DAYTONA BEACH -- If one goal of the federal government's $700 billion emergency economic aid package passed in October was to restore access to credit, local retailers are not feeling an improvement.
"We are trying to work with a new vendor to get iPods in the store and approval is just taking forever," said Jan Arnett, owner of Z-Best Furniture Electronics & Appliances in Palm Coast with other stores in St. Augustine and Orange Park.
So, for short-term credit, Arnett uses his business credit cards to buy inventory and then pay off the cards as the products sell. He also has abandoned plans to build a new store in Ormond Beach until the economy recovers and traditional commercial credit is cheaper.
Nejma Peter, owner of Nejma's Boutique, was preapproved for a bank loan to build a three-unit retail shop behind her Flagler Avenue store in New Smyrna Beach. Plans had also been approved, but the bank withdrew its approval recently because it did not have the money to lend, said Peter, who also has a shop in DeLand.
"I was upset at first, but now I feel lucky that I was not caught with new shops that no one wants to rent," she said.
A lack of access to credit became critical in late summer as banks and lenders tightened, slowed or stopped lending because they became too overwhelmed with debt from holding distressed mortgages and foreclosed homes they could not sell. That sparked a financial market meltdown, economists said, and threatened the lifeblood of many small businesses, said J. Craig Shearman of the National Retail Federation.
"It is essential for businesses to have access to reliable sources of credit to buy inventory and make payroll," he said. "It is also important that consumers have access to credit cards and to make installment payments."
Money from the $700 billion package was supposed to buy mortgage-tainted securities from banks and lenders so they could be stabilized and would resume lending to revitalize the declining economy.
That did not happen.
Instead, the federal government used $125 billion to buy shares in nine major banks and another $37.56 billion for shares in another 21 smaller banks. The goal was to infuse banks with cash to lend, but there are no requirements that banks use the cash that way, said Lloyd Chapman of the American Small Business League.
"There is nothing in the package for the nation's 27 million small businesses that employ about 56 percent of American workers, especially retail owners," he said. "It was passed in a hurry so no one had time to read it all."
U.S. Treasury Secretary Henry Paulson announced about two weeks ago another bank infusion is planned as a quicker, more-efficient way to free up auto and student loans and back the issuance of credit cards.
"It's a complicated and fluid problem, and steps need to be taken right away. If that helps, we are all for it," said Bill Rys of the National Federation of Independent Businesses.
But a slowdown of spending is a bigger problem than lack of access to credit for most small businesses, which primarily deal with community banks that are not as burdened with risky mortgages and have more money to lend, Rys said.
Local retailers agree.
"We have been in business for 32 years, and this is the first year we have not seen positive growth," said Russ Dotson, who runs his family's Dale's Shoes in Daytona Beach. "We don't deal with the banks but with our vendors, and we have good relationships with them so we are not having a problem with credit."
"We are getting traffic in, but business is down 40 percent from last year," said Gus Gibbs, owner of Gus Gibbs Clothing and Collectibles in DeLand. "We have been here 31 years and have good credit with smaller banks and our vendors."
To combat a lack of shoppers, most retailers are cutting operational expenses and ordering less merchandise for the critical holiday shopping season
It's too early to tell if the government's plans and efforts are succeeding, said Barton Weitz, executive director of the University of Florida's David F. Miller Center for Retailing Education, who calls the future retail picture "grim."
"It has not filtered down to where the banks are making new loans," Weitz said. "To improve their chances to get new credit, retailers have to retool their business plans to reflect the times and show banks concrete ways they plan to cut costs. It's not going to be good for the next six to 12 months."