For the past year, New Yorkers have largely felt apart from the economic turmoil enveloping other parts of the country. But businesses in and around the city have reason to fret now that banks are becoming more tightfisted during the deepening crisis in credit markets worldwide.
Small businesses often live at the mercy of their creditors. When times are good, loans are easy to get. When business sours, loans can dry up. With banks handing out fewer loans and raising interest rates, even healthy businesses are becoming worried that they will not get the credit they need to keep their doors open and their bills paid.
Joseph McKenna, the owner of a Quiznos sandwich franchise on East 50th Street near Third Avenue in Manhattan is among the worried. McKenna, who formerly worked in a lending division at Citibank, said he was concerned that his bank, JPMorgan Chase, would raise the interest rate on his US$28,000 credit line if Congress does not approve a bailout package to calm the financial markets.
His nightmare involves the bank freezing his credit line, which he uses to pay for food and beverage deliveries, repairing equipment and fixing his store.
“It could happen any week, or any day — you never know,” said McKenna, who said sales fell 20 percent in August, the worst performance in the three years since he took over the shop. “If you don’t have a line of credit, it could kill you.”
Restaurant owners up and down Third and Lexington avenues, he said, are facing the same problems.
So are other small stores, including Jill Anderson, a women’s clothing boutique in the East Village that relies heavily on credit cards.
Anderson has kept her boutique on East 9th Street going by using 20 credit cards, half in her name and the rest in her business’ name. But during the past two years, she said, as interest rates increased, she had limited herself to three credit cards to buy about 30 percent of her fabric and materials. She is trying to pay off the US$90,000 debt on the 17 other cards.
If interest rates rise further, she will have more trouble paying down her debt. She is also worried that her credit might be frozen.
“For me, if they up the rates on what I’m carrying on my debt load right now, I’d seriously have a chance of going out of business,” she said.
The banking industry’s problems hit retail businesses twice, because their customers also rely on credit to buy big-ticket items like computers, flat-panel televisions and home furnishing.
And then there is the automobile industry, which has already been hurt by rising fuel prices. Up and down Route 17 in New Jersey, dealers say their customers are demanding unreasonable discounts or are unable to buy the cars they want because their credit ratings have fallen.
“We still get A’s and B’s, but we see more D’s and E’s,” said Kevin Gilbertson, the general manager of Maywood Mitsubishi, referring to consumer credit ratings. “Once they figure it out, they come back for a lesser car.”
Gilbertson and managers at other dealerships said sales boomed the last few years partly because customers were taking out home equity loans to help pay for their cars.
That option, he said, has dried up as home prices have slid.
The Standard & Poor’s/Case-Shiller housing index released on Tuesday showed that home prices in the New York metropolitan area fell 7.4 percent in July compared with the same month last year.
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