the story and the REASON for the story, it doesn''t fit the "party''s" needs. People who continue to support these fascist after the complete and absolute failure they have given this nation based on some sick post like this deserve what they get!! SIEG HEIL BUSH!!

[faith_in_w]

Save your money if you want to go in business.

[samthetvcat]

---"The two businesses you showcase in the above article aren''t "small" businesses, they are "micro" businesses. Each of these businesses will have to grow mightily before they qualify for the name "small business." Micro-business loans are loans that are below $100,000 and Small-business loans are below $250,000. The Office of Advocacy for the Bush Administration''s Small Business Administration has identified well over 400 banks that are Micro- Business friendly. The author(s) and editor(s) of this article either didn''t do their homework or their intention was to futher a doom-and-gloom attitude that they assume helps Obama in November. You see, bias in journalism involves not merely favoring one candidate over another in editorial writing, but also in how many articles address a particular candidate or in subtly skewing an article by what is included or what is left out -- such as this article."---
Posted by joe1022joe

That''s interesting info - but I''m not sure what difference it the label makes. Especially in light of the fact all the banks that she applied for loans at are on that list you cited.

I also heard the government provides loan guarantees, but maybe in practice they''re harder to get than it might seem (?)

[piercetheval]

...another "fitness" business proposal and a medical billing service. Both of which there must be as many stars in the sky. If I was as wealthy as Bill Gates I wouldn''t have invested a single dime in either one. This artcle is just another manipulitive sycophistic piece that we are going to see a lot of in the coming months.

[ov442]

The excuses the banks are giving are An OBvious continuation of a business practice of treating people as a statistic, and focusing too much on a credit history of their OWN devising, which is very hard to live up to and they did it on purpose that way so they dont have to ever give out the best rates to people but they can advertise them on TV.

Some of the credit calculations even contradict each other.
"Dont have enough credit cards open" "have too many credit cards open" "dont have enough of a balance on them" "have too much balance on them" "dont have a good history of keeping balances on your credit cards to show a history of managing them" "You have too much balance indicating you cant pay off your debts" "you have too much open credit available so youre too high a risk" " you are maxed on your credit card balances so that indicates a high risk"

When is congress going to forcibly overhaul and regulate our financial system to be more equitable and fair to consumers and stop allowing us to be railroaded and gouged by the credit industry for every penny in the most predatory, backstabbing, ''we have no rights'' system thats in place now?

[barocalto]

I won''t lend money to either one of these business.

So what''s the story here... Oh I get it.. the evil banks to go a long with evil oil and evil big business and who is going to save us???
The biggest evil out there is government anyone who thing congress or the president is our friend is greatly disillusioned. Anything government get involved in gets worse not better.

[dirtyharry02]

Your only truly free in America if you have good credit. It''s seems to be the way the rich keep the others down. My father and I run a small engineering firm in Texas, make decent money, but have small nicks on our credit report, I can''t even get financing to buy a *** lawnmower, but yet, Jose, who''s been in country maybe a day can get a loan, no problem. It''s time Americans take America back. My grandfather was right; "They''re gonna take over America without even firing a shot!" America and it''s people better wake up!!