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Small Businesses Work Around Credit Crunch

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Small Businesses Work Around Credit Crunch

Inside Green Home Experts (WBEZ/Adriene Hill)

While politicians bicker over what comes next for the $700 billion bailout plan, and economists warn of a dire future, small businesses are already feeling the pinch. The credit crunch and broader economic downturn are forcing Chicago-area entrepreneurs to rethink their business models. They’re trimming costs and looking for funding outside of traditional financial institutions.

Entrepreneurs never have it easy. A new business owner takes on big risks and very long work days. The current economic troubles make the decision to start a new business even harder.

Erica King is the finance consultant at the Women’s Business Development Center in Chicago. It’s her job to help current small business owners and wanna-be business owners with the financing process. And right now she doesn’t have a ton of good news.

KING: For those that are looking to start businesses, we are letting them know that obtaining financing right now is challenging.

She says it’s not impossible for the right person with the right idea and great credit to get a loan. But it’s hard. She says at least one local bank isn’t making any new small business loans right now. Banks aren’t in the mood to take a lot of the risks associated with first time business owners.

KING: There’s not much historical data. There’s not much that the bank can look at to see well this is the performance. There’s no resume. This is a new business. This is a new venture. There’s a lot of risk.

New businesses aren’t the only ones feeling the credit crunch. Existing businesses are also being squeezed. Credit lines are being cut or reduced which is hard at the same time that the economy is slowing and businesses might need to draw on that funding.

KING: We have some customers that have been with their banks for a long time and they go to their banks for financing and they are finding it to be very difficult. Relationships have been great but banks are nervous. And can you blame them? No, you can’t. So they’re having difficult times. They are, they really are.

ONESTO MORAN: I know business owners who lost their lines of credit. I know business owners who banked at WaMu and now there isn’t a WaMu.
Maria Onesto Moran owns Green Home Experts, a small retailer in Oak Park that that specializes in eco-friendly products. She sells everything from baby supplies to environmentally friendly house paint. She just in opened February with private funding.

ONESTO MORAN: We are incredibly fortunate and I thank God every day that I don’t owe my bank any money.

The economy has affected her in other ways. The building materials side of her business has slowed. She’s had to ask her clients to pay sooner for special orders. And her vendors are asking her to pay quicker, so she’s not stocking up on inventory.

ONESTO MORAN: It’s certainly made me realize what we need to get by…personally and professionally. There’s a big difference in what we like to have and what we need to have.

But as the economy gets tighter and tighter, her financing model has helped keep her business up and running. More and more businesses are working around the traditional financial system for funding these days.

Jason Felger is the executive vice president at the Chicagoland Entrepreneurial Center. He says the businesses he works with are looking to reduce costs and expenses. And they’ve started looking for money in other places.

FELGER: That means they need to turn to other financing vehicles to support what they are doing. Whether it is angel investors or friends and families or unfortunately, there own personal savings, credit cards, whatever they need to do to keep the business moving.

Right now for a lot of businesses in this economy it’s all about survival. But Felger says the economic situation could help some companies in the long run—as they get smaller and more efficient to get through the tough times.

I’m Adriene Hill, Chicago Public Radio.

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