by David Ranii, Staff Writer

Bailout is just a beginning

What do a Durham brewery, a doggy day care and a PC startup have in common? Credit needs

The turmoil in the financial markets has trickled down to Sean Wilson, who is trying to raise money for a new brewery in Durham.

Wilson has $150,000 so far but recently was told by two potential investors: "I can't do it right now because I don't have the funds. My portfolio is down."

For months now, the credit crunch that has staggered the nation's financial system has created problems for businesses that need loans or investors. This week, as Congress worked to create the financial rescue plan that passed Friday, lending requirements got even tighter, with devastating results for some companies.

On Tuesday, Spectrum Yarns closed two North Carolina plants, in Marion and Kings Mountain, and laid off 200 workers, saying it couldn't obtain the credit it needed to stay open.

In less extreme cases, lack of access is hurting some companies' ability to pay workers and bills and is forcing others to delay expansion or put off hiring.

"When credit is harder to get and fewer people can qualify for that credit, that means that [fewer] loans are let out, that means there is less spending in the economy, and that means less job creation," said N.C. State University economist Michael Walden.

"You can be someone sitting at home, your house is paid off, your car is paid off, no credit cards, you have no interest in getting credit," Walden said. "You could still be impacted from this because a credit crunch tends to slow down the pace of economic activity."

This week credit became an issue for a Triangle investment firm seeking to buy a health services company.

Jim Verdonik, a lawyer at Ward and Smith in Raleigh who represents the buyer, said his client called Tuesday morning to tell him that the lenders who were going to provide two-thirds of the acquisition price had pulled out.

"No one was shocked," said Verdonik, who declined to identify the parties.

The acquisition might go through anyway because the seller is considering financing the deal itself.

"The moral of the story is, yes, these things have an impact," said Verdonik. "But creative people often -- not always -- can find a way around."

That's what Wilson, who previously headed a group that persuaded state lawmakers to abolish a cap on the alcohol content of beer, is trying to do to make his brewery happen.

His plan is to raise $50,000 each from five more investors, a quarter of a million bucks in all. So this week he started distributing a pamphlet to potential investors that argues: "We simply need five people to have more confidence in us than in the current economy."

After all, said Wilson, beer remains "an affordable pleasure" even in a lousy economy.

Tighter standards

The latest survey of bank loan officers by the Federal Reserve Board, in July, found that over the previous three months, two out of three banks tightened their loan standards for businesses with sales of less than $50 million.

Tighter credit led to a 22 percent decline in the number of Small Business Administration-guaranteed loans obtained by North Carolina businesses for the 12-month period that ended Sept. 30, according to the SBA.

Janet Wahlmeier and Tami Land, two former IBMers and lifelong animal lovers, got hit by the credit crunch earlier this year. They wanted to open a Dogtopia franchise -- which includes doggy day care and a boarding facility -- on Hargrove Road in Raleigh.

Their plan to invest about $50,000 of their own money and borrow the rest was going smoothly last fall when they arranged for a bank loan. But in February, after they had found a site and went to finalize the deal, they were told they'd need to come up with collateral. That wasn't a requirement last year.

"I was pretty upset. and I was kind of angry," said Land, 49. "Why didn't I know about this up-front?"

After thinking about it for a few days, they decided to assume the extra risk and agreed to put up their houses as collateral.

"We just decided it was worth it," said Wahlmeier, 31. "It was something we wanted to do, and we really felt it was a good business, it was something that was needed here in Raleigh, and that we would make it work."

Today is their grand opening.

Recent UNC-Chapel Hill graduate Elliot Abrams, 22, and his three business partners have a similar story.

This summer they incorporated a business called IntelliGreen that plans to sell energy-efficient PCs assembled from off-the-shelf components. They used their own money to create some models and planned on obtaining a $150,000 bank loan guaranteed by the Small Business Administration for marketing.

Their plans fizzled last month when they learned that the credit market had seized up since their initial inquiries and that they would need collateral to get a loan.

"It was beyond our means," Abrams said. "We certainly don't have $150,000 in collateral."

It's unclear whether they'll move forward -- one option is to use their credit cards to finance their operations -- or put IntelliGreen on hold.

"We have a couple of options from here, and they're not very good ones," Abrams said.

Even with Friday's passage of a federal bailout plan, many other companies are likely to face hard choices in coming months.

© The News & Observer 2008