A Bailout For Small Business?
Owners Worry That $800 Billion Package May Not Help

By V. Dion Haynes
Washington Post Staff Writer
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.

"People are not worried about filling their houses with furniture," said Kelly, who this year filed for bankruptcy and is selling his tables -- some priced at $29,611 -- for half off. "They're worried about saving their house."

The credit crunch has benefited a few businesses, including those catering to customers who are skittish about buying new clothing and costly big-ticket items, such as cars and appliances, on credit. Some auto repair shops in the area have been getting more customers seeking to put off new-car purchases by repairing their old vehicles. And consignment shops, which allow people to save money by buying used clothing and make money by turning in their old items, have been booming.

"I've seen a 20 percent increase in traffic coming into the store" compared with a year ago, said Ellen Didion, owner and president of Chic to Chic in Gaithersburg. In a survey released this week by the National Association of Resale & Thrift Shops, 74.2 percent of the 182 shop owners interviewed said sales increased an average of 35 percent in September and October compared with last year.

Didion added that demand was so high that she decided to open a second shop, in Frederick, in September. Interest is "off the charts," she said.

But Vanessa Baugh, who owns Vanessa Fine Jewelry in Lakewood Ranch, Fla., is on the opposite end of the spectrum.

"The credit crunch has stopped everything," Baugh said, adding that her bank reduced her credit line by 30 percent and that she's had to dip into personal funds to make up the difference. Meanwhile, she said, shoppers are staying away in droves.

Last week, she said, two women were considering diamonds before getting spooked by a stock market report on their BlackBerrys. "They were like, 'Oh my gosh, the Dow just closed lower than it's been in years,' " Baugh said. "They said, 'You know what, we need to go.' "

The credit crunch has forced many businesses to become more creative.

Wal-Mart began sending interactive text messages to customers -- with photos and product ratings -- alerting them to bargains. Winn-Dixie has introduced a prepaid debit card for shoppers who may not want or be able to buy groceries with a credit card. And Brookstone, seeking to spur more store traffic, is giving customers a 15 percent discount on purchases when they bring in competitors' gift cards.

Locally, Greenwald of M&M Appliance beefed up the retail side when commercial sales, which had represented 80 percent of the business, flagged. He decided to revive his appliance-reconditioning business, expand his selection of products and keep the shop open longer hours.

Still, Greenwald said, he has yet to replace lost revenue. He has asked vendors to increase lines of credit because he doesn't always have enough money to pay them. At the same time, he's had to impose a credit crunch on his customers.

Greenwald said he dropped a 30-days-same-as-cash program for retail customers; now they have to pay upfront. And he's making sure developers have funds before he places mass orders for them.

He said he has lost too much money buying products that have sat in his warehouse for months when customers were slow to pay.

"We can't afford to go chasing our money," he said.