Local Firms Feel Wall Street's Pain
Monday, September 22, 2008
Dinesh Sharma had no small ambitions nine-and-a-half years ago when he launched Washington Business Group, a contracting firm that manages construction projects for federal agencies. Envisioning a global reach, he selected wbgworldwide.com as his Web address.
Every year that he's been in business, WBG has taken on more jobs, growing 35 to 50 percent annually, Sharma said.
But now he is shifting into cutback mode. He said he laid off a project manager Friday, his second termination in past months, and decided to put the brakes on new contracts.
One bank has reduced his line of credit by more than half, cutting by hundreds of thousands of dollars the capital he needs to take on new work. Another bank told him that to maintain a second line of credit he needs to put up his office condo in Chantilly as collateral, something he never had to do before and is hesitant to do now.
Sharma is not alone. Owners of small- and medium-sized business throughout the Washington region say they are halting expansion plans in the wake of a credit crunch that has reduced their revenues and restricted their access to loans, a situation exacerbated by last week's meltdown of Lehman Brothers and American International Group. The easing of financial markets Friday should help, but it will take a while to filter down.
"We have a AAA rating. But we are being penalized for what's happening on Wall Street," Sharma said.
"We always pay our bills on time," he said. "The bank says, 'We understand, but times have changed.' "
Because the engine driving Washington is fueled to a great extent by government contracts, which have grown steadily in recent years, the region largely has been protected from wild fluctuations in the economy, experts say. Nevertheless, business owners say they have not escaped the pressure from rising fuel and food costs, the slide of the stock market and the crisis in the lending industry.
"This uncertainty -- it's a new feeling for Washington," said Jim Dinegar, president and chief executive of the Greater Washington Board of Trade.
"You have developers and others this year with viable projects who can't get the funding at this point," he added. "There's no question that we do better than other parts of the country, but we will still be tightening our belts."
The events on Wall Street weighed heavily on the minds of eight people who on Thursday attended the monthly meeting of the Montgomery County chapter of the Alternative Board, a confidential support group for business owners, according to organization President Steve Reinhold. The owner of a consulting firm, Reinhold said, asked whether it was safe to keep more than $100,000 in one bank, given that in most cases only $100,000 would be insured by the Federal Deposit Insurance Corp. A real estate broker and a settlement attorney asked whether, in light of cash-flow problems, they should lay off some staff.
The group advised the consultant to put his money in multiple banks and the real estate agent and settlement attorney to move forward with the layoffs, Reinhold said.