U.S. small businesses squeezed in credit crunch

By Steve Gorman

LOS ANGELES (Reuters) - The turmoil on Wall Street is aggravating tough economic times on Main Street as small businesses, accounting for half of U.S. private-sector goods and services, begin to feel squeezed by the credit crunch.

Newly tightened lending requirements imposed by some banks are putting added strains on companies already coping with a slowdown in consumer spending since the housing slump took hold some months ago.

Hardest hit are wholesalers and inventory-driven retail businesses such as hardware and electronics stores, appliance outlets and car dealerships, said Eduardo Martinez, an economist for the Los Angeles Economic Development Corp.

Such companies frequently need quick cash infusions to restock inventories, expand business or meet payroll during slow periods or between collections from their customers, Martinez said.

"It's a lot harder today than it was a couple of months ago to get access to short-term loans," he told Reuters. "It's another challenge that companies are facing in a very tough, very bleak economic environment."

Tightening consumer credit has likewise taken its toll, especially on sales of cars and other big-ticket items.

"The most difficult part of all this is it continues to put the onus on business owners to work twice as hard to get nowhere near what we were getting before," said Carolyn Lefebvre, chief executive of Phoenix-area auto-parts supplier Autohaus Arizona.

Her company's credit line was slashed in late July by about 80 percent, from $300,000 to $51,000, which "caused significant problems for me."

'TIGHTENING UP'

Mark Strong, owner of a Philadelphia-area electronic parts manufacturer, JLI Electronics, said two banks recently shut down his credit lines altogether after 10 years.

Without them, Strong said, he faces thinner profit margins as he is forced to buy smaller quantities of inventory more frequently, missing out on discounts he might otherwise gain if he had the cash to buy greater volume.

"The upshot of this is when your credit line dries up ... your costs go up," he said. "And then, as you realize your credit lines have dried up, the same has probably happened to some of your customers, so you start tightening up on how much money you're going to allow them to owe you."

The potential ripple effect of cash and credit constraints loom large for Tonya Jones, owner of general contracting firm Mark IV Enterprises in Nashville, Tennessee, who worries about payments slowing from customers who owe large sums.

"If one of my customers gets in trouble and can't get their cash ... it could devastate my company," she said.

None of the business owners who spoke to Reuters said they thought their credit woes would prove fatal. And all said they expected to weather the storm.