Herbert Schuler's company manufactures aluminum parts. Located just outside of Youngstown, they make everything from bicycle rims to the components of automobiles and appliances, and they've been doing pretty well. 8 years ago the company took out a 9 million dollar bond and used it to double its size But the bank that issued the bond has suddenly lost its credit rating, sending its weekly variable interest rate through the roof.
SCHULER: Our cost of the credit in the last four weeks went from 2.68 percent, to increase to 5.7 percent, and the next week it was at 10 percent and it just dropped back this week to 6.6 percent. So we're searching for a new bank quickly.
But in the current fiscal climate, finding another bank willing to take on such a sizeable debt has proven difficult. He says they did find another bank - but it was recently sold. Back to square one. It's now been three months, and Schuler says if they don't find something soon they'll be forced to take a traditional loan for the amount of the bond. For starters Schuler's not even sure anyone will give them a loan, but if they do get one, he estimates the interest rate will be 2 and a half to three times what they had been paying.
SCHULER: Well, it's not the end of the world, but you can see the end from this point. (laughs).
It may not spell the END of the business, but it sure puts the brakes on growth, and with it the creation of new jobs. And its not just hurting the manufacturing sector.
Mario Cipriano is in much the same boat. He runs a small technology consulting business in Elyria, and would like to hire a web developer. But he says it might take several months before that new hire begins to bring in revenue - and in the meantime, he's concerned about how that might impact the company's cash flow - so he asked his bank to extend the line of credit they happily gave him 3 years ago
CIPRIANO: We said hey, look, we're growing. Here's our receivables. Dollars are going up. You're our bank - and we'd like to extend this line of credit. And, uhh, they said no.
His company just wasn't a good risk, they told him. Cipriano was surprised. His business is turning a profit. He rarely uses the credit he has now and always pays it back quickly. But what Cipriano has learned is that no matter how great your credit score, how long you've been with your bank, or how responsible you think you've been, banks are just not handing out money the way they used to. Take the automobile industry for example. Recent market research estimates that the number of car loan applications getting approved has dropped nearly 20 percent. And loans that are being approved are requiring more money down, and carrying higher interest rates. Bernie Moreno is the General Manager of Mercedes Benz of North Olmsted.
MORENO: The days of the customer coming in putting no money up front and being able to get financed for seven years, that's gone.
Also gone are the days of easy money for the dealers. The cars that fill the showroom floors are bought on multi-million dollar lines of credit that were once both cheap and plentiful. When sales slumped, Moreno says, it was no big deal.
MORENO: You'd make a phone call to the bank and say "hey we've got a big sale coming up, we need more inventory, increase the credit line." No problem. Today the opposite is happening - they'll say hey your line is 10 we need to reduce that down to 6. But the problem is you just can't get rid of 4 million dollars worth of inventory overnight.
Interest rates have skyrocketed on those credit lines as well, forcing some dealers to stock fewer cars, reduce employees, and in the worst cases --close their doors. Still, there is optimism in the business owners I spoke to, all of which still have their doors wide open The question now is whether it will take a congressional bailout to KEEP them open.
Gretchen Cuda, 90.3