Persistent Credit Crunch puts damper on small business

From NorthJersey.com - Sunday Jan. 9, 2011



Last year was rough for Ray's Waldwick Pizza.  The walk-in refrigerator broke down and so did the air conditioner. Sales had declined.

Fortunately for owner Siobhan Carrasco, a line of credit from Bank of America helped cover the $14,000 repair and replacement costs and she was able to keep the 20-year-old business open. But the unexpected costs maxed out her credit line and left her without a financial safety net. She applied in October to extend the line another $10,000 and was denied — unfairly, she thought.

"I told them, we bailed you out and you won't give me a line of credit? I have $250,000 in equity in my home and I just wanted $10,000," she said. Carrasco said last month she hasn't tried other lenders and is hoping sales pick up and that nothing else goes wrong. "My sales are down 20 to 25 percent from 2008," she said.

Her situation is not unusual, judging by a recent Federal Reserve Bank of New York survey of 426 small businesses in New York, northern New Jersey, Connecticut and Pennsylvania that showed the credit crunch persisted amid "comparatively strong demand" for loans and "weakened applicant quality."

The survey found that 59 percent of the companies applied for credit compared with about 40 percent in pre-recession national surveys. Only half of the applicants received credit despite previous borrowing success, and many who did get approved received less credit than they sought.
According to the Fed, small companies employ nearly half of all Americans, account for about 60 percent of job creation, and historically have created more jobs than larger businesses at the start of economic recoveries.
The impetus for the survey, conducted over the summer and released in October, was concern that "contractions in business borrowing may be limiting the capacity of small businesses to play this critical role."
Read Entire Story at NorthJersey.com