Business Lending II

59% of business owners tried to get financing in the first half of 2010. That sounds like a lot to me and would indicate robust economic growth. Meanwhile Wells Fargo, Bank of America and JP Morgan Chase all report increased small business lending. With strong demand and growing supply we should have the solid economy we've been wishing for.

The interesting part of the story is that credit quality has deteriorated and there is a bifurcation in the marketplace. That's a fancy word for saying that the middle-ground is giving way to the extremes, much like pundits tell us about the vanishing middle class.

Small, small businesses (those under $1 million) are finding it very difficult to get financing. They don't have the assets to back these loans and are increasingly being squeezed out by bigger stores, deeper product lines, etc. There is only so much you can do with a business this small. Financing is hard to find and they can't afford the fees for professional help.

Lenders are also discriminating against certain industries. The WSJ (11/4/10) reported that a regional lender is specifically targeting professional practices such as physicians, veterinarians, accounting and engineering firms. Specifically, firms that don't depend on "discretionary consumer spending". The same article mentioned a successful 7-location restaurant chain that was unable to gain financing for an eight store.

I imagine an industry built on small businesses and consumer spending is probably having a tougher time than most. The consumer will likely return to carefree spending eventually but I think the squeezing out of smaller businesses will leave a lasting negative impact on our industry.

The right plan can still get financing these days but there is very little easy money in the Gift/Decor industry these days.

Jeff Sands is a Director with Dorset Partners LLC (www.DorsetPartners.com) which helps companies Revitalize in the face of serious economic challenges.