Lack of customers, assets stunting growth of small business

By Binyamin Appelbaum and Ylan Q. Mui
Washington Post Staff Writers
Tuesday, February 23, 2010

The Obama administration says the nation's small businesses are waiting for loans so they can start growing again, sparking economic recovery.

Many small-business owners say they're still grappling with a more basic problem: They don't have enough customers.

A survey to be released Tuesday by the National Federation of Independent Business, a trade group, found that 51 percent of small-business owners reported a lack of sales as their greatest challenge. Only 8 percent cited a lack of loans.

In addition, the NFIB found that the drop in home prices has made it harder for many small-business owners to qualify for loans because they can no longer pledge their homes as collateral.

The fundamental nature of the problems -- lack of sales, lack of assets -- underscores the difficulty in jump-starting small-business growth while the broader economy continues to struggle.

William J. Dennis Jr., the NFIB senior research fellow who headed the survey, said recent administration proposals, including $30 billion in new federal aid for community banks, were not likely to help. But he also said the NFIB was at a rare loss for ideas on what the government should do instead.

"We're really in a quandary right now," Dennis said.

Administration officials said that the latest proposals were part of a broader effort to revive the economy, including the massive stimulus package passed last year, but that they were critical because more businesses were struggling to get loans.

"The president would not have made passage of a $787 billion stimulus plan his first priority, and would not be pressing for additional measures to spark job growth today, if he did not understand the primary importance of spurring economic demand," said Gene Sperling, a counselor to Treasury Secretary Timothy F. Geithner. "However, there is no question that as the new NFIB survey makes clear, one of the key elements that can weigh against recovery is whether credit-worthy businesses are being denied the loans that they need to expand and create jobs."

'Brick lending'

President Obama unveiled a new focus on small businesses in his State of the Union address, responding to massive political pressure from Democrats, including congressional leaders who complained that the administration was overly focused on helping large companies and banks.

A key element of the new plan is to reverse the decline in lending to small businesses. Banks reduced the amount of money extended to small businesses by $15.7 billion, or 2 percent, between September 2008 and September 2009, federal data show. Obama proposed a new round of federal aid to community banks, up to $300 million per bank and $30 billion in total, to bolster the capital reserves that banks hold against unexpected losses, letting banks make more loans and take more risks.

But many small-business owners say that they're not ready for a trip to the bank. David Borris, who runs a catering business outside Chicago, said his revenue dropped 14 percent last year as companies cut back on events and families reined in celebrations. "We need to see money moving into the pockets of the middle and upper-middle class," Borris said. "Those are my customers."

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