Small Businesses Stymied as Credit Gets Scarce

Small businesses stymied as credit gets scarce

By JENALIA MORENO and BRAD HEM
Houston Chronicle
Oct. 3, 2008, 11:27PM

Gary Fountain For the Chronicle
Doc Cohen, a Tomball franchisee, wants $1.5 million to add three stores.
Doc Cohen has borrowed money from the same lender for about nine years.
Yet, despite his track record and good credit, the Tomball-based franchisee is finding it harder to get a loan.
He wants to add three stores to his collection of 29 Pretzel Time, Great American Cookies and Coffee Beanery outlets found in Houston-area malls, and needs $1.5 million.
But the lender won't give him credit unless he keeps $1 million as his minimum balance.
"Well, if I had the minimum balance, I wouldn't need the loan," said Cohen, whose company generates $10 million a year in revenue. "We don't have that much on hand."
Entrepreneurs such as Cohen are having a tough time getting lines of credit, expansion loans and money for startups as the financial crisis on Wall Street spreads to Main Street.
"Two years ago, if you wanted to open a business, there would be two or three banks jockeying for a position to get your business," Manuel González, district director for the Small Business Administration in Houston, said. "Now, its like you've got the plague or something. Nobody wants to touch a new venture."
Fewer licenses issuedA slowdown does seem to be taking hold.
Through August the Harris County Clerk's Office issued 34,364 business licenses. That compares to 66,664 issued in all of 2007 and 76,391 in 2004.
Existing businesses say they are feeling the effects of the nation's credit crunch as well. Nearly 70 percent of Houston's small businesses reported that to the Greater Houston Partnership this week, the business group said.
"Right now, we're seeing a lot of tightening, and we're seeing some of these smaller firms really struggling with financing," said Gilbert Herrera, founder of Houston-based Herrera Partners, an investment bank and financial consulting firm.
At the Houston SBA — which provides government guarantees to help banks mitigate risks — just 1,700 loans valued at $435 million were produced this fiscal year, down from 2,700 loans valued at $535 million in 2007.
"That's the lifeline for all small businesses," said González.
More expensive termsLocal bankers agree that in these tough times fewer are making loans.
"We became a lot more cautious with walk-in customers," said George Lee, president and chief executive officer of Houston-based MetroBank. "If they have a history and they want to expand their business, then we will consider that."
Loans just may be a little tougher to get.
"It may be under different terms and a little bit more expensive," said John Hernandez, senior vice president of Houston-based Amegy Bank of Texas.
Cohen said he understands the position the banks are in. He'll try to shuffle some other accounts around to come up with the money.
"The decision will be to do what they ask or find another lender, and in this market, finding another lender is going to be difficult," said Cohen, who expected to create 45 jobs with his planned stores.
Beyond those like Cohen who are seeking expansion or startup loans, there are those who just need a temporary infusion of cash to help meet payroll.
Ben Mendez, owner of PMG Project Management Group, whose company helps city, county and federal officials make disaster assessments, said he's suddenly had to hire more people to do the job.
"The bankers are basically telling us that everything is on hold," said Mendez, who adds that he'll turn to his friends and family for money to pay his temporary workers.