Smaller businesses feeling their share of pain

By Joyzelle Davis, Rocky Mountain News (Contact)

Published October 2, 2008 at 12:05 a.m.

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Photo by Dennis Schroeder / The Rocky

Eco-Products founder and president Steve Savage backs an electric scooter out of the company's beta store in Boulder on Wednesday. Eco-Products is one of the exceptions to the recent credit crunch now afflicting many businesses.

The credit crunch hit home this week at Ivy Pain and Rehabilitation.

The Broomfield medical provider, which specializes in chronic fatigue and fibromyalgia treatment, has long offered patients the option of financing their treatment through an unaffiliated private company - a practice first popularized by Lasik and cosmetic surgery centers.

On Monday, the company informed Ivy that its loan provider had ceased operations, so the company switched to a new lender that charged nearly twice the interest - as much as 18 to 24 percent - with a much lower acceptance rate.

"The patients we see more often aren't capable of working, don't have insurance and have already maxed out their credit cards for living expenses," said Kelly Tracy, office manager at Ivy Pain. "There really isn't any other option" for them to finance treatment.

The turmoil in the financial markets continues to tighten the availability of credit, a trend that's already been well under way for several months. Small businesses are particularly vulnerable as banks are screening out candidates with lower credit scores and more closely scrutinizing business plans.

Most small businesses with solid track records aren't having problems getting access to money, but business owners with unproven ventures, bad credit or that are in troubled industries like housing are having challenges borrowing.

"Everyone is looking at everything in a little more detail, whereas a year ago maybe that transaction would've been approved without those questions," said Andrew Spaulding, vice president and small-business lending specialist with First Community Bank.

First Community now draws the line at credit scores of 650 compared with 620 six months ago, but even with those tighter requirements the bank continues to make loans - including three to startups in the past 30 days.

Steve Savage, president of Boulder- based Eco-Products, which makes biodegradable food service items, is expanding into a bigger office with the help of a Small Business Administration loan and is in talks to extend his company's line of credit with Wells Fargo.

"If you've been a good customer in good financial standing, you're in good shape," he said. "I haven't experienced a credit crunch."

The number of government-backed Colorado small-business loans granted in the past year dropped nearly 23 percent to 1,844 as of Sept. 26, although that could change slightly when the numbers for the fiscal year are finalized in the next few weeks, said Chris Chavez, a spokesman for the SBA.

That drop in demand came in part because small businesses were already hesitant to expand before the recent financial turmoil. Many small businesses have been squeezed by high gas prices, paying more for supplies while cash-strapped customers are reluctant to spend.

A lot of the quality borrowers have decided "we aren't going to add those jobs, or we aren't going to expand right now. We're going to wait and see how this economy sorts itself out first," said Brian Burke, a consultant on small-business lending with the firm sbaAccess.

Burke added that SBA programs historically have provided credit for worthy small businesses and a government guarantee for lenders during tough times, and he "fully expects that SBA loan programs will continue to be a vital source of credit for small businesses during the coming month and years as we work out of this cycle."

The SBA's Colorado office on Wednesday announced it launched its first Small Business Economic Hotline to "give small-business owners a single phone number they can call with business-related questions." The number is 303-844-2607, ext. 401.

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