Brooklyn's Progress
December 2008/ January 2009

BY MELISSA CHAPMAN

As businesses continue to battle the waves of the recent economic downturn, the Brooklyn Business Solutions Center (BBSC) is determined to bring awareness to programs and services that can literally mean the difference between success and failure in a fickle economy. 

The center is an initiative of the New York City Department of Small Business Services (SBS) and operates under the Brooklyn Chamber of Commerce’s umbrella, connecting entrepreneurs to free services in the areas of business incentives, business planning, financing, franchise development, procurement opportunities and workforce development.

During the third quarter of 2008, BBSC has seen a 12% increase in the volume of calls and foot traffic – and approximately 40% of those inquiries have been related to starting a business and financing options. Brooklyn's Progress sat down with four of NYC Business Solutions Brooklyn Account Managers who weighed in on the current state of the economy, demonstrated how businesses are being affected and shared suggestions on how to weather the financial storm.
 
Account Manager Jahaira Guerrero, who helps clients find financing for business growth and development, explained that banks are being stricter in their lending practices.

“This time last year, a 650 FICO score would have been sufficient to acquire a loan, but today the banks are requiring a score that’s at least 700,” she said.

Overall, the cycle is proving to be vicious since an inadequate credit score increases the possibility of a credit application being denied, which in turn restricts a business owner’s ability to purchase goods and services necessary to effectively run a business. In such a situation it becomes harder for the business owner to pay bills on time, which ultimately results in a less than adequate credit score.

“I recently had a client who was trying to secure $10,000 to stock up on supplies for the holidays,” said Ms. Guerrero. “However, his client base was reduced and he was unable to pay his electricity bill, which contributed to a bad credit score and as a result, his loan application was denied.”

Money Matters
Coupled with more stringent requirements for credit scores, banks also want to see sources for collateral and the signature of a co-signor on most loan agreements. As recently as three months ago, a house would have sufficed, but with a large percentage of homes going into foreclosure, banks are not willing to take such a risk. So, in the face of bank restrictions, alternative lenders are giving businesses an opportunity to purchase resources to stay afloat. Added to the mix is the fact that banks are also being more careful in what types of businesses they fund – the restaurant and retail sectors are said to be the most risky and people in this category are finding it harder to access the finance that they need.

According to NYC Business Solutions Center Director Kelvin Collins, during the first quarter of 2008, 88% of loans came from banks, compared with 12% from non-traditional lenders such as credit unions and micro-lenders. However, the script has been flipped in the third quarter to show that approximately 80% of lenders used by NYC Business Solutions in Brooklyn are non-traditional lenders.

NYC Business Solutions Account Manager Carlos Russell works closely with clients to review and make suggestions to their business plan and also advises them of the pros and cons of their proposed industry.

“As a result of the changes with bank lending practices, I have begun to advise my clients that they must be prepared to have a minimum of a 740 credit score or some type of collateral,” he said. “They may need both in some cases.”

Mr. Russell also mentioned that he has had to tell some of this clients that based on the strict lending policies, now may not be the best time to open businesses in the restaurant and retail sectors because they are perceived by lenders to be too “high risk.”

Changing with the Times
In the coming months, NYC Business Solutions will be working closely with non-traditional lenders in an effort to provide more options for clients.

“Even if the bank says ‘no,’ our role should be that of a clearing house to have other financing options available to clients,” said Mr. Collins. He added that this will require meeting with existing and potential micro-lenders to further examine the effects that the economic crisis is having on their ability to lend, which may result in new requirements for people that utilize their services.

“By having this information, we will be able to educate our clients on changes that are taking place, and direct them to the institution that is best suited for their unique requirements,” said Mr. Collins

The ripple effect can also be seen in the reluctance of new entrepreneurs to open storefronts. Account Manager Manuel Dominguez works with clients to guide them on ways to improve their credit score, where he sees them being more guarded with their plans.

“More and more new businesses are being cautious and opening online stores first to avoid potential problems related to opening a storefront, and without knowing how the business will fare, “ he said.

He also said that luxury items may be hit especially hard, given the fact that people will be forced to choose between “needs” and “wants.”

Mr. Dominguez added that with the recent waves of layoffs, NYC Business Solutions is seeing an increase in the volume of people that have worked in corporate America for many years, and are now seeking guidance on how to start their own business. As a result, it’s a new era and the general profile of the NYC Business Solutions client is likely to change. Mr. Collins said that the Center must adapt and form strategic alliances with other organizations to meet the needs of this new demographic.

NYC Business Solutions also helps small and mid-sized businesses with their hiring and training needs, but has seen the volume of small businesses looking to hire drop dramatically.

Looking Ahead
NYC Business Solutions predicts that the effects of the market’s decline may still be present well through the fourth quarter of 2009. According to Mr. Collins, this is related to the fact that several elements are happening simultaneously, resulting in decreased sales, layoffs, low consumer confidence and an added strain on social services.

“Unfortunately, some businesses may have to close their doors,” predicted Mr. Dominguez. “But at the same time, this period presents an opportunity for entrepreneurs to look within and make their businesses adaptable to what is going on.”

These sentiments were echoed by Mr. Russell, who explained that decreased sales, insufficient capital and absence of a line of credit will contribute to some businesses closing their doors. It is anticipated that in the next six to nine months, we will see the continued failure of many small businesses that were in the financial bubble.

“Some manufacturers depend on the line of credit to ensure that their employees are paid,” said Mr. Russell. “If this resource is no longer available, then there will ultimately be reduction in work hours, job cuts and at worse complete closure of the business. He pointed out that evidence of this phenomenon can already be seen on many retail strips throughout the borough, where “For Rent” signs are becoming less of a rarity. “These are important gauges of how the economy is not working,” he added.

What to Do Now
The NYC Business Solutions team agreed that the first step to surviving these tough times is to be knowledgeable about city and state requirements for starting and running a business, to prevent costly mistakes.

“This will continue to be a main focus of the Center and will boost outreach activities aimed at creating and maintaining awareness among local entrepreneurs about helpful programs and services that are available for free,” Mr. Collins explained. To that end, every month the Center hosts a Business Basics Seminar, geared towards giving new entrepreneurs the information and tools needed to start a business. Additionally, anyone can visit our NYC Business Solutions center, Monday to Friday between 9 a.m. and 5 p.m. to speak with an Account Manager.

Since money (or the lack thereof) is the source of tribulation right now, why not consider the concept of bartering?

“Bartering can prove to be a good way of weathering the storm for a while, just until the economy is up and running again,” suggested Mr. Collins, who said NYC Business Solutions will help advise businesses on the process.  NYC Business Solutions can help you work through agreements that can be mutually beneficial to both parties involved. In some cases, NYC Business Solutions can help you get access to pro-bono legal services to review agreements for clarity and liability.

Mr. Dominguez added that if you are a start-up, consider delaying the opening up of a storefront and opt for an online store instead.

For more information about the Brooklyn Business Solutions Center or to see an Account Manager call 311 in NYC and ask for NYC Business Solutions. You may also contact Juri Sanchez at 718-246-5219 ext. 2020, or jsanchez@brooklynchamber.com, or visit their walk-in center located at 9 Bond Street, 5th Floor, in Downtown Brooklyn.