Credit Woes Hit Home

[girl gone mad]

From http://online.wsj.com/article/SB123879980211788403.html">The Wall Street Journal:

Credit Woes Hit Home

For two years, Jack Diamond used his Bank of America small-business credit card to finance his plants-and-aquatics nursery business in Tampa, Fla. He would use the credit card to purchase plants, then pay down his balance after he sold lilies, pond plants and aquatic fertilizer to customers.

Last September, Bank of America Corp. cut the $46,000 credit line on his card to $27,200, just a few hundred dollars above his current balance. He couldn't buy the plants, seeds and equipment he needed for his spring selling season. He laid off six of his eight employees.

"I'm almost living paycheck to paycheck," says Mr. Diamond, 55 years old, who is considering filing for business bankruptcy.

Even as wobbly banks tighten up on consumer credit cards, they are also cracking down on small-business owners by slashing their credit lines, closing accounts and raising interest rates. A recent Federal Reserve survey found that about two-thirds of banks' loan officers reported that they tightened terms for business loans in recent months. Meanwhile the National Small Business Association, a trade group, said 69% of 250 surveyed small-business members faced worse terms on their cards, such as higher interest rates, in the second half of last year.

Banks have reason to get tough. In a bad economy, small businesses are usually among the first victims. Credit-card issuers have seen a surge in charge-offs, or debts no longer expected to be paid, over the past year as small businesses fail.

But the credit-card squeeze couldn't come at a worse moment for the estimated 27.2 million small-business owners who have long been one of the growth engines of the economy. Many, especially start-ups, don't have the track record or size to qualify for traditional bank loans. Even many established small-business owners use credit cards to pay salaries or buy inventory.

"People are using their credit cards to keep the businesses going, so when that dries up, the businesses go," says Jeanne Marie Cella, an attorney in Media, Pa., who has seen a significant increase in small-business owners filing for bankruptcy.

[Trajan]

1. THAT is what the 'bailout' SHOULD have been about ....

Making the money available to small business owners to stay afloat: NOT paying the VERY rich the money the rest of us worked hard to accumulate ....

[truedelphi]

13. The 2.9 to 8.1 Trillion dollars spent in

All the various plans and projects would have allowed Obama to instead liquidate the big guys that were failing, putting them into receivorship.

And then he could have placed the money that wasn't needed to figure out the problems that the liquidation caused into a new Central and Federally owned bank. I ikmagine he could have used 85% of the money for that purpose.

The small business person has been hit both times. AFter all, when the economy was expanding, no one wanted to help you because it was "better money" to put money into the stockmarket. If you approached a rich auntie or friend for a loan, even offering them 6% interest, you'd be told that the stock broker who helped them got them more in the stock market.

Now the stock market has crashed out. And so the very banking system that the small business owner was forced into accepting now rescinds the lines of credit. SO the small business owner is going bust.

Yet as a taxpayer, this small business person has to pay taxes for the Bailouts, and has to worry about devaulation or inflation that might hit our economy (Inflation and devaluation being the worst type of taxation for a middle incomed person.)

[MADem]

2. This crap will create a new generation of mattress stuffers of a different sort.

Most people of a certain age have or had at least one relative who would keep what seemed like dangerously large amounts of cash in the shoebox in the closet, or in the mattress, or tucked in that old copy of Little Women on the top shelf of the family library, or some goofy hiding place like that. The more modern sorts would wrap the cash in tin foil and stuff it in the freezer.

These people did this because their banks failed them, literally.

With these credit card companies being such assholes, if these businesses can stay afloat and eventually thrive, I would not blame these owners for just saying "Eff YOU!" to the credit card companies, and, through working extra-hard, pinching pennies, and sacrificing, developing their OWN "line of credit" in the form of savings that they tap, and telling the credit card companies that they do not want or need their business.

That's what I've done, on a personal level. I finance myself. I don't "do" credit cards anymore. I'm much happier, too.

[NMDemDist2]

3. i use a slightly more modern 'mattress'

a fire safe hidden away on the property

weighs a ton, and is tied down to boot

[girl gone mad]

4. My grandmother passed away not long ago.

Relatives are still finding money in picture frames and inside of vases. They had an estate sale before they realized how prevalent the money stashing was. I'm guessing some of the buyers got good bargains.

[Tangerine LaBamba]

5. If you can do it, yeah, it's the only way to go ............

I'm lucky, like you. I don't use credit cards, work off a debit card that uses the money that's there.

My parents grew up during the Depression. I learned from them that you don't buy anything unless you can pay cash for it. There are exceptions, of course, like buying a house, but, especially now, with the voracious credit card pushers out there sucking the life out of people, I'm very happy to be outside that world.

I read about a guy whose credit line with B of A was cancelled, and he was nuts, because his business existed on that credit line. So he went to a local bank, and got a much better deal. It had never occurred to him to deal with the place ONE BLOCK away from his business.

Maybe that's where all of this will take us. Banks need just to be banks again................

[MADem]

7. Here's hoping. There used to be too few banks--now there are too many.

Some of the culling might be a good thing.

It took me no small amount of time and discipline to get to the place where I am now. It helps, of course, that my needs are few, I'm not a follower of trends, I don't "need" the latest gadget, I don't have to patronize the latest new restaurant or go see the brand new film, and I like driving a crappy car that is almost an antique. It also helps that I'm not a spring chicken. I've been there, done that, bought the tee shirt. I had my (thankfully brief) time when that kind of "latest/greatest" lifestyle was important. I realized pretty quickly that the latest thing was pedestrian after six months and on sale at the discount house in a year, for the most part.

Now, I get a kick out of a bargain! That's more fun than the newest foolish thing!

[Tangerine LaBamba]

8. In the twilight of my life,

or something close to it, I've been having a great time getting rid of things. I seem to have spent the first part of my life accumulating stuff, and now I'm having the simple pleasure of giving it away. People receive packages from me - I got nice stuff - with letters telling them about the items enclosed, and, boy, does that make for some really good times!

Stuff. It once owned me. Now I own it, and so I can divest. I have more than everything I could ever need or want, my needs, too, are simple, and life is very easy now.

One thing, though - I never paid retail. I just couldn't. Bargains have always been the whole point for me - if I couldn't get what I wanted at a price, I didn't want it.

[davidwparker]

6. Amen !!!

[ConcernedCanuk]

9. 27 grand on a credit card - wow - that's a wee bit much methinks . .

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I cut my credit cards up 29 years ago, and never looked back.

I don't own much, but I OWE NOTHING!

Nothing will go to "creditors" no matter how poor I get, as everything I own is paid for.

My "payments" include dwelling costs, truck insurance, phone/internet service - that's it!

If times get really rough - I can drop the truck insurance and the phone line

I won't lose a thing, nothing is owed for.

No credit card for this guy - I'm keeping what I own . . .

[Po_d Mainiac]

11. For a small business, that's peanuts.

Especially one that has seasonal spikes. As to why this guy is using plastic instead of a local bank, does make one wonder though. Most banks will issue a line of credit to a retail operation up 40% of gross on a tax filing doc. alone. For the difference in interest charges, he could buy twice as much as he'd ever get in so-called "free miles"

[ConcernedCanuk]

12. My point was it was on Credit Card rather than a bank loan

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Credit cards really rape you in interest charges ..

[truedelphi]

14. Start ups do not get offered bank loans. They get offered credit cards instead.

Things have changed an awful lot over the years.

Back in the eighties: A friend of mine, who knew electronics, physics and computers inside out, but knew little about money and how it worked, once had to purchase a $ 45K set up of components to put together a mainframe for Stanford University. Once he had the components, he could develop the system they wanted, and they would pay him $ 90K.

So he knew he'd have doubled the money in a short time.

His bank, Crocker Bank, did not want to do a loan. They didn't see all his testing equipment, home made computers etc as enough collateral. Even though there probably was $ 45 K worth of it.

So he turned to me. "What do you do when you need to buy something but don't have the money?" he asked.

"I float a bad check" I replied. What else would a single mom who doesn't want her kid to go hungry till pay day do? Sure, you pay horrid bank charges - back in that day of the early eighties it was like $ 15 per bad check. But at least your kid got fed.

Never in a million years did I think that PG would go out and write two bad checks. One for $ 30 K, another for $ 15K.

He cashed those checks, bought the $ 45 K worth of equipment, created the unit Stanford wanted, sold it to Stanford, and in thirty days made the two bad checks good.
In the meantime, he had gotten one very polite phone call from a manager at Crocker asking him why the checks were bad. And a second one asking why, when he'd never had more than $ 2 K in that bank at any one time, he thought they'd be good.

Total cost to him - Thirty dollars (NSF fund of $ 15 bucks times two!) Far less than had he actually gotten the bank loans.

[ixion]

10. "Banks have reason to get tough."

It's too bad we weren't 'tough' with the banks when we had the chance.

The ONLY reason they're even ABLE to get 'tough' is because WE BAILED THEM OUT!! :grr: