With business slow at his trucking company, Brad Ford realized he needed to do something drastic. So after much research, he applied for a small-business loan to start a new company. But what the Simi Valley resident didn’t count on was the credit crunch, brought about by foreclosures and defaults of subprime housing loans in recent months. Banks rejected his application for a $100,000 loan even though he had good credit and could use his $800,000 home as collateral. “Lending is very tight at the moment,” said Ford, 53, who recently qualified for an $80,000 small-business loan administered by the Valley Economic Development Center in Van Nuys. “I truly believe we’ve got a lot of corrections to make before things get back to where they were.” Ford’s experience is an example of how the crisis in the credit markets is seeping into other areas of the economy. When one sector in this case financial falters, many other sectors, such as the service industry, are indirectly affected. Ford has been feeling the pinch for more than a year. His trucking company service, Brad’s Trucking, hauls for the concrete industry. Last summer business was good. He was working five days a week. This summer, he was working two days a week. “I m diversifying to survive,” said Ford, a husband and father of two sons. Opened Sept. 24, his new business is called Assurance Document Shredding, a mobile paper-shredding company. “I am extremely excited about this business,” Ford said. “Identity theft is happening a lot these days. I think this business has tremendous growth potential.” Alfonso Contreras has a dream of owning several body and paint auto shops in the Valley. But first he’s got to get his shop in Van Nuys, ACE Collision Repair & Paint, running steadily. It hasn’t been easy. Chase Bank, Union Bank, Washington Mutual and Bank of America have rejected his loan applications because of the startup debt he’s already incurred, he said. “With a new business, they look at you skeptically,” Contreras, 48, said of lenders. “They question everything in light of the current credit problems.” Contreras was recently approved for a $35,000 SBA Microloan, though the allocation stipulation of the loan has hurt him. Contreras’ loan demarcates $10,000 for buying equipment, $5,000 for parts, $5,000 for machine upgrades and $15,000 for working capital, such as paying salaries. Contreras ran out of the working capital allocation and couldn’t dip into the other areas to pay his employees, he said. His workers walked out on him. “I have customers but I have no employees,” said Contreras, sitting alone recently in his paint and body shop. “It’s hard to run a business nowadays,” he said. “I know I won’t be able to get a business credit card for a long time to come.” Because of the tightening loan market, Contreras said he is pursuing a small-business federal grant. His dream is to open three Valley paint and body shops, for which he will need $750,000, he estimates. In the past, only Valley small businesses affected by the 1994 Northridge earthquake could qualify for a federal government loan. But given the credit crunch this year, the federal government in July opened its lending practices to all applicants. As a result, applications for Microloans, which range from $1,000 to $35,000, have doubled, and those for Revolving Loans up to $700,000 have tripled, said Roberto Barragan, president of the Valley Economic Development Center, which administers government loans. The center decides who gets loans by examining the applicant’s cash flow, credit and collateral. If two out of three are adequate, the loan is generally approved, Barragan said. Margaret O’Carroll, owner of Kerry Records, an Irish production company in Sherman Oaks, recently took out an SBA Microloan for $5,000. O’Carroll, who plans to pay off her loan by December, said some borrowers have unrealistic expectations about the loan they can obtain given the problems in the financial sector. “You’ve got to cut your cloth to suit your measure,” O’Carroll said of burrowers’ loan expectations.
