Patty in the News

The nation’s economy is growing and the Great Recession appears to be over. But for small businesses trying to get a loan, things are more bleak than ever.

I listened in this morning as five small business owners met with Sen. Patty Murray to talk about how hard it is to get access to credit. Murray is sponsoring a bill that aims to help. More on that later. But first, the tales of woe.

Hanna McElroy, owner of Magus Books in the University District, needed $100,000 to keep her business going through the downturn in 2008-2009. After Wells Fargo and BECU turned her down, she borrowed the money with credit cards.

Her business brings in about $500,000 a year in revenue, and is profitable in part because she laid off the equivalent of two full-time employees, she said. “What I want is a $100,000 line of credit so I can consolidate (the credit card) debt” at a lower interest rate, McElroy said. But she can’t find that loan. So she’s paying credit-card interest rates.

George Pieper, owner of Outsmart Office Solutions, a furniture store on Mercer Island, said his line of credit was called in by the bank during the downturn. He talked the bank into converting it to a term loan, but the new terms tripled his payment, he said. “I had to go get payday loans,” he said, so he could buy inventory.

He borrowed $5,000 from the pricey money lenders and laid off five of his seven employees, leaving only himself and his co-founder.

The cost of such financing is huge. “I’ve already paid $8,000 on a $5,000 loan and I still own $3,000,” he said.

There were other tales, too. Danielle Cone, owner of Fuel Coffee in Seattle, said the bank sent a letter in late 2008 saying she had a couple of weeks to pay her loan in full. “There’s never a good time to have a loan called in, but this was definitely a difficult time,” she said. “I was desperate. When you need the money the most, these days, that’s when you can’t get it.”

Murray listened intently to the group, gathered around a table at the Tutta Bella pizza restaurant on Stone Way in Seattle. Owner Joe Fugere, despite running four locations and having annual revenue of about $9 million, also has had trouble finding credit. His bank turned him down for an expansion loan, he said, because restaurants are considered a “risky category.” Eventually, Issaquah Community Bank lent the money, he said, so he could open his fourth restaurant.

Murray’s bill, S.2867, would ask the U.S. Treasury to devote $30 billion in TARP funds to buy toxic loans from community banks. This would strengthen the banks’ balance sheets, helping them lend capital, rather than sit on it, Murray said.

“We’ve seen community banks really freeze their assets” because of bad real estate loans, she said. Once the impaired loans are removed, investors are likely to help recapitalize the banks. This approach is better than simply giving banks capital, as TARP did, because the banks are unlikely to lend it if they still have weak balance sheets. Instead, they will be inclined to hold on to the money in case more loans go sour.

Lending conditions for small business directly affect the economy — through employment. Even though U.S. GDP rose at annualized pace of 5.7 percent in the fourth quarter of 2009, unemployment is still rising. Until Magus books, Tutta Bella and OutSmart can get cash to operate, they won’t be able to hire workers.

“If I could get a decent line of credit with a decent interest rate,” McElroy of Magus Books said, “I’d be ready to move forward, to grow.”

Credit will help small businesses resume hiring, Murray said. “The key to that is getting our community banks feeling strong again.”

- Puget Sound Business Journal