Rescue Plan in Limbo; Credit Crisis Paralyzes Economy

Sept. 30, 2008— -- At Aquafit Spas in Los Angeles, business owner Mats Elmstrom worries about going under.

Last week, he closed one retail location, and today, he faced another horrible decision.

"I'm in a position of having to pull the plug on this location, too," Elmstrom said.

For the first time in 12 years, the bank refused to lend Elmstrom money. He has used his credit cards and even dipped into his retirement fund to keep his business afloat and his workers employed.

"As a small business, I feel responsible for the people who work for me, too," Elmstrom said. "It's their income, their families, their mortgages, their car loans."

But, as nervous banks and lenders slip into miser mode, tightening credit has put a chokehold on the loans that are a lifeline for so many businesses nationwide.

"It's like driving a car," said Bart Van Ark, chief economist at the Conference Board. "You can have a nice car and a great engine, but you need to have the fuel ... That fuel is the credit, and that credit is going to be urgently needed."

At the Advantage Auto Group, near Chicago, sales are down by 30 percent this year. Banks are partly to blame. They are writing fewer loans for new cars.

"If they [the banks] don't have the resources to be able to lend, then I'm very concerned about my ability to continue to operate my business on a daily basis," said Desmond Roberts, president of Advantage Auto Group.

Even with great credit, banks have denied Dave Hall's request for a loan. He needed $50,000 to buy the airplane parts his company turns into furniture. To survive, his unusual business found an unusual solution.

"We actually went to several of our clients, and they believe in what we did, and they gave us the loan we needed," Hall said about his alternative business model in these rough times.

It's not just small businesses that are struggling. Big companies are also at risk. Analysts are keeping a close eye on those that borrowed heavily and now need loans to survive.

Major companies, like the restaurant chain Sbarro, Dollar Thrifty car rentals, mattress maker Sealy and the Realogy, the parent company of realtors Century 21 and Coldwell Banker, all face a tight economic squeeze.