No End in Sight for Suffering Small Businesses

Published October 28, 2009

| FoxNews.com

This is a rush transcript from "On the Record," October 27, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: There is no question the economy is brutal right now when many small business owners are hurting badly. But is Washington making things worse and hanging a dark cloud of uncertainty over small businesses?

Joining us live is David Cho, financing reporter for the "Washington Post." Nice to see you, David. And how are small businesses doing? Do they have a sense of security coming out of this?

DAVID CHO, "WASHINGTON POST": They have a lot of problems ahead. I don't see the economy improving for small businesses in particular until next year, maybe to the year after that. It will be a rough ride.

VAN SUSTEREN: How is small business defined? Is less than a certain number of employees?

CHO: The FBA defines id as 500 employees or less. It is a big business. Banks have different definitions when they decide to lend. Sometimes they give small micro loans all the way to the big guys.

VAN SUSTEREN: It seems to me that a lot of people have five or six employees. Are those businesses, are they now able to get credit?

CHO: They have two problems. One is banks are not lending and the other is consumers are not spending. That is the twin problem they have.

And banks are hurting themselves, and they worry if they land to the business with four or five employees, will the business go out? It is a bigger credit risk than lending to IBM, which they know will be there for a long time.

VAN SUSTEREN: So they think.

(LAUGHTER)

I thought the point of the TARP funds was to loosen up the credit, to help these banks who had toxic assets and to make it so they were more willing to help the small businesses.

CHO: I think more than any other issue, the administration has really struggled to get credit to small businesses. This has been an issue that has been a thorn in their side for a long time.

One of the problems is a lot of banks that lend to small businesses, they don't want to take money from the government. There's a stigma attached to it. They have to submit to executive comp restrictions. Why bother with all of that?

VAN SUSTEREN: What are they doing with the money? What are they doing with it?

CHO: The big banks are not traditional small lenders. Some of them have just taken it. Goldman Sachs is not a small business lender, and they got a lot of money, and they made a lot of money.

The small community lenders, where your business with five employees will go to, those are the ones that are struggling to survive.

VAN SUSTEREN: Why did the administration think, we will not bail out Goldman Sachs, but instead of looking at the big banks, go to the small regional banks are neighborhood banks, and then turn around and loan to the small businesses?

CHO: They just announced a program last week that basically gave access to the small community banks. Anybody less than $1 billion in assets, smaller banks, and they could get to TARP pond. And they had to submit a plan to say this is how we will lend it to small businesses.

VAN SUSTEREN: We have had this crisis going on since last October. It is obscene that more attention was not put on the smaller banks and small businesses. Small businesses are the engine for getting the economy going.

CHO: There's no doubt. Obama first announced in March that they would do bailouts for small-business lenders. We are now near November when they are just announcing it. The essential problem is there a lot of community lenders that do not want to take the money.

VAN SUSTEREN: What took them so long?

CHO: They couldn't convince...

VAN SUSTEREN: Since President Obama's announcement in February until now they have been unable to convince a lot of small banks they should take on so they could lend?

CHO: For some of them it's the design of the program. So you originally had a program that said we will loosen up the credit for the small business administration loans. That market improved on its own, and so a lot of lenders said, thank you, but no thank you.

For the larger group of small business lenders, they announced this program. Some of them have already gotten some TARP funds in the past. Now they are trying to make a push to get these guys to take government money.

But it is a struggle. We don't know whether these lenders will take this money because they don't want the stigma attached. If there are two banks and one takes federal funds, won't everyone see that lender as week? That's one of the problems here.

VAN SUSTEREN: David, thank you.

If you want to know how small businesses are being hit by the recession -- here's an idea -- ask a small business owner. Joining us live is Mike Brown, president and owner of Olympus Imported Auto Parts in Alexandria, Virginia. How long have you had the business?

MIKE BROWN, WWW.FORPARTS.COM: I've had it for 32 years now, Greta.

VAN SUSTEREN: How many employees do you have.

BROWN: Today, 143.

VAN SUSTEREN: You have been through a number of recessions and you have emerged in and out of them.

BROWN: Yes. Actually for us, typically recessions are pretty much a boom time. We do very well. During recessions, there are not a lot of discretionary incomes. Consequently, people do not buy new cars. They get old cars repaired.

VAN SUSTEREN: That is usually a better time for you.

BROWN: Until this recession, it is usually pretty strong.

VAN SUSTEREN: Usually. So what is different now?

BROWN: There is a tremendous amount of trepidation out there. We see shops that are typically booming during recessions lose customers are few and far between. The individuals do not want to spend the money unless they have to.

VAN SUSTEREN: But their cars are going to fall apart.

BROWN: I am not saying there's no business. And I would characterize the market in general as fair. People have their cars broken and need to get back on the road.

But there's another side of the market that is proactive about repairs, tune-ups and things to keep your car running at peak efficiency.

VAN SUSTEREN: Do you need loans to keep your business vibrant and alive, or not? And if so, can you get the money?

BROWN: We have never had a problem in our history in our 32 history. We have a great banking relationship, and we have a credit line that we use to pay vendors. It has always been our job. We are kind of old school. We pay as we go. We are always looking to pay off that credit line.

VAN SUSTEREN: You are not feeling that credit pinch. How about your colleagues?

BROWN: I know there are a number of people in the industry -- our industry has had a struggle over the last 16 months or so. I know of a lot of similar businesses who have gotten into a cash crunch and the downward spiral. And those people go to try to find financing, and it is fairly dried up.

VAN SUSTEREN: As you want to see what the president is talking about in terms of his economic policies, are you confident we are on the right path? Do you worry about taxes or anything?

BROWN: I have no confidence that we're on the right path. I have never seen economic remedies like the ones that have been proposed. I see no good news on the horizon, not with what is going on with health care and all the other programs coming from this administration.

VAN SUSTEREN: How about taxes? Are you worried you will have bigger taxes?

BROWN: The Bush tax cuts will take us from 35 up to 39.6 percent. That will be a big hit. And just this morning, I heard there was a proposal in one of the health care plan that the top bracket would go up to 45 percent.

And I think if you take my company's state, federal, local, and various other taxes, we are approaching 50 percent taxes already. We need revenues to grow our business, to hire new employees, to buy more vehicles, to add a product lines and inventory. We have to have that profit there.

VAN SUSTEREN: Mike, thank you, and good luck.

BROWN: Thank you, Greta.

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