Credit crunch has differing impact on local business

If you are seeing car dealerships disappear, it is because their "floor plan" financing has dried up. Other businesses not so dependent on credit are not as impacted.

The Washington Post discusses the differences.

The financial crisis that has roiled Wall Street and toppled some of its leading institutions has had an uneven impact on Main Street, leading to sharply divided opinions within the business community over whether Congress should approve the Bush administration's $700 billion rescue package.

A wide range of companies that depend on loans and services from financial institutions such as Wachovia are worried about their dwindling access to credit and are putting pressure on lawmakers to act. Among them are cash-strapped small businesses, the ailing auto-dealership industry and franchise owners of chain restaurants such as McDonald's and Sonic, who are suddenly struggling to get loans as their traditional lenders, such as GE Capital and Bank of America, face problems of their own.

But other businesses, such as local chain the Healthy Back Store, report few problems borrowing money because they either had good credit histories or do not have a lot of debt on their books. They say they are far more concerned about whether consumers will keep their wallets shut in the coming holiday season than whether credit will continue to flow freely from Wall Street.

"The way the bailout has been sold to the general population, including small businesses, is that you are going to perish if you don't get this through and your credit is going to dry up overnight," said George Cloutier, who is founder and chairman of American Management Services, which consults for small businesses. "We talk to . . . small business owners on the phone every day. And I think the most important thing that we are hearing is they hate the concept of the bailout. They feel that Wall Street is being given a free ride."

But both sides appear keenly aware that Wall Street's problems, if unsolved, would eventually lead to a severe recession that would hurt businesses across the economy.

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Franchises with existing stores do not have the same problem as franchisees who are trying to build new locations. You need financing to build out a store or build it from scratch. An existing McDonald's or Sonic is probably a cash flow machine that can meet its current obligations.

That $25 billion bailout for the auto industry will probably be directed toward giving deals the financing they need to carry inventory and finance the purchase of autos. Home builders are a different matter since many of them do not have buyers for existing inventory much less a need for financing new inventory. The market shakeout still has a way to go.