BUSINESSWEEK ONLINE : NOVEMBER 13, 2000 ISSUE
NEWS: ANALYSIS & COMMENTARY The Little Guys Take a Breather Expansion plans are put on hold as the economy slows Even with the high anxiety afflicting the dot-com crowd lately, it's still tough to get a table for lunch at Chez Zee in Austin, Tex., one of the city's hottest bistros. So is owner Sharon Watkins feeling confident? Hardly. Fearful that a slowing economy could soon thin those long lines, she has postponed plans to shut down for a week to install a new kitchen floor. Instead, she's sticking with the old cement slab. She's also paying overtime instead of adding staff. ''We're being much more conservative because we don't want to be caught overextended,'' says Watkins. ''I've decided to focus on maximizing the dirt I've got.'' As a bevy of uncertainties takes hold across the U.S., lots of small businesses are operating with similar newfound caution. Spiking oil prices, downbeat stock markets, and the possibility that a national economic slowdown--or worse--may be in the offing are all making a growing number of small businesses jittery. And when they get worried, watch out. Accounting for more than 40% of gross domestic product--and with far less financial cushion than their bigger brethren--small businesses often feel an economic chill ahead of others. UNCERTAIN ELECTIONS. So why the worry? Owners of small companies, ranging from software producers to printing shops, are feeling uneasy about everything from tightened bank lending to the uncertain outcome of national elections. Wanda Rohm, owner of the Presto Printing shop in San Antonio, Tex., is typical. She says her business is doing well. Still, she's setting aside cash for the future. Says Rohm, ''I want to be ready because I just can't foresee this [economy] continuing.'' To be sure, many small-business people say their prospects are just fine, even if slightly dimmed. ''Many companies are focusing on their costs and expense factors and still maintaining a strong bottom line,'' says Whitney Johns Martin, chief executive of Capital Across America, a Nashville venture-capital fund specializing in women-owned businesses. That's one reason a lot of small businesses are shelving expansion plans. The National Federation of Independent Business, in a national survey released on Oct. 16, reports that only 62% of companies it tracks made capital outlays in the past six months. That's the lowest share since February, when 71% had been shelling out money for capital expenses. And 34% of those companies said they were planning such capital expenditures in the coming three to six months, down from 40% in February. ''We're facing a slowdown,'' says NFIB Chief Economist William C. Dunkelberg. Moreover, some small-business people are finding it tougher to get capital. Banks have been tightening up on lending requirements as they run into rising delinquencies. Loan officers surveyed by the Federal Reserve have reported a ''firming'' of business lending practices to both small and large businesses, though small outfits depend far more on banks than their bigger cousins. More than half the banks questioned have hiked the premiums charged on riskier loans since last spring. That, and higher interest rates engineered by the Fed, are driving up costs for some small businesses and shutting off the spigot for others. Tight credit, for instance, recently made strong headwinds for Holly Marine Towing Inc., a tugboat operator based in Chicago. When Holly Headland, the company's president, went out in September to borrow $2 million to build four new barges, she was asked for elaborate business plans, including predictions of revenues and income for the coming five years. The scrutiny was far tougher than the last time she sought to borrow, in late 1999. Lenders then asked far fewer questions and offered her a loan at the prime rate; now she's facing a point above prime. Headland, whose business has been growing, says she'll have to take the terms she's been offered. ''I'm going to have to jump through the hoops that they put up,'' she says. As some bankers see it, they are administering tough love to businesses that haven't seen hints of lean times for years. ''This generation has never lived through a downturn, and this could provide a lesson in economic ups and downs,'' says Eddie Safady, chairman of the independent Liberty Bank in Austin, Tex. He's demanding more collateral and giving each loan a tough review, arguing that the approach will actually help his small-business clients to plan better. Says Safady: ''Sometimes a wet blanket in the face is good.'' E-COMMERCE RETRENCHMENT. Such pullbacks by lenders have their own ripple effect. Hydro-Environmental Technologies Inc., an Acton (Mass.) company, has been seeing softness in the business it runs doing environmental assessments for banks planning to make property loans. So President Hayden S. Solomon is holding back on hiring and spending. With interest rates up, he adds, ''I'll repair my old trucks rather than buy new ones.'' Not surprisingly, the retrenchment is most intense among e-commerce outfits, where poor cash flow, scant earnings, and draconian downsizings are most pronounced. ''We are definitely seeing a slowness in the market,'' says Michael Meyer, co-founder of the New York Internet consulting firm Snickelways Interactive Inc. ''People are not spending as quickly on technology.'' Indeed, while small-business investments in technology appear to be up an average of 7% this year, that's more restrained than last year's 9% rise, according to preliminary results of a survey of 650 companies by International Data Corp., a Framingham (Mass.) market-research firm. For most small companies, the byword is caution--though not to the point of paralysis. ''We're back to realistic expectations,'' says Capital Across America's Martin. Big Business, beware: Martin has lots of company. That's why now isn't such a bad time for much larger companies to lower their sights as well. By Joseph Weber, with Ann Therese Palmer, in Chicago, Lori Hawkins in Austin, and Hilary Rosenberg in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Little Guys Take a Breather CHART: Small-Business Worries? INTERACT E-Mail to Business Week Online

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