Does the Financial Crisis Mean a Credit Crisis for Small Businesses?

While a lack of liquidity in the commercial paper market is making a mess of funding for some Fortune 500 companies, it's a whole different ballgame when you scale down to the world of small business. According to a National Federation of Independent Business survey of a random sample of its half-million members in August, only 2 percent of respondents saw their financial situations as their biggest problem. On the other hand, 10 percent did say they found loans harder to come by—the highest figure in more than five years. But NFIB chief economist William Dunkelberg notes that that number pales in comparison with previous economic downturns. In the early 1980s, some 30 percent called access to credit their No. 1 headache.

Credit is tightening, and it's not completely clear how the increased turmoil in the credit markets since August has changed the equation. But there's at least some reason for cautious optimism. Even though most banks have essentially stopped lending to each other, that does not mean that they are not lending to businesses. Dunkelberg says that small, community banks—he is chairman of one in Cherry Hill, N.J.—are "not particularly affected" by the broader financial problems when it comes to making commercial loans. "Credit is not really a problem on Main Street," Dunkelberg says. Jim Blasingame, a small-business advocate and radio host, notes that "if you're an established small business, you can get the money."

But even if there's no sectorwide credit crunch for small businesses yet, that doesn't mean many firms, especially the bigger ones, aren't being squeezed. George Gendron, director of the Innovation and Entrepreneurship Program at Clark University, says that right now "there is no growth capital" for high-growth small companies with millions in sales—firms that tend not to deal with small banks. "I have never seen this population more concerned than they are today," Gendron says. Things might be getting worse, too. Rich D'Amaro, CEO of Tatum LLC, an executive services firm, says that his clients—small and midsize businesses with $50 million to $500 million in annual revenue—are mostly finding growth capital "frozen," with the past 60 days especially bad.

Take the case of Steven Rothschild. He runs bulbs.com, a venture-capital-backed online light bulb distributor in Worcester, Mass., and has been seeking credit to finance a small acquisition. A month ago, he was turned down by a large bank. The situation has forced Rothschild to consider hard choices: "Do you hoard cash, do you cut back on inventory—how insular do you become?" Rothschild is hoping he'll find a solution by shopping around to other banks. He's talking to three banks right now—including a small, local bank.

Will those efforts pay off? Many entrepreneurs are finding that it takes more hard work to get credit but that it is still out there if you try. Paula Camara of Clark University's Small Business Development Center advises small-business owners on how to get their businesses off the ground and growing. She says that as the economy has slowed over the past year, the climate for credit has not seen a day-and-night change from what it was when the economy was stronger. Small-business owners have always needed to work hard for credit—they might just need to work a bit harder now. "You really want to work with a small-business adviser to make sure you're dotting your I's and crossing your T's before you present yourself to a bank," Camara says.