Joseph Jackson, owner of Jackson Pianos in St. Louis has outgrown his workspace, yet is unable to get the loan he needs to expand.
Last week the Wall Street Journal published an article by Emily Maltby titled "Collateral Damage In Lending".
It highlighted the problem many small businesses are incurring when seeking financing. Their efforts are being thwarted by higher or alternative collateral requirements.
Behind the credit squeeze on small business lies the collateral gap.
Many small businesses, thwarted in efforts to get loans, are saying it takes money to get money. That's because property and equipment assets have fallen in value, so businesses seeking loans are being asked for alternative collateral, often in the form of cash so that the loan is backed in case the borrower defaults.
The catch for most business owners is that if they had money sitting in reserve they wouldn't need a loan.
According to Kathie Sowa, a commercial banking executive at Bank of America Corp., one of the nation's largest small-business lenders, basic underwriting standards haven't changed: Cash flow must be sufficient to support the loan, and there must be a secondary source of repayment. That collateral was typically a combination of accounts receivables, inventory, real estate, equipment, and other business or personal assets.
But since real-estate and equipment values have plummeted, she says, business owners who may have landed loans in the past are now falling short of having sufficient assets. Cash can make up the difference.
Tony Corso, owner of Mi-Box Moving & Storage, has been tripped up by the collateral gap. He wants to buy more trucks and storage containers to meet brisk customer demand, which will increase cash flow at his two-year old business, he says. But the banks that have entertained the loan applications from Mr. Corso's West Haverstraw, N.Y., firm are willing to help finance those purchases only under conditions Mr. Corso can't afford, he says.
Three banks have asked that Mr. Corso use all the assets of his business as collateral—including his accounts receivables, containers, trucks and forklifts—and sign a personal guarantee, he says. Plus, he says he would have to deposit cash into a bank account, equal to the amount of the loan, which Mr. Corso had hoped would be at least $250,000.
"The loan requirements are so onerous," says Mr. Corso, who says Mi-Box pulled in $150,000 in revenue last year and hopes to break even this year.
Abound Solar which employs Russell Kanjorski, Congressman Paul Kanjorski's nephew, had no problem securing a $400 million FEDERAL LOAN GUARANTEE by the Department of Energy.
The same company, formerly called AVA Solar and now known as Abound Solar Manufacturing, received a $3 million federal grant in 2008.
Kanjorski said the loan guarantee was just "coincidental".
I guess Kanjorski's "Too Big To Fail" Amendment included parachute provisions for Abound Solar.
Small business owners are not included in the "too big to fail" category despite the immediate impact on their families, their employees, and their employee's families. If you are a Kanjorski possibilities "ABOUND" to minimize your consequences from bankruptcy, not once but twice, after all its the "CORNERSTONE" of their philosophical trademark.