Small Biz Is Feeling The Crunch

March 30, 2008
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GRAND RAPIDS — The credit crunch is making it more and more difficult for small business to get financing for anything from expansions, to new equipment to new hires. 

According to the Federal Reserve’s January Senior Loan Officer Opinion Survey on Bank Lending Practices, large majorities of domestic and foreign institutions reported having tightened lending standards and terms on commercial and industrial loans during the last quarter of 2007, citing such reasons as a less favorable or more uncertain economic outlook, a worsening of industry-specific problems, and a reduced tolerance for risk.

Carol Lopucki, Grand Valley State University’s Small Business & Technology Center, said many of the small businesses she works with have complained about the difficulty of getting bank loans and lines of credit, particularly startup companies. Lopucki said that’s particularly unfortunate given the fact that Michigan wants to build and attract the “new economy” kinds of companies.

“If you don’t have a track record right now, don’t have SBA-guaranteed backing, or don’t have some real good, solid cash on the line and some real demonstrated wherewithal, it’s very difficult to get startup money,” Lopucki said. “It’s always hard, but particularly right now.”

The Small Business Association of Michigan conducts a small business survey every quarter, which asks business owners, among other things, to rate their “accessibility to credit for the purpose of business expansion,” as either “positive,” “negative” or “neutral.” In the first quarter 2008 Small Business Barometer survey, the number of respondents that rated credit accessibility as “positive” fell to 42 percent, said Michael Rogers, SBAM vice president of communications. In 2001, more than 70 percent of respondents had rated credit accessibility as “positive,” Rogers pointed out. Thirty-one percent of respondents rated their accessibility to credit as “negative.”

“That’s the highest ‘negative’ rating in the history of our Barometer, which goes back to 1993,” Rogers said. “The historical average is 14 percent ‘negative,’ so that’s more than double. In addition to the usual anecdotes about the difficulty of getting credit, we have some hard data that says the accessibility of credit is by far the worst it’s been since 1993.”  

Rogers said it’s “shocking” to SBAM that there has been such a dramatic increase in the number of negative ratings just since the beginning of 2007. Part of it has to do with economic conditions, he acknowledged, but Michigan has suffered under poor economic conditions for the last couple of years.

Banks, however, continue to make SBA loans, which are guaranteed by the U.S. Small Business Administration. The SBA hasn’t changed its loan standards, said Richard Temkin, SBA district director for Michigan: It’s up to the banks to make the loans so they will apply their own credit standards.

“Although the number of SBA loans are down somewhat, I think that some of the loans that would have been done conventionally are now being done with an SBA guarantee, and that some of the loans that might have been done with an SBA guarantee maybe aren’t being done at all because credit markets are tightening,” Temkin remarked.

Temkin recently hosted the SBA annual conference in Lansing. It was either the biggest or the second biggest SBA conference, he said, drawing more than 200 participants, most of them lenders. The conference offers training for everyone from first-time SBA lenders to well-seasoned SBA lenders.

“I know there are some lenders who are looking to get into SBA lending because of the current situation, and they think they need that tool to offer their customers so they can compete with other lenders in the area,” Temkin said.

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