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From the Trenches of the Credit Crunch

Michael Taylor bizbox.slate.com

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April 4, 2009

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I recently read the fable of the “Seven Blind Mice” to my three year-old daughter, which reminded me of the difficulty of describing the business environment right now. In the story, a family of mice crawl over an elephant, each one claiming vastly different aspects of the giant animal as perceived truth.

“It’s a rope!” cries the mouse on the tail.

“No, it’s a pillar!” replies the one on the leg. Other mice proclaim they’re on a spear (the tusk), a leaf (the ear), or a snake (the trunk).

The credit crisis of 2007-2009 (and counting!) has metastasized into a malevolent force looming so large in the minds of business people that we are left grasping for accurate descriptions.

In the end, I’m reduced to anecdote. Over the next few weeks I’ll describe a series of ways the credit crunch affects my small business. Some things hurt in small annoying ways, others cause profound trouble, others present as opportunities. I hope BizBox readers will offer up their own anecdotes so we can all understand this elephant better.

In the category of “small but annoying result of the credit crunch”.

For my business, I had obtained a moderate line of credit from a major bank in 2006. Now, I am careful to the point of obsession with my use and acquisition of credit. I had other credit available from the bank, but saw this additional line as both “insurance” and something to build upon over time.

The line cost an annual fee of $350, which I gladly paid, most recently in late October 2008. Not more than a month later, I got a letter from the company that they had decided to discontinue my line. Effective immediately, availability of credit would be reduced by 90%, and it would be eliminated by January 2009.

For my business, which rarely drew upon the line of credit anyway, this registered as more a symptom of the times than as anything genuinely problematic. I ripped up my checks and considered the account closed.

Had I been a regular small-business user of the line, however, and had the line been bigger, that letter could have been devastating. I wonder how many small-business owners had to scramble when they got their November letter.

Two other notes:

It occurred to me in January that I should be refunded for my annual fee. I called the company, requested a pro-rated refund, and it arrived in the mail shortly afterwards, no problem. Don't forget to do the same if you find yourself in a similar situation!

Finally, I recalled J.P. Morgan’s famous banker’s dictum: never lend money to a man who needs it. As a small business owner, it’s wise to remember that your bank probably believes in this theory. Especially in times like this.

How is the crisis affecting your business?

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