Wall Street's crisis hitting small business
Some companies are having problems getting loans, and others are being informed of reduced credit lines.
By Ron Scherer | Staff writer of The Christian Science Monitorfrom the March 28, 2008 edition
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New York - The ripple effect of the financial turmoil on Wall Street is spreading more deeply into the American economy.
The local hardware store is finding it more difficult to get the loan it needs to buy its summer gardening merchandise. Ivy-covered colleges and universities are finding that donors have second thoughts about contributions until the stock market quiets down. Some small businesses that count on using credit cards to finance their business are getting letters informing them of reductions in their credit lines or increases in their rates.
"Wall Street's woes are increasingly giving Main Street the blues," says Mark Zandi, chief economist at Moody's Economy.com.
One sign of the blues on Main Street: consumer-confidence surveys. On Tuesday, the Conference Board said that consumer confidence had dropped to a level not seen since the recessions of 1980 and 1973.
"The plunge is directly related to the turmoil in the financial system," says Mr. Zandi.
Economists are particularly concerned about one development: CIT Group, a commercial finance company that lends to small business, used a $7.3 billion line of credit from banks because it was having trouble selling its debt.
"CIT does lending to Main Street business," says Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Ore.
CIT, for its part, says it is looking to sell some nonstrategic assets or business lines and is looking for additional capital. "We recognize that given the current market environment, we need to operate a smaller, more focused company," writes Mary Flynn, a spokeswoman, in an e-mail.
Limited credit availability
Strains on CIT could pose just one more challenge for small to medium-size businesses, which are finding it increasingly tough to get loans. "Bank lending to small business is freezing in place," says George Cloutier, a small-business expert and chairman of American Management Services, a consulting group. "Availability of credit to small and mid-sized companies has almost dried up."
The decline in housing prices isn't helping either, in that many small-business people use their homes as collateral for loans, says Michael Leonard, executive director of the greater Richmond Small Business Development Center in Virginia. "What we're finding is that clients already somewhat highly leveraged are finding it difficult to get new money."
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