1992 Ad

Nation's Business, Jan, 1992 by Roger Thompson

While most analysts expected a weak Christmas shopping season, Steven Moore, president of Moore Greens Inc., a wholesale floral distributor in Detroit, got an unexpected surge in sales. His orders for Christmas wreaths, garlands, swags, and the like suddenly sprang to life in late November, he says, and he was sold out by early December. "We ordered 5 to 10 percent less than last year. Now, Christmas sales are going to surpass last year."

American Express forecasts that continued moderation in operating costs and interest rates will give small companies a boost in 1992. But low interest rates won't do small firms any good if owners can't secure needed loans. Many complain of being credit-starved as banks cancel lines of credit and reject all but sure-thing loan applications.

A Federal Reserve survey of banks in October found many continuing to shrink maximum available lines of credit, increase loan rates relative to the bank's costs for borrowed funds, impose tighter loan covenants, and require higher collateral requirements.

"When you talk to the bank, it's such a discouraging story, why bother to go down and get a loan," says Tom Warner, president of the Warner Corp., a 200-employee residential plumbing and heating firm in Washington, D.C. He says he recently paid off a small real-estate loan rather than renew it. The bank wanted tougher terms even though his business was up 20 percent in 1991 and he expects to hire more employees in 1992.

The story is no different in other parts of the country. "The single biggest problem in this area is that we have a lot of great ideas, but when you go to the banks, they aren't loaning the money," says Craig Bean, director of the West Texas Small-Business Development Center, in Lubbock.

Bankers blame overzealous federal regulators, eager to rid bank balance sheets of bad real-estate loans, for what they term the current climate of "credit caution." And they point out that loan demand actually is low, which can be mistakenly interpreted as evidence of banks' refusal to make loans.

Despite the credit crunch, economist Birch remains confident that small, growth-oriented companies will lead the U.S. out of the recession. His own firm maintains a database on approximately 650,000 small, fast-growing companies "that represent the major hope for the next five years."

Benedict Advertising, in Daytona Beach, Fla., would qualify as one of those companies. The firm was recognized as a 1991 honoree of the Blue Chip Enterprise Initiative, a program sponsored by the Connecticut Mutual Life Insurance Co., the U.S. Chamber of Commerce, and Nation's Business magazine. The program identifies and publicizes enterprises that were particularly resourceful in solving problems.

"We did extremely well in '91," says James Benedict, president of Benedict Advertising. "We do well in recessionary times because many of our clients who have been with us for a number of years look at a recession as a time to increase advertising to build market share." He cited as examples ad campaigns for an auto dealer, fast-food franchisees, and a dinner theater.