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Laurie Owen: Where Credit’s Due

Worried about the subprime crisis? Don’t be, says Laurie Owen.

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I WAS ALL SET to write an article full of dire warnings of how much more difficult it would be to get a loan to expand your jewelry store because of the subprime storm, but it seems (so far) to be a non-event as far as commercial lending goes.

That’s according to a couple of sources.

One is Frederic Mishkin, a Federal Reserve Board governor. Lending data “and our conversations with bankers suggest that, at least to date, the supply of credit to small businesses remains healthy,” Mishkin said Nov. 7 before the House Small Business Committee.

Credit standards have tightened for all types of business loans, Mishkin told the committee.

But small businesses aren’t feeling the pinch as much as large businesses because few small business loans are securitized, he said. (Securitized loans are commercial real estate loans that are pooled with other similar loans and sold as securities.)

I also spoke to Mike White, president and COO of Waterford Bank, N.A., a community bank in Sylvania, OH. “While my heart goes out to all people facing foreclosure due to the subprime issue, it has not affected our lending practices to our small businesses customers,” White said. “There are plenty of banks out there, ready to extend credit.”

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The SBA 504 loan program is as strong as ever, and often a great option for those of you who’d like to keep more of your cash for working capital versus putting it towards a down payment on a real estate project.

I think it’s all part of the swing back to healthier lending. With the value you continue to build in your companies and the jobs (and tax base) you supply to your communities, small businesses like independent jewelers continue to drive the economy. And that’s real value and real jobs, unlike the shaky values driven up in a speculative real estate market.

The dumb lending money has followed the speculation. The smart lending money is going to continue, as it always has, to invest in small businesses.

What is surfacing in some parts of the county is some reduced demand on the part of some business customers for loan products, which makes sense due to the uncertainty of how the increased number of defaults will play out in consumers’ spending habits.

If you’ve been thinking of expanding and are now wondering whether to go ahead, I wish I could peer into my crystal ball and tell you the best course of action. Know your local economy, your taste for risk and your business’s ability to handle additional debt. Know your numbers, past, present and future. It would be especially prudent to come up with several different scenarios when you do your forecasts.

Don’t get caught up in the same trap that many subprime borrowers did in their rush to become homeowners. Just because you can borrow the money, doesn’t mean you should.

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Know your capacity, build in reserves, and temper your growth with caution.

This story is from the February 2008 edition of INSTORE.

Laurie Owen was INSTORE's financial columnist during the first decade of the publication's history.

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