Small Business Pain

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Exponential trend... fail.

October 1, 2007
Credit crunch hits small businesses

(FSB Magazine) -- Three years after scraping together $100,000 from family, friends, and credit cards to bootstrap Zensah (zensah.com), a maker of athletic clothing in Hialeah, Fla., Ryan Oliver wanted expansion capital. He looked where thousands of entrepreneurs have found a ready source of funding - in the value his house. Applying for a $25,000 home-equity loan, he figured he was a shoo-in. shoo-in. His credit score was 750 out of a possible 850, and his house was appraised for $650,000, leaving him about $100,000 in untapped equity. His 15-employee business, which counts among its customers such professional sports teams as the Miami Heat and the New York Jets, had a three-year track record and was profitable.

But three banks - Great Florida, Wachovia, and Washington Mutual - shot him down without specifying why. "It's almost like they'd created new formulas," says Oliver, 34. No kidding. With the subprime mortgage market imploding and house prices slipping, lenders are making it far more difficult for entrepreneurs to leverage their homes to feed their businesses.

Source Data:
St. Louis Fed: Custom Chart