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Where The Credit Crunch Matters
By Marc Tracy
We've recently downplayed the importance of credit to the dire situation the small-business community finds itself in. We have held that while the ability to obtain financing is not exactly a non-issue for the typical small business, it does pale in comparison to the broader problem of consumer spending and, indeed, the general macroeconomic situation. Since most small businesses keep balance sheets that don't require much if any financing, we've argued, the federal government's efforts to help small businesses should focus more on making it easier for small businesses to hire and hold on to workers and generally to make it through the current rough patch and less on greasing the lending markets.
But a New York Times article today reminds us that there are indeed some small businesses for whom credit--even more than consumer spending and the like--is a lifeblood. Specifically: start-ups whose main product may not be realized yet--their cash flow, after all, is essentially zero, even if one day it could prove massive. The article looks primarily at InfraReDx, a start-up based in the life-sciences Silicon Valley that is the Route 128 corridor south of Boston. Some day, its system, still in the experimental stages, to diagnose heart diseases could prove immensely lucrative (and could also save a ton of money on health-care expenditures by catching problems before they worsen and require further care). But right now, it's not making all that much money, and has therefore had to lay off employees and struggle to keep investors interested.
Their story, and those of other similar medical start-ups, makes for chastening reading. These companies are exactly what we expect and should celebrate in the wake of a recession. Just as the earlier-'90s recession gave birth the tech boom, so this recession should set lots of ambitious entrepreneurs on course for a life-sciences boom, or perhaps an IT boom, or God knows what--but certainly a boom of some kind! It is the InfraReDxs that could make what comes next the Age of the Entrepreneur.
Or, alternatively, the Age of the Entrepreneur--and of American's renewed global dominance in the area of innovation--could get smothered in its crib, a victim of, yes, the credit crunch.
To be sure, difficulty obtaining financing is not InfraReDx's only problem. It is also selling far fewer catheters related to its system than it had expected to as a result of the recession; so putting more money in the hands of hospitals and other health-care providers would also help its cause.
But it does appear that maybe what the company most needs is easier access to credit. Of course, even if in this instance the Obama administration diagnosed the problem correctly, its solution still leaves much to be desired.
Comments (0)April 1, 2009 4:44 PM
