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Cash Flow Woes Undermine Area Firms
Steve Urbon, Standard-Times Senior Correspondent
NEW BEDFORD — It isn’t only individuals who are living week-to-week these days. Small businesses — healthy ones, established ones — are having cash flow trouble and could topple like dominoes unless someone intervenes with short-term loans, according to government and bank officials.
But loans are harder to get as nervous and sometimes overextended creditors clamp down. For a few, there is nowhere to turn. Their otherwise healthy businesses are going to fail.
The problem, said city Economic Development Director Matthew Morrissey, is that customers are having trouble paying their bills because everyone is being squeezed. “What we’re seeing is a trend of receivables going from 30 days to 60 or 90 days,” he said. “What that causes in a business is a cash crunch.”
In other words, businesses are having more and more trouble paying their own expenses: payroll, utilities, fuel, supplies.
Maria Gootch-Smith, director of the Southeastern Massachusetts Economic Development Corp., or SEED, told The Standard-Times, “financing is pretty tight for small businesses. And close to 90 percent of all the businesses in the SouthCoast and the entire region have less than 20 employees.
“A lot of those businesses, especially the smaller ones with five employees or less, used to rely on their houses for equity mortgages to provide collateral for business loans. A lot of these businesses didn’t have a lot of collateral, so they were using their personal assets, in some cases taking out home equity lines of credit and paying them down then getting another line,” she said,.
“That source has really dried up with the value of homes coming down and banks being a little bit stricter in who they’re making these loans to,” she said.
Things are probably going to get even worse as the seasons change, said John Hayes, senior vice president and regional loan manager for Rockland Trust, which has established business lending groups in New Bedford, Somerset and Attleboro.
“The full impact of home heating oil hasn’t hit us yet,” he said. The soft real estate market, meanwhile, “touches a lot of different aspects of the economy including contractors, subcontractors — an awful lot of people.”
With all of these players having trouble paying their bills, receivables are piling up in many places, he said. Rockland, he said, is still managing to lend money “on a case by case basis. It really depends on the ultimate strength of some of those receivables.” Nonetheless, he said, “some people are going to have to sell assets or pledge additional collateral” to obtain business loans.
Bob Smyth, president of Citizens Bank in Massachusetts, said the bank is “stepping up with existing customers” to meet their cash flow requirements, In particular, he singled out fuel oil distribution companies as requiring more cash on hand simply to keep the supply lines running with prices in the $4 per gallon range.
He said that generally, commercial lenders in this region are competing for business, a “and in Citizens case we have not really tightened” credit requirements. That’s because Citizens has avoided highly leveraged loans. “We’re doing prudent lending,” he said. “We didn’t do the issues you’ve been reading about. We didn’t do subprime lending.”
He said that with 11 regional offices, Citizens is making many substantial commercial loans — and not all of them to businesses. “We stepped up with Mass. Development for a $1.2 million loan for the conversion of a former Catholic School into the Global Charter School,” he said. “In the second phase there will be $700,000 for elevator improvements to that school.”
He added, “We’ve developed a loan program with (state) Treasurer Timothy Cahill that has made $25 million available so far for about a dozen companies.
He said his bank is also “constantly looking for things to do” with loans for small businesses in the low- to moderate income community.
So while times are tight, for a large part of the business community, not much has changed on the credit front. For others, however, it is a very different story. Many very small businesses, perhaps without a business plan good enough to impress a loan officer, survive by the efforts of their owners to scrape together whatever they can from whatever the source.
Mr. Morrissey said that even familiar, established businesses can find themselves shut out by the banks.
This is where his office — and others like it — can step in. He said that the city’s Economic Development Office recently extended a low-interest loan to a local family-owned business that goes back 4 or 5 generations but was having trouble collecting payments from its customers. “They had several hundred thousand dollars in receivables and they needed help making the payroll,” said Mr. Morrissey. “It’s that simple.”
“These are good businesses employing people at good wages. There are a number of deals like that that we’ve done, and we’re probably looking at several more in the near term.”
The Economic Development Office is not a charity, he stressed. “We’re not in the business of providing grant money. We have to look at the validity of the business.” And while interest is kept low, it’s not zero. The loan pool, established 15 years ago with federal money, is about $2 million. Any money loaned to the office by Mass. Development costs about 6 percent.
Loans are screened by a panel of 9 bankers and five community members, said Mr. Morrissey, “and our whole mission is keeping people employed.”
“We haven’t turned anybody away with a backlog of receivables,” he said. But “businesses that might not be suitable startups.” that are not thought through, will not pass the test.
“If we get 15 or 20 calls, five will be worth having a real meeting about. The rest we will work with to help in the business planning. We do a lot of hand-holding,” he said.
Ms. Gootch-Smith said that at SEED, things work much the same way, although there are some businesses that are beyond rescue. “I think there are some good people in tight situations out there that we can’t help, because they have no way to pay those loans,” she said.
Where her organization can help, she said, is getting functional businesses past a crisis, such as the loss of an important piece of equipment. At the same time, she said that as SEED steps in, business owners themselves are having to cut back on what they can, starting with their own salaries. “They won’t take as much. They’ll cut back on their lifestyle if they can,” she said.
But then there are those on the next smaller step of the business food chain, those tiny startups that need just a small amount of money to get going, but have no hope of applying for a Small Business Association loan or even qualifying for what SEED and the city offer.
Mr. Morrissey said that the city is developing a “micro loan” program to answer the call. The concept is to offer very small loans, in the neighborhood of $500 to $2,500, to people who have a promising startup — perhaps an ethnic business, perhaps a service business — and who need to prime the pump with enough cash to buy some supplies and maybe rent space.
Corrin Williams of the city’s Community Economic Development Center will run the program, and she said one focus in particular will be the Acushnet Avenue area “where businesses are really in need of assistance.”
For some applicants, before there is any money there will be counseling and training in business practices to get them on their feet and keep them there, Ms. Williams said. These “micro” businesses “have been turned away (by lenders) from time to time, no doubt about it,” she said.
Contact Steve Urbon at surbon@s-t.com
September 07, 2008 6:00 AM
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