A Bailout For Small Business?
Friday, November 28, 2008
First, Michael Greenwald's M&M Appliance in Northwest Washington was slammed by the housing slump. When construction of subdivisions and apartment buildings dropped off, demand from commercial developers for his high-end refrigerators, stoves and dishwashers slowed to a trickle.
Then the credit crunch hit, prompting many retail customers to postpone purchases until after the economy improves.
And earlier this week, the Commerce Department reinforced what Greenwald already knew with a report that orders for durable goods -- products, like appliances, that typically last three or more years -- decreased 6.2 percent last month and inventories have increased 15 of the past 16 months.
Still, Greenwald is hardly rejoicing about the government's announcement this week of what amounts to a bailout attempt for consumers and small-business owners like him: an $800 billion plan aimed at freeing up lending for credit cards, small businesses and housing.
"Didn't the government already give out a ton of bailout money? I haven't seen that trickle down, yet. The banks are still not releasing it," said Greenwald, who founded the company in 1997. The new money would "be great," he added, but "I'll believe it when I see it."
The Federal Reserve and the Treasury aim to jump-start the economy by boosting consumer spending. The package includes up to $200 billion for investors who would lend it for credit card spending, auto purchases, college tuition and small businesses. The government also could buy up to $100 billion in mortgages held by Fannie Mae, Freddie Mac and the Federal Home Loan Bank to replenish the money supply in the housing market and to lower interest rates.
While soaring unemployment, falling values of homes and investments, and tightening credit have curtailed consumer spending, analysts are projecting that the economy will worsen next year if nothing is done. A recent report by Citigroup said consumer spending will continue to falter in 2009, which is likely to become the first calendar year since 1980 to show such a decline.
"Anything that would stimulate consumer spending would certainly be a positive," said Dana Telsey, chief executive of Telsey Advisory Group, which tracks the retail market.
But the lending plan, scheduled to begin in February, may be too late for some small and large retailers, which have been slashing prices to get customers through their doors and cutting employees to conserve cash.
Linens 'n Things is going out of business. Circuit City is closing 155 stores. And Sharper Image, Steve & Barry's and a host of national retailers and small businesses have fallen into bankruptcy protection. With retailers projecting disappointing holiday sales, some economists say many more businesses will join that list in early 2009.
And businesses whose fortunes were tied closely to the housing boom don't expect the government's rescue packages to help them anytime soon.
"The people getting loans from banks, I think, are people in dire straits. I think not high on their list would be purchasing a pool table," said Douglas Kelly, owner of Champion Billiards & Barstools, who is overseeing a going-out-of-business sale at his five stores in suburban Maryland and Northern Virginia.