Pickleball Bar Loans address America’s small business credit crunch


Act fast on that loan, a banker warns a couple planning to open a pickleball bar in Florida. A toy retailer in Maryland is struggling with delays in renewing its line of credit. An Indiana car loan lender nervously watches for signs of a payment problem.

At the beginning of the banking crisis, America’s small businesses are having a tough time getting capital, compounding already tight credit requirements and rising interest rates. This is a bad sign for the US economy, and bankers are warning that things will only get worse.

The evidence is warning economists about the credit crisis as the collapse of a Silicon Valley bank sent shockwaves through the financial system. Even before the banking crisis, home and business lending was shrinking and corporate and individual bankruptcies were falling.

Matthew Misch, head of credit strategy at UBS Group AG, said: “The Fed’s hiking rates, issues around inflation, some challenges in saving workers and wage pressures and a lot of stimulus going away – now add SVB to that.” “The net result seems to be that small and medium-sized businesses are seeing a pretty material increase in stress.”

Read more: Credit conditions were tightening in the US even before the SVB collapse.

In Nocate, Florida, a fast-growing suburb of Jacksonville, Matt Garvey and his wife are excited to open a new bar and grill called Pickleball, a paddle ball similar to tennis. They were in the process of due diligence and financing when their banker gave them a warning following the collapse of SVB earlier this month.

“‘Matthews, it’s not impossible, but if you’re going to do it, do it quickly because we expect a bit of a business credit problem,'” Garvey recalls the banker saying.

Since then, the couple has been moving as fast as they can to get a $2.5 million loan.

It was solid advice. In the days following SVB’s collapse, Greg Schneider was talking to clients at various regional banks who were starting to call “risk-based pricing” — essentially offering higher rates to riskier customers, a concept that was rare a year ago.

“Banks are becoming more selective about who they lend to,” said Schneider, director of commercial credit analysis at Coalition Greenwich, a provider of financial information and analysis. “It was already disappointing in the general environment.”

Consumers are the engine of the economy, and it’s still too early to see the impact of a regional banking crisis. Consumer confidence unexpectedly improved in March, according to the Conference Board’s index, which held data about a week after the SVB failed.

But other surveys point to a crack on the horizon. Sentiment was largely supported by a strong labor market, and confidence in finding a new job was reduced recently by Penta and Civics.

“We suspect the credit crunch will become more pronounced on spending as the savings glut dries up and the labor market begins to soften this year,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a commentary. It has shown that consumers rely more on credit than in the past.

Customers are still spending at Mike Brey’s Maryland-based toy retailer Hobby Works, but the company’s founder is taking a break from financing the business.

Bray has been trying to renew his $250,000 working capital line at the regional bank for more than a month — a longer delay than in years past.

It is not certain whether the delay is related to the lender’s issues – the banker would not say. He has the same credit rating, assets and financials as last year. The only big difference is SVB.

“When I go through these crises, that’s how they always start,” he said. “They say it’s good. It contains. This is just one industry.’ Then things go off the rails.

Jackson Hewitt Tax Services offers advance loans on tax refund loans for people who need quick cash. This year, the company has seen strong demand, as customers “want to get their tax refunds faster in a tough economy,” according to Kim Hudson, senior vice president of marketing.

Cracks in car loans were perhaps most acute. One in 11 Americans who applied for a car loan were turned down in February, the highest in six years, according to a survey by the Federal Reserve Bank of New York.

Dealers are being squeezed from all directions, said Marty McFarland, CEO of Kinetic Advantage, an Indiana company that finances used car dealers. High rates have scared off many consumers and some lenders have recently pulled out of the market.

For now, so-called “floor planing” firms that make inventory loans to merchants are not directly affected by the SVB collapse, McFarland said. But given the pressure in the industry, he is keeping a careful eye on his outstanding loans.

Another sign of financial stress is the increase in bankruptcy filings by small businesses and consumers this year.

At the smallest firms – those with less than $7.5 million in debt – it was up 28% to 355 as of March 28, compared to the same period in 2022, according to data provided by Epic. More than 92,000 people have filed personal bankruptcy so far this year, an 18 percent increase from a year ago.

“The growing number of families and businesses filing for bankruptcy reflects the economic challenges they face today,” said Amy Quackenbos, executive director of the American Bankruptcy Institute.

–Assistance from Reedy Pickert and Steven Church.

More stories like this can be found at bloomberg.com

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