Room to Grow: Economic Trouble for Small Businesses (page 3 of 3)

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Photographed by Adam Taylor

Deborah Moore is mentoring her daughter, Mackenzie Milcarek, in small-business innovation as she tries to grow her medical-transcription company.

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Photographed by Tim Tadder

Lana Antonova's Web-design firm has done well. But she needs $25,000 to grow. So far, she hasn't found it.

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Photographed by Kevin J. Miyazki

Scott McIntosh has a licensing deal for his cordless band saw and an eager customer base. All he needs is a loan.

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Photographed by Kevin J. Miyazki

Scott McIntosh has a licensing deal for his cordless band saw and an eager customer base. All he needs is a loan.

On the outskirts of Atlanta, Jean-Pierre Jobin has come up with an unusual arrangement to get credit for his employment service: He's paying a bank to lend him his own money. Jobin's firm, Xpect Service, places IT support people at big companies. It's a growing business because it aids corporations in replacing full-time employees with independent contractors.

But in fall 2008, just as his company was gaining momentum, his bank, Alpha Bank & Trust, went bust. "My banker disappeared on us," he says. So, too, did Jobin's line of credit, which he used to make payroll while waiting for payments from his clients. To replace it, he tried six banks. Finally, he struck a unique deal: He makes a cash deposit, for which he gets 4 percent interest, and the bank charges him 5 percent to lend it back to him. It's all in the hopes of establishing a track record of good credit so the bank will loan to him under normal terms in the future. "After six months or a year, they'll look at my financials again," he says.

Such creative approaches are an indication of how tough the lending environment has become. But they're also a positive sign to some business experts, demonstrating that American ingenuity remains alive and well.

"Entrepreneurs are problem solvers," says small-business expert Nell Merlino. Merlino launched the Make Mine a Million Dollar Business Race in 2009, with the goal of helping women start, save, or grow in business. She sees evidence that entrepreneurs are already adapting: One study found that 56 percent of small-business owners said in February that the credit crunch was having an impact on their company, down from 63 percent in October. "We're doing okay and, in some cases, more than okay," she says. "It's encouraging."

With low overhead and the ability to adapt quickly to changing situations, small businesses are lighter on their feet than larger companies. In the absence of traditional big bank loans, some are turning to community banks, while others are turning to nonprofit lenders. And some, Merlino notes, are "even growing their company on credit cards. Many of the most successful entrepreneurs have grown and thrived in an environment like this. There is opportunity. You just have to look harder."

Certainly, Scott McIntosh isn't giving up. A longtime pipe fitter, McIntosh developed carpal tunnel syndrome from years of using a tubing cutter to slice through pipes. He saw electricians doing similar work with hacksaws to cut through the copper tubing used for routing wires around buildings. "You can only cut as hard as you squeeze," he says. "And I thought, Man, a lot of those guys are going to have carpal tunnel problems."

He figured there had to be a better way, and one night, he had the classic inventor's epiphany. He went into his garage at ten o'clock and four hours later had built a rough prototype for a cordless, handheld band saw. Most portable band saws are heavy and require two hands to operate. But McIntosh's would be battery-powered and light enough for a worker to operate with one hand. He made his model out of wood, with an old blade that he'd wrapped around wheels made out of lids from hand-lotion jars.

Turning that into an actual product took four years. The saw, called the X-Band, has been a hit: It has won awards at trade shows, Popular Mechanics named it one of the best innovations for 2006, and electrician trade magazines have loved it. X-Band is now distributed through Ace and True Value hardware stores, among others, and McIntosh's company, called Stout Tool, has 14 employees and $2 million in annual sales. More important, McIntosh recently signed a licensing deal with a major tool company. But he needs about $1.5 million to stay in business through 2009, until that deal starts to pay off. "We're just now at the point where we're going to be making our tool for the big boys," he says. "But we've run out of capital. Banks won't talk to us -- they only lend you money if you don't need it."

So McIntosh is now talking to unconventional lenders, like venture capitalists. And an economic development fund run by the state government in Michigan, where his company is based, may lend him money if he can prove it will create new jobs in the state. He remains upbeat. "I feel blessed that we have a compelling future," he says. "It's tough out there."

From Reader's Digest - May 2009

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