BWSmallBiz -- The Economy August 4, 2009, 11:00AM EST

Among Small Business Owners, Signs of Hope

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Barnett has rehired a few laid-off workers and hopes to rehire more. Matthew Gilson

Most small businesses aren't opening their wallets just yet. The Discover Small Business Watch found 49% of those surveyed planned to cut business development spending over the next six months. That may be because this recession has been so much deeper and longer than previous downturns. Many worry the recovery will be different, too. David Broehm, president of Mid-State Bolt & Nut, a 35-person, $13 million maker of fasteners used in cars, furniture, and other products, says he saw sales drop 23% between last fall and early 2009. Since then, revenue at the Columbus (Ohio) company has bounced back about 10%—but Broehm isn't celebrating just yet. "We never fell this far in previous downturns," Broehm says. "And I don't think the economy will recover as fast as it did in past recessions, either." So while Broehm is exploring opening new branches to be closer to big customers, he says he'll wait until a robust recovery is under way.

Sherrie Soria, president of Mesa (Ariz.)-based La Poblana Food Machines, a five-person, $150,000-in-sales purveyor of tortilla-making equipment, is also treading lightly. Soria plans to add a new product line within the next year. If she were more confident in a strong recovery, Soria says, she'd do it sooner: "I'm not going to do anything while there is economic softness out there. I don't want to overextend."

Such wariness won't be the only restraint on small business expansion. Greenwich Associates, a Stamford (Conn.) financial-services research and consulting firm, found in July that almost 70% of small outfits surveyed reported their access to credit is more limited than it was a year ago. Steven Busby, Greenwich's managing director, says tight credit could hamper a recovery. "The runway will be a lot shorter" for small companies trying to make it, Busby says. "Even those businesses that have strong growth potential are at a greater risk of not succeeding." It's no surprise, then, that the Small Business Administration estimates that 595,600 businesses with employees (most of them small companies) failed in 2008, up from 571,300 in 2007.

Even growth companies are feeling the squeeze. Michael Franco, CEO of MicroBlade, a Madison (Wis.) maker of compact, energy-efficient servers, says sales are on track to grow fourfold this year, from $560,000 in 2008. Franco says he could expand even faster if he could hire more sales staff and invest more in marketing. But he says venture capitalists aren't doing many new deals, and banks want hard assets as loan collateral—something MicroBlade lacks. "We just have to accept a slower growth rate," Franco says. If credit remains shut off to more businesses like his, the U.S. economy may have to settle for less growth as well.

Barrett is a senior correspondent for BusinessWeek SmallBiz.

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