Local small businesses finding it harder to secure loans

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Local small businesses finding it harder to secure loans

By ERIK ORTIZ Staff Writer, 609-272-7253

Published: Friday, October 03, 2008

Trina Byrd, owner of a technology-training center in Pleasantville, tried to buy computer equipment but was surprised to find the limit on her credit card business account was reduced - even though she always pays on time.

Drew Gandley, who has a Cape May massage practice, said he wants to go from renting to owning a property, but thinks the transition is too risky.

And Andrew Parker, who started a heating and air conditioning service in Atlantic County last year, said his plan to pursue another loan or refinance is looking more difficult than before.

These small-business owners in southern New Jersey are finding the instability on Wall Street and the failure of large banks and lenders has created a credit-related quagmire. Financial institutions across the country are further tightening their lending requirements, opting not to do business with borrowers with less-than-stellar credit or those they don't know.

Many small- and mid-sized businesses depend on credit to finance weekly payrolls, raise capital or allow their customers to pay using credit. If finances are not in order, these businesses are at risk of credit pipelines drying up and face having to close their doors, financial and economic experts say.

"We have a lot of mom-and-pop operations in this area, and fortunately many have been in business many, many years, so they shouldn't have a problem," said local economist Richard Perniciaro. "But the small business doesn't have the same collateral or anything else to put up that a larger business does. And a small business just starting up will have the most trouble when they don't have equity in anything."

Parker, who started Aire Serv of Atlantic County in May 2007, said he'd like to expand his staff from three to six people and buy a second truck, but wonders if now is the time to obtain a loan.

"With everything that's going on right now, a lot of small businesses are just holding their breath," Parker said.

Gandley's hopes of moving his Well Center for Massage into a location he could own has left him feeling "stuck." While owning his own property would generate equity, having to move, make renovations and maintain the property could end up being costlier in the short term.

"I really want to see what the next year holds for us before we take on ... any more major debt," Gandley said.

Lending has tightened up in the past few days as the federal government's financial rescue package for Wall Street was tweaked and debated by members of Congress. The House is scheduled to vote on a bill today, after one passed in the Senate on Wednesday.

Gary Riordan, the vice president of lending for Vineland-based Century Savings Bank, said businesses should seek out their local community banks, many of which stayed away from subprime lending.

"It helps when you're known to the bank and hopefully you have a real good track record that's constantly improving, then you're better positioned to get that loan," Riordan said.

Perniciaro also advised entrepreneurs to talk with other businesses in similar situations to learn which banks or lenders are offering credit.

Otherwise, "the only other thing to do is have more cash on hand than you normally carry," he said.

Since Byrd's credit line with American Express was decreased, she said, she had to use money from her cash-flow account to pay for that computer equipment she needed. As the chairwoman of Tri-County SCORE, which helps small businesses, Byrd also counsels entrepreneurs who need help with financing.

"It was fairly easy before to get anywhere from $50,000 to $150,000, especially if you have the right collateral," she said. "Now we called the bank, and they were only offering anywhere from $25,000 to $50,000."

Still, even in this rocky economy, Byrd said, she has received more inquiries from people wanting to start a small business.

"The sole sentence I'm hearing from them is, 'We need the extra money and we can't find a part-time job,'" Byrd said.

E-mail Erik Ortiz:

EOrtiz@pressofac.com