Small firms say credit not problem

• Fed cuts interest rate to 1%

By Jim Hopkins
USA Today

Yesterday's rate cut by the Federal Reserve might do little to directly boost small-company borrowing for expansion.

Just 3 percent of small businesses say they have trouble borrowing — and only 2 percent say credit is their top problem, according to survey results reported by the National Federation of Independent Business trade group.

More likely, the cut would spur small-company borrowing only if consumers spend more because of lower rates — increasing small-firm revenue, thus expansion, company executives say.

Moreover, any jump in business borrowing might not occur for several months after shoppers start spending more, says Rebecca Macieira-Kaufmann, who heads Wells Fargo's small-business lending.

Certainly, the quarter-point cut is tempting for some businesses.

Chemir Analytical Services, which tests for pharmaceutical companies, is considering new equipment that costs up to $200,000 per machine.

"This cut makes it even more appealing," says Shri Thanedar, CEO of the St. Louis-area firm.

But many of the United States' 5.8 million small firms say they won't increase their borrowing because of:

Weak revenue.

Ball Volvo & GMC Trucks in Kahoka, Mo., says revenue took a major hit when customers slowed purchases of big trucks for shipping grain and consumer goods. Annual revenue is down 32 percent from three years ago. Ball's customers are unlikely to borrow to buy trucks until their business picks up.

"A cheaper delivery truck is still not a good buy if you still don't have deliveries to make," says William Dunkelberg, chief economist for the NFIB.

In Lincoln, Neb., revenue at A to Z Printing has been higher the past two months. But managers want to see if that trend holds.

"It's incredibly hard to predict," says Sue Quambusch, president. "We will borrow more — just not now."

Excess capacity.

Cashman & Katz Integrated Communications uses just half of a 15,000-square-foot office building it bought six years ago in a suburb of Hartford, Conn. With rates already low, the public relations firm refinanced its building loan a few months ago. The latest cut could lead to another refinancing — but not more borrowing, says executive Ed Katz.

Resistance.

AgraQuest, a Davis, Calif.-based maker of biotech products to fight farm and home pests, wants to expand through an initial public offering — not commercial bank loans.

Despite a recent run-up in biotech stocks, the IPO market remains cool to such companies, says CEO Pamela Marrone.