Small and mid-size companies that depend on banks for the money to help them grow are facing new challenges as the nation's credit crunch squeezes lenders and forces some to consolidate or even collapse.
On Monday the angst on Wall Street was no less palpable on Main Street.
A plummeting stock market, a failed investment house and talk of layoffs prompted new concerns about the months ahead and a shortage of money, whether it's to take companies public, to start ventures or to underwrite big expansions.
There was optimism as well as pessimism. Ultimately, many experts suggest, all of this financial turmoil will scrub rampant speculation out of the economy and restore discipline to lending. That should make it easier for businesses to fund internal expansions and to make acquisitions in their own industries. It's just going to be rough between now and then, they say.
The biggest concern for now is that banks worried about their balance sheets will decide not to renew loans, said Larry Harris, a finance professor at the USC Marshall School of Business. That could mean even a loan backed by solid collateral won't be renewed.
"The borrower won't find a new loan if all the other banks are doing the same thing. So the loan will go into default. This is everybody's biggest fear," Harris said.
There's no denying that business credit has dried almost to a trickle.
Dave Hall co-owns MotoArt, a Torrance manufacturer that takes vintage airplane parts and turns them into furniture. Hall and business partner Donovan Fell tried to obtain a $50,000 loan this year but were rejected by banks, which were in no mood to look at a pile of used aircraft pieces as collateral.
"We even had good credit ratings, but it is just impossible to get a line of credit right now," Hall said.
MotoArt eventually got its loan -- for two years at a 12% interest rate from a client, several percentage points higher than what a bank would have charged, Hall said.
The difficulty of finding financing is likely to vary widely among companies, depending on what business they are in, said Russell Goldsmith, chief executive of Beverly Hills-based City National Bank.
"If you are looking for funding for a speculative housing development, it will be extremely difficult, but a profitable small business should be able to get a loan on reasonable terms," Goldsmith said.
Still, there are "fewer lenders out there and they will be more prudent about who they loan to," Goldsmith said.
