In 2002, Paul Fraynd started his landscaping business, Omaha Friendly Services of Omaha, Neb., with a $50 used mower and a line of credit worth significantly more.
“I was nineteen years old, and I went to the bank and got a $20,000 line of credit,” says Fraynd. “I enjoyed mowing lawns in high school and I didn’t want to work for anyone else. It was the freedom of the whole thing.”
What a difference a decade makes. In the past nine years, Omaha Friendly Services has grown into a full-service company with $750,000 in annual revenue. Fraynd doesn’t mow lawns anymore. Instead, he spends most of his time in the office, preparing bids for new jobs, collecting past due bills from customers, and purchasing supplies and equipment.
Despite the recession, business is decent and Fraynd remains upbeat about 2011. Yet his life has become considerably more complicated since he started the business, in part because of banks’ reluctance to lend money.
“Our previous growth was carefree, but keeping up with volume has definitely become an issue for us,” says Fraynd. “When I started the business, anyone could get a line of credit. Yet despite the growth in our business, I’ve been turned down for an expansion of our credit line. It’s hurt our cash flow.
“We’re to the point of living almost paycheck to paycheck,” he adds.
Lack of credit has had a widespread impact on U.S. small businesses. A recent study by the National Small Business Association found that 41% of small business owners can’t obtain adequate financing, the highest level in 17 years. Landscape businesses are no exception.
Even seasoned companies that don’t rely on credit for equipment needs or day-to-day expenses are not immune to the credit crunch’s far-reaching impacts.
“We’re not seeing jobs of the scale or magnitude that we’re used to,” says Tommy Gresley of Gresley Landscapes in LaGrange, Ga. He says that large projects are on hold in part because it’s tougher for businesses to get financing.
As a result of the credit crunch, firms report delaying expansion plans, putting tougher collection procedures in place, passing up bids on larger projects and delaying equipment purchases. They also say they’ve been impacted by their customers’ credit woes, and that slower payments make it harder to pay their bills.
Like other businesses, landscape companies typically use credit for short-term expenses such as purchasing fertilizer and other supplies, long-term expenses such as buying a truck or other equipment and to seize opportunities for growth when cash isn’t available.
Contractor Credit
Some owners also report difficulty obtaining credit from suppliers, making it tough for them to keep up with their own business demands.
Jason Reinke, a former automotive technician who started BPI Lawn Care in Livonia, Mich., after getting laid off from two different jobs last year, says that he plans to expand gradually, in part because of lack of credit.
“I have a small limit on my business credit card, which limits the amount of supplies or equipment that I can purchase at any one time,” says Reinke. He has applied for additional credit, but has not yet been approved.
Fraynd agrees. “Many of our vendors don’t offer contractor credit anymore, which means we have to pay them in cash,” he says. “That’s a triple whammy because our customers are paying more slowly and we haven’t been able to expand our credit line.”
Other contractors report that they’ve delayed equipment purchases due to the fact that it’s tougher to get credit these days.
“With some larger purchases, the percentage rates on the credit that’s being offered are higher than they were a few years ago,” making credit more expensive, says Ben Carter, who owns Carter Land Services in Jesup, Ga.
Customer Credit
Slow payments from customers pose another challenge. Fraynd used to waive late fees if his clients were a few weeks late; now he’s cracking down.
“We used to be lax and let our customers go forty or fifty days,” says Fraynd. “Now we call when it’s due, and we’ve stepped up our collections.”
To avoid getting stuck with the bill, Fraynd says he’s gotten more selective about new clients and is more likely to ask for a down payment.
While Carter says that most of his clients are reliable in making payments, he’s noticed a steady decline in the scale of many jobs.
“The homebuilders and commercial clients that I’ve been working with are cutting corners like crazy,” he says. “After it’s dumbed down, a $20,000 landscape plan might become a $14,000 plan.”
Tyler Boac of Boac Lawn Care in Galesburg, Ill., says that while he hasn’t had collections trouble, he has lost customers due to the economy.
“I’ve had customers ... hire a neighbor that’s out of work to do it for ten or fifteen bucks,” says Boac.
Curbing Growth
Jason Reinke looks around at his hard-hit neighbors in Livonia, Mich., and is grateful to be his own boss. He’s set his sights on expansion. For now, his plans remain modest out of necessity.
“I’m being conservative right now, but I might expand more quickly if the economy were better and if credit were more available,” says Reinke, who has no employees and about twenty customers.
The credit crunch has had an upside because it forced Omaha Friendly Services to “grow in a planned way, not willy-nilly,” says Paul Fraynd. Yet he’s also frustrated because he sees the opportunity to expand yet lacks the resources.
“Lack of available credit has handcuffed us,” he says.
Other companies report that they don’t miss the additional business – in fact, they’d rather focus on keeping their existing customers happy.
“There’s not a lot of new construction happening right now, and in most cases I don’t want to mess with it anyway,” says Rich Moreman of Four Seasons Landscaping in Auburn, Ala. “There’s a lot of competition and people willing to work for cheap. I’d rather focus on taking care of the customers I’ve got.”
The author is a freelance writer based in Cleveland.