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Small business owners await Congress to loosen credit

Business Forecast

| August 5, 2010

PITTSBURGH – For Chloe Velasquez, what began as an exciting foray into starting her own North Side business in 1996 became slowly typified by the time-old tradition of robbing Peter to pay Paul.

Now, with a steadfast desire to repay her debts, Velasquez is trying to rebuild her business, Sabio Springs bottled water, and might -- just might -- finish in the black this year.

As Congress debates a $30 billion bill that also would offer $12 billion in tax cuts and aid to community banks and small businesses, Velasquez said she is skeptical about anything banks do, wondering if it would have been easier to obtain funds from a loan shark rather than a bank.

"[It's] a banker's mentality," she said. "They will look at you as a small business, but judge you as a large business."

While loan sharks might not be the answer to the lending and credit woes facing small businesses, traditional bank loans don't seem to be fitting the bill either. According to statistics from the National Small Business Association, just 43 percent of small business owners used a bank loan to finance their company through July. That's down from 53 percent this time last year.

Shawn E. Thomas, a finance professor at the University of Pittsburgh and former bank examiner for the Federal Deposit Insurance Corp., said the decline in small business borrowing is more of a demand story than a supply one.

He said small businesses have been reluctant to invest heavily, given the sluggish economy and consumers' reluctance to spend.

Both Thomas and Dave Weber, vice president of Small Business Banking at Dollar Bank in Pittsburgh, said there are funds available.

"Everyone blames the leading institution for not having capital and I think we see it a little differently. I think borrowers are gun-shy, to be honest," Weber said. "There's not a whole lot of capital expenditure because everyone is in a wait-and-see holding pattern."

Weber also said that regulators have created an almost Catch-22: They want banks to lend, but want "A++" credit ratings, which is virtually impossible in this economy.

Data from the National Small Business Association say that 80 percent of small business owners report being impacted by the credit crunch, which is on par with last year's numbers.

When Velasquez started her company with her cousin in 1996, she received a Small Business Association loan for $50,000, but that wasn't enough capital.

Read more at the Post-Gazette.
 

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