Carl Hum from the Brooklyn Chamber of Commerce says all is not lost for small businesses
By Edmund DeMarche
J.M. De Jesus, a state certified business consultant, recently ate at a client’s Brooklyn bakery. The man was an Iraq war veteran set to begin his career as a pastry shop owner.
Two days ago, De Jesus revisited the store to find it closed.
“I can’t say I’m surprised at the trend,” said De Jesus. “People are just not getting the loans they used to.”
Small Brooklyn businesses borrowed 38 percent less from banks as compared to last year, according to a study released last week by representatives Anthony Weiner and Nydia Velazquez.
In the most recent Federal Reserve Senior Loan Officer survey, over 75 percent of lenders said they had tightened lending standards for small firms. Meanwhile, 90 percent of those lenders reported having increased the cost of small business credit. Under these conditions, even entrepreneurs who have managed to weather the storm thus far are abandoning plans for growth.
“Every business is feeling the pinch,” he says. “Unless you have impeccable credit, you’re probably not going to get approved.”
Last week, Sens. Charles Schumer and John Kerry asked for $620 million in aid for small businesses, which was considered by many the first sign that small businesses might receive help from the federal government.
The federal government injected $600 million into small businesses in the city after the events of Sept. 11, and some see this as a similar crisis. In the city, at least 50 percent of private sector jobs are in small businesses.
“When the New York City economy catches a cold, small firms catch pneumonia,” said Weiner. He further stated that access to these loans are often the deciding factor whether a business survives or folds.
For small businesses in trouble, economists say to consider obtaining loans from micro-lenders and credit unions.
ACCION New York is the city’s largest micro-lender, having disbursed 3,800 loans totaling more than $16 million to 2,100 small business owners (average $7,619 per business loan). ACCION is a non profit organization that relies on government grants and low-interest loans from larger banks under the Community Reinvestment Act.
“We have seen more people applying for loans then ever,” said Laura Kozian, the communication director from ACCION. “I think you’re going to see the trend continue with micro lenders taking the lead.”
Community banks are also approving more loans to small businesses than in previous years, said Michael Pappas, the regional director of the U.S. Small Business Administration. Some of these banks have better liquidity than their larger competitors.
“I think small businesses looking for a loan are beginning to shop around a little,” said Pappas. “Instead of just sticking with their usual larger bank, smaller banks might be better able to grant a loan request.”
Based on empirical evidence and speaking with lenders and borrowers, Pappas says some businesses that have looked for loans in the past, are not trying to seek loans in today’s economy.
Carl Hum, the president of the Brooklyn Chamber of Commerce says the decrease in loans for small business is worrisome. He agrees that many small businesses are seeing lenders freezing their credit. But he remains optimistic.
“All is not lost,” said Hum. “If you need to borrow money for your business, you might just have to look a little harder.”
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