Wall Street Pain Hurts Small Businesses
They had nothing to do with mortgages or stock picks, yet they are suffering.
Oct. 8, 2008— -- Mike Mitternight knows a lot about the pain caused by the credit crunch.
No, he isn't some Wall Street banker. And no, he isn't a stock broker.
Mitternight owns a Louisiana air conditioning installation and service company that would seem completely removed from the turmoil in the stock market. But like countless other small-business owners across the country, Mitternight suffers from an economic crisis that started with mortgages, and now has rippled all the way down to his business.
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The giant commercial air conditioners that Mitternight's company, Factory Service Agency Inc., installs cost up to $150,000. He doesn't have that type of cash just lying around.
Normally, the manufacturer sells him the equipment on credit. He then installs it on a construction site and bills the general contractor. Then, about 45 days later, a check comes for his work and he pays back the manufacturer.
"They all understood that this equipment was going to a construction project and the turnaround was going to be slow," he said.
But now with companies large and small tightening their lines of credit, Mitternight is getting hurt: The air conditioner manufacturers are no longer giving him a month or two to pay his bills.
That leaves him with two options: pressure his clients to pay him faster -- not something that is always possible -- or get a short-term loan, adding thousands of extra dollars to his operating expenses and cutting into his profits.
"The interest could be a couple thousand dollars, so you start eating quickly into that 15 percent markup that you had," Mitternight said.
Mitternight is not alone.
Think about the car dealer who buys new vehicles on credit, hoping to sell them fast. Or that clothing retailer who borrows to buy this season's latest fashions. They and thousands of other small businesses are struggling to obtain short-term loans for the most basic of business operations, including merchandise purchases and payroll.
