U.S. credit crunch hits jobs-rich small businesses

By Nick Carey

ST LOUIS (Reuters) - Small businesses in the United States have historically been the backbone of the jobs market, but they too are now feeling squeezed by the credit crunch and tighter lending standards as the U.S. economy weakens.

"The music has stopped," said George Cloutier, chief executive of Orlando, Florida-based American Management Services Inc, which provides consulting and training to small and medium-sized businesses across the eastern half of the United States. "And there are not many chairs to go around."

Cloutier said his customers have complained that it is becoming ever harder to obtain loans. Tighter credit conditions have come as banks scramble to preserve capital amid the U.S. subprime-loan debacle and soaring home foreclosures.

"Banks have chosen to shore up their balance sheets at the expense of small businesses, which account for more than 50 percent of U.S. jobs," Cloutier said. "Unless you have a great credit rating, forget about getting a loan right now."

According to a quarterly U.S. Federal Reserve survey of senior loan officers in April, 52 percent of respondents said they had tightened lending standards for companies with annual sales of less than $50 million, up from 30 percent in January.

The U.S. Small Business Administration said through April it had issued about 20 percent fewer 7(a) loans than the same period last year. The loans are SBA's most popular, carrying a government guarantee for lenders of up to 85 percent.

"As a reflection on the general economy (the) SBA has seen a decline in its loan guarantee volume both because of a lower demand for capital and because of a tightening of credit standards," SBA spokeswoman Christine Mangi said.

Concerns are rising that more small business owners are tapping high-interest credit cards instead of conventional bank loans. Many entrepreneurs are also stuck with large home equity loans they cannot refinance after property values have fallen.

"We're hearing from a lot of folks that they are paying more for their loans or they are stuck," said Todd McCracken, president of the National Small Business Association (NSBA).

In a May 15 poll of NSBA members, 48 percent of respondents said the credit crunch had hurt them.

Entrepreneurs like Jim Brumley say they have found it harder to gain access to conventional bank loans.

Brumley, 55, wanted a $30,000 loan to expand his St. Louis pet shop, Exotic ARC, which sells lizards and snakes ranging in price from less than $10 to thousands of dollars.

"I've owned this shop for 14 years, my credit rating is good and I've never had trouble getting a loan before," Brumley said while showing off some of the more exotic snakes in his tropically hot, humid store. "But the bankers I spoke to said this time round it would be harder to get credit because the banks got burned by a lot of bad loans."

So last October he arranged a loan with a local nonprofit

group, Justine Petersen, in two installments of $15,000.