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The Bailout Passes Small Businesses Over

By Bizbox

So last week came news of the Federal Reserve's ambitious new lending program. $500 billion to buy mortgage-backed securities. $100 billion to buy the debt of Fannie Mae, Freddie Mac, and others in the mortgage underwriting business. Plus, and most relevant to us, $200 billion (courtesy of the Federal Reserve Bank of New York) to be loaned to banks against securities backed by several types of troubled loans--auto loans, student loans, credit-card loans, and loans backed by the Small Business Administration. Many in the small business community were quite pleased; we were a bit more pessimistic. We take no pleasure in pointing out that this new policy, even combined with the Treasury Department's planned injection of $700 billion into the country's leading financial institutions and even into smaller banks, has not prompted increased lending.

In sum, we wish we could agree with Sen. Chuck Schumer--who has also proposed lending "tens of billions" directly to small businesses via the SBA--that, as far as "Main Street" is concerned, the Fed's new gambit "couldn’t come a day sooner." But we fear that it is simply too little, too late.

Such, anyway, is the news brought by this recent piece from the Washington Post that points out that for most small business owners, "the bailout" is little more than something they can read about in the paper every day.

Anyway, back to "too little, too late". It's worth breaking that cliché down--in this instance, it's truer than you'd know.

Too little. Too little because short of direct government compulsion, we really don't see the banks lending any time soon. We've noted over and over and over: that the bank-recipients of government capital remain risk-averse and prone to consolidation rather than increased lending; that the government may tacitly approve of this; and that the community banks, who would be more amenable to lending to small businesses, don't want the government cash. Too little because, as the article makes clear, small retailers are dying if they're not already dead and currently conducting going-out-of-business sales (and the article focuses on D.C.-area businesses--and the D.C. area is doing relatively well!).

Too late. Too late because the holiday season is already upon us, and many small retailers are going to have to pack up shop afterwards if they haven't already as 2009 appears likely to be the worst year for consumer spending since 1980.

The silver lining? Well, if you're a massive discounter, you're probably doing better; then again, such massive discounters tend to be larger companies with larger balance sheets who can absorb the blow right now. Are you a small auto repair shop? The credit crunch is crunching auto loans too, and tightened consumer spending extends to new cars if it extends anywhere, so if you fix old cars for a living, you're probably in decent shape. Are you a vintage clothing store? Great--just make sure you're selling at prices that make the Gap look like Louis Vuitton.

For those of you who do not fall under the above categories, however, it really does appear as though your government is not doing enough to help you.

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