A (very small) business perspective on the credit crunch

[MANative]

Got a call this afternoon from one of my clients - the owner of a small staffing firm in a large East Coast city. He, his wife, and 2 employees do nothing all day but find jobs for people. Think "Dave" of the fake-president movie a number of years ago. Because his company is so small, they use a "funding company" to provide the weekly payroll for the temps he sends out daily and weekly to meet his clients' needs. The funding company takes a percentage of his proceeds and holds them in escrow for future payments, but also uses their own funds to make up shortfalls on a week-to-week basis as billings are adjusted, processed, etc. They use credit to help this float for not just my client, but dozens of other small firms like his.

He got a call from them at 7:00pm last night saying that if he didn't IMMEDIATELY provide them with $XXXX in funds, that they would not be able to meet this week's payroll, to be processed on Tuesday. If "Dave" doesn't come up with the cash, he can't pay his workers. If his workers don't get paid, they don't show up. If they don't show up, he loses the contract, and the firms he's been working with go elsewhere to find help, or don't have the needed staff to provide their own products and services. Domino effect. So "Dave" will be wiring money to them today so that it is deposited by 8:00am Monday. Money that would otherwise have been part of their normal weekly exchange, and would have been provided to them on Wednesday as part of their normal business transaction. (Oh, and BTW, his clients are all waiting to pay him past their normal due dates as they don't have the cash they usually have on hand because of tighter credit lines.)

Why? Because the funding company's credit facilities have been tightened, and they aren't getting the float that was a normal part of their daily business. And the domino effect reaches all the way to me, because now "Dave's" payment for my services will be at least 5 days late because of the funds he had to move to meet this payroll emergency.

[barbtries]

1. and so it goes.

it sucks no doubt about it.

[MANative]

2. Yes - and if this doesn't change pretty quickly, he'll

be out of business in less than a month.

[Skink]

3. Maybe the temps should join a Union.

These temps ae being asked to provide tax payer money to wall street.

[MANative]

4. The point is that everyone in this cycle loses. I don't get

your point about how them joining a union would have any effect on their money being "provided to wall street." Most of them are not in jobs that tend to be unionized anyway - clerical, accounting, Admin Asst. etc.

[midnight]

5. I think that bailout should reach out to the tax payers, and not the

banks.

[MANative]

6. I'm not talking about the bailout per se

I'm talking about what tight credit means to the very smallest businesses and how it does effect individuals. Providing $ directly to "Dave" or to me or to you would be nice, but it's not enough to solve the bigger problems of how credit has been intertwined with how business functions on a day-to-day basis. I'm not arguing for the bailout one way or another, just demonstrating the very real impact of how credit works on a micro-business level.

[dkofos]

7. And what makes you think this won't happen even if we bail out the SUPER RICH??

[MANative]

9. Did I say it wouldn't? No, I didn't. I'm not advocating

for the bailout. As I've been reading hundreds of posts about this debacle, it's clear that a lot of people don't understand what the tightened credit market means on a practical, day-to-day basis. My OP was to give a very specific example of what happens when the normal credit that is used by a business as part of its constant functioning dries up. Both "Dave's" firm and the funding company he uses are solid, profitable businesses. But very few businesses - especially tiny ones with fewer than 5 employees - have the liquid capital to do everything they need to do on a weekly basis - there's always billing/processing/fund movement delays, so they use credit lines to make up the shortfall during one week, and the next week there might be an excess.

[leftofthedial]

8. when a house of cards collapses, little people get crushed

When a nation of little people loses multiple trillions to create a massive house of cards, pays multiple trillions to keep a doomed system afloat, loses multiple trillions as victims of its crimes and corruption, foots the bills of multiple trillions for its "externalized costs" like pollution, and now are asked to fork over trillions more to keep it afloat yet again...

little people get crushed.

It will be painful now or next year or five years from now, but the "American system" is unsustainable. It will collapse. I say better now before we funnel more into the pockets of the few at the top of the dung heap and before this system destroys any more of our planet and any more of our humanity.

This system ALREADY put me and millions more out of business. I'm sorry for your friend, but we eventually all will pay. Change is hard. Change is unavoidable now.