Newspaper article THE JOURNAL RECORD

Smaller Firms Feel Pinch of Recessionary Pressure

Newspaper article THE JOURNAL RECORD

Smaller Firms Feel Pinch of Recessionary Pressure

Article excerpt


By Barnaby J. Feder When Richard Mecaskey bought Reliable Auto Paint and Supply Co. last April, the former steel company executive figured that his new venture in the Cleveland suburb of Maple Heights was recession-proof. The tougher things get, he was told, the more inclined people are to take their cars to the repair shops, like those served by Reliable, instead of buying new ones.

It has not worked out that way. Not only are consumers holding back on new purchases, but renovations and repairs are being put off, and those that are being done are frequently paid for more slowly.

One result is that the small businesses on the economic frontline are shifting at least some of their woes to companies like Mecaskey's by falling behind on payments for supplies or services.

In response, Reliable is slashing inventories, working overtime to find new customers, hounding its cliedele to pay more promptly, and generally, in Mecaskey's anxious assessment, etching out a ``hand to mouth'' existence.

Economists have more anecdotes than statistics, but they suspect that experiences like Mecaskey's might be afflicting many more small businesses than in the recession of the early 1980s. That recession was notable for its effect on big manufacturers, particularly those competing with large European and Japanese companies helped by a strong dollar.

This time around, collapsing real estate prices and regulatory pressures on the nation's banks make life much more difficult for smaller concerns.

``The small-business men's primary financing options - bank loans based on their business prospects and home mortgages based on the value of their homes - have been shut down,'' said Roger Brinner, chief economist at DRI cGraw Hill Inc. in Lexington, Mass. He said the impact has been clearly measurable in the construction sector, where DRI's computer models attribute a 25 percent drop in housing activity to a lack of financing.

Retailing and other segments of the service economy that have also been small-business bastions appear to be experiencing hard times far more than in the early stages of the previous recession.

``The current recession is having much more effect in areas where small businesses dominate,'' said Thomas A. Gray, chief economist for the Small Business Administration.

Economists caution that it is difficult to verify such assertions or, if they are true, to make useful projections based on them about the economic outlook. Small businesses are by their very nature tough for researchers to accumulate data on, and few academics study them.

It is estimated that more than a third of the nation's workers are employed by businesses with fewer than 100 employees and that 15 million businesses have five or fewer employees.

Small companies supply products and services to every major industry and are often also the primary distribution channel for multinational corporations.

In general, economists say, small companies in those segments of the economy affected by a recession contract more quickly than bigger ones, but small businesses rebound sooner once a recovery begins.

Most experts assume that small businesses are more prone to cash-flow problems in tough times because of the more informal nature of their operations.

``Smaller business people tend to have more personal relationships with their customers,'' said Tim Andrews, president of CPA Affiliates Inc., a network of accountants in Ohio. ``They often have trouble refusing to extend credit because it's hard to take off the personal hat and put on the business one.''

That has been the experience of Thomas Green Jr., who runs a consumer electronics sales and repair shop in the small northern California mountain community of Chester. …

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