More than four months have passed since Deborah Smook began searching for financing for her small packaging business – four months of false starts and dead ends.
That's how she ended up here, under the fluorescent lights of a cafeteria on the sixth floor of a labyrinthine government office in lower Manhattan. She's patiently waiting her turn to speak to lenders at an event aimed at matching small companies with sources of funds.
“It's a very hard time for small businesses,” she says.
Further uptown, only a couple of days earlier, the picture couldn't have been more different. In the skyscrapers that house the country's largest banks, traders handily sold a huge bond offering by Kraft Foods in a matter of hours, swelling the firm's coffers with the $9.5-billion (U.S.) in cash it needs to swallow a takeover target. The demand for such bonds proves they're in “a sweet spot,” noted one market analyst.
As the U.S. tries to navigate its way out of the worst recession in decades, companies see two very different economies, depending on their size. Large, established businesses can borrow money from investors through the corporate bond market, which has come roaring back to life after shuddering to a halt during the financial crisis. Small firms, by contrast, aren't so lucky: They don't have the option of bypassing banks, which remain wary of lending.
That dichotomy is becoming increasingly central to the fledgling economic rebound. Traditionally, small businesses have provided an outsized proportion of new jobs as the U.S. economy emerges from recession. But without access to capital, it will be difficult for them to play that role.
“I'm hearing it everywhere I go,” U.S. President Barack Obama said at a town hall in Tampa last month. “You've got a lot of small-business owners who are ready to grow, ready to hire, but they just can't get financing.”
Earlier this month, he unveiled a number of proposals targeting smaller firms, including a new $30-billion fund aimed at getting them more bank loans.
That's music to the ears of the hundreds of small-business owners who packed into a conference room at that Manhattan government office last week. Each clutched a specially coloured ticket which entitled the holder to three five-minute sessions with some of the 28 lenders who had taken up positions in adjoining rooms.
Ms. Smook was one of them. TurboFil Packaging Machines, the company where she is the vice-president, sells the machines that fill and assemble vessels for everything from nail polish to teeth whitener. After 10 years of steady growth, the company saw its sales fall last year for the first time, she says, “but we made it through.”
Late last year, the company landed a government contract, which would mean hiring new employees beyond its current staff of 10. In order to get the business, however, TurboFil would need some specialized financing, largely to protect initial payments by its customer in the event the company didn't complete the order. Their existing bank – JPMorgan Chase – said no, Ms. Smook says. “They did not show any interest.”
As it turns out, her five-minute chats with lenders didn't yield anything either, but Ms. Smook says she's waiting to hear from two less-sizable banks. “As a small company, you need a small bank,” she asserts. “That's the mistake we made.”
A spokesman for JPMorgan Chase said that TurboFil has a line of credit with the bank and that it would review any application the company would submit. He said the bank intends to increase lending to small businesses to $10-billion in 2010 from $6-billion last year.
Large companies, while still facing challenging economic conditions, don't have anywhere near the same issues with financing.
