Crisis Felt Unevenly on Main Street

Some Firms Can Still Tap Credit; Others Strain

The financial crisis that has roiled Wall Street and toppled some of its leading institutions has had an uneven impact on Main Street, leading to sharply divided opinions within the business community over whether Congress should approve the Bush administration's $700 billion rescue package.

A wide range of companies that depend on loans and services from financial institutions such as Wachovia are worried about their dwindling access to credit and are putting pressure on lawmakers to act. Among them are cash-strapped small businesses, the ailing auto-dealership industry and franchise owners of chain restaurants such as McDonald's and Sonic, who are suddenly struggling to get loans as their traditional lenders, such as GE Capital and Bank of America, face problems of their own.

But other businesses, such as local chain the Healthy Back Store, report few problems borrowing money because they either had good credit histories or do not have a lot of debt on their books. They say they are far more concerned about whether consumers will keep their wallets shut in the coming holiday season than whether credit will continue to flow freely from Wall Street.

"The way the bailout has been sold to the general population, including small businesses, is that you are going to perish if you don't get this through and your credit is going to dry up overnight," said George Cloutier, who is founder and chairman of American Management Services, which consults for small businesses. "We talk to . . . small business owners on the phone every day. And I think the most important thing that we are hearing is they hate the concept of the bailout. They feel that Wall Street is being given a free ride."

But both sides appear keenly aware that Wall Street's problems, if unsolved, would eventually lead to a severe recession that would hurt businesses across the economy.

"Our concern is with what would happen without the rescue plan, if capital does tighten up and continues to be hard to come by," said John McEleney, who runs two dealerships in Iowa and is the incoming chairman of the National Automobile Dealers Association. The association reports 600 dealerships nationwide have closed this year. "The auto financing model could struggle, whether it's customers financing the vehicle or dealers financing their inventory."

Because of the tighter credit markets, Amber Sutton, for one, was required by her bank to use her own house and personal stock investments as collateral, as well as get life insurance to obtain a $400,000 loan. She needed the money to launch her business two months ago, a pet day-care business in Woodbridge, which is part of a franchise called Dogtopia.

"It was very difficult," Sutton said of the loan process. "Nobody turned me down . . . but banks were a little more cautious."

Businesses that had a relationship with Wachovia have also been hit hard since the banking giant's troubles surfaced. On Monday, to prevent its collapse, the government engineered a sale of Wachovia to Citigroup.

Because of that deal, Wachovia said it would stop managing the Commonfund, a nonprofit that runs $41 billion worth of endowments and short-term funds for 1,900 universities, hospitals and other institutions across the country, including as many as 100 in the Washington region, according to John S. Griswold, a spokesman for the Commonfund. The move froze the short-term fund, leaving many of the organizations without access to needed capital.

Griswold said that the situation was unusual and that the group was actively looking for a trustee to replace Wachovia. Still, "it's clearly hurting a lot of people."

He added that "higher education institutions remain very concerned that this rescue bill pass."