WASHINGTON -- Capital is the oxygen that a small business needs to survive and thrive. But across the country, the air's pretty thin, as business owners from coast to coast complain of huge hurdles to getting badly needed loans.
Bob Kingery's business, Southern Energy Management in Morrisville, installs solar photovoltaic panels for businesses throughout the Southeast. In the past two years, about 15 projects have been scratched or delayed indefinitely as customers scramble for financing options.
The tight credit market has tied up about $30 million in business, Kingery calculates. Why? Banks categorize solar installations as construction outlays, he said, and "banks have a bunch of bad construction projects on their books."
Lending across the U.S. economy contracted 7.4 percent last year, the biggest such drop since 1942, according to the Federal Deposit Insurance Corp. That means $1.5 trillion in lending evaporated last year, the Treasury Department estimates.
Corporations are issuing bonds again, and large companies have access to bank loans, but it's still an uphill climb for the little guy.
"There's a big gap in access to credit for small firms now, and it's a huge problem," Karen Mills, the head of the Small Business Administration, told McClatchy Newspapers. "We have a sense that the banks are not back to lending the way that they need to be, going forward."
Small businesses account for 65 percent of U.S. employment, so it's a serious matter that the credit crunch is squeezing these firms.
"If we're going to come out of this recession and get people back working, it's going to be because we give small businesses the support that they need," said Mills, whose agency has guaranteed more than $22 billion in loans to small firms since early last year.
Blame for the crunch doesn't fall on banks alone. Large banks had $4.4 trillion in unused credit lines outstanding in 2009, as consumers and businesses shunned borrowing to pay down debt. A 32 percent increase in U.S. bankruptcy filings last year suggests that plenty of borrowers simply aren't creditworthy. FDIC data show through December that lenders in three major banking cities -- Chicago, Kansas City and San Francisco -- had more than 5 percent of outstanding loans late 90 days or longer.
"Lenders aren't saying we don't want to lend. Lenders are saying we'd like to lend, but loan requests are down, and also the bank regulatory agencies are scrutinizing loans at a much higher level than they have been in the past," said James Ballentine, the senior vice president of government relations for the American Bankers Association. "That, too, is understandable, because you want to make sure that all guidelines are being followed and the collateral is there, and that's a problem for many businesses as well."
In sum, a credit crunch
Still, it's clear that small companies face huge hurdles when approaching banks for loans or even trying to tap existing lines of credit.
"The anecdotal evidence certainly suggests there's a credit crunch for small business. You can't prove it, but it's pretty hard to come down on the other side," said Douglas Elliott, a researcher at The Brookings Institution, a center-left policy research center in Washington.
And as Kingery, who installs solar photovoltaic panels, learned, anything connected to construction has suffered, a trend that continues.
"General contractors aren't finding credit any looser, either for them or the developers who then call them to put up a store, office space or apartment building," said Ken Simonson, the chief economist for the Associated General Contractors of America. "When somebody does pry loose credit, they have to put in 35 percent to 50 percent equity, which is just an incredibly high hurdle rate, especially when compared to the 10 percent to 15 percent that used to be the norm."
Track record is key
Some of the bank pullback makes sense, said David Wyss, the chief economist for the New York credit-rating agency Standard & Poor's.
"Generally, what I am finding around the country is that small businesses that have an established relationship with a bank, who have a good credit rating, are not having as much trouble getting credit. The bank has the money and is willing to give it to them," Wyss said.
The key, he said, is that track record.
"What the banks are saying is they don't see creditworthy borrowers out there looking for money," Wyss said. "And part of the reason for that is they don't see as creditworthy anybody who doesn't have a strong history of credit relationships with them."
Accessing credit was tough but not impossible for John and Jill Matthews. Even with their sterling credit history, they had to work for a loan to open their unconventional barbershop.
In March, the couple used savings and a loan from RBC Bank to open The CUT Barbershop in Charlotte, where customers will be able to enjoy a beer, watch sports and listen to rock 'n' roll while getting a haircut.
John Matthews, whose last job was at a hedge fund in California, said owners of small firms need a solid business plan and a can-do attitude. He compared the loan search to the scene from the movie "Jerry Maguire," where the sports agent played by Tom Cruise famously screams, "Help me help you" to an athlete.
"The bank is saying the same thing," Matthews said. "After all, banks make money by loaning money. ... They just need a little more help nowadays."
Jill Matthews said the shop's high-traffic location and her experience as a haircutter helped pry loose lending.
"The banks don't want to take a chance on anybody that might fail," she said.
News & Observer Staff writer John Murawski and Charlotte Observer reporter Christina Rexrode contributed to this report.
