Four and a half years ago, Martin Haft took a deep breath, borrowed $150,000 from a bank in Carroll County with a Small Business Administration guarantee and opened Walk About Shoes, a specialty shoe store in Westminster. The store was the only one in the county with a wide range of shoes designed to meet medical or special size needs, and business grew briskly.
Today, Mr. Haft finds himself beleaguered, in need of cash to buy inventory in the midst of a major economic decline. If he can't find the money he needs, there is a good chance that his shoe store will disappear, leaving an empty storefront and three people, including Mr. Haft, jobless.
This small economic drama might seem unimportant in the middle of a global recession. But, in fact, small businesses are Maryland's bedrock, providing the economic base for its families and communities. And if many can't get the money they need to survive and thrive, the consequences for the state could be dire. Maryland's 440,000 small businesses employ 53.4 percent of the state's work force and have created virtually all of the state's new jobs in recent years. Indeed, small business plays a similar vital role for the nation, where 6 million small employers provide more than half of all private sector jobs, including four out of five new ones in recent years.
But keeping a new business going can be tough. More than half of small businesses typically fail within five years, and in the current economy, that danger has grown exponentially, with many banks hesitant to lend even to established enterprises. The SBA has long provided a counterweight to that caution by insuring banks against the loss of 75 percent of an SBA-approved loan. But this year, SBA loans are down more than 70 percent and small business owners have been forced to turn to high-interest credit cards or second mortgages to stay afloat.
That's why the Obama administration's decision to buy $15 billion in securities linked to small business loans is a critical component of the government's economic recovery plan. The plan will increase guarantees on SBA-insured loans to 90 percent of their value to encourage lenders to extend credit to small businesses and require banks that receive federal bailout money to report monthly their level of small-business lending.
Maryland Sen. Benjamin L. Cardin, who held a small business town meeting in Howard County last week, points to the value of innovative, small high-tech enterprises in Maryland and elsewhere. To help such companies, Rep. Frank M. Kratovil Jr. proposed a bill last week that would increase the federal start-up business tax deduction from $5,000 to $20,000.
But it will be bankers, not politicians, who will decide whether Mr. Haft's Walk About Shoes and other small businesses survive. "Sometimes it seems like it is easier to borrow a million dollars than a few thousand," said Mr. Haft, who plans to file a loan application with his bank and a couple of others within a few weeks.
Mr. Half, 48, and a single dad, has been selling shoes since he graduated from high school. Now, the affable shoe salesman is busy marketing himself and his store to whomever will listen. "Where do you buy your shoes?" he asked this writer last week.